John provides an alternative fiscal strategy in today’s Irish Times: you can read it here.
His speech to the Humbert Summer School is available here.
Michael O’Sullivan writes in today’s Irish Times about the importance of establishing a new policymaking institutional structure in the wake of the crisis: you can read his article here. In his contribution, he identifies the pro-cyclical nature of fiscal policy as one of the main problems:
“The second related issue is the topsy-turvy nature of Irish economic policymaking. In an economy that is expanding too quickly, the normal approach is to try to slow it down; and when it is contracting, the typical response is to support or even stimulate it. In the early years of this decade, our politicians and policymaking “elite” responded to a very “hot” economy by lashing on more fuel. Now they respond to one of the sharpest contractions ever in a developed economy by squeezing harder on the brakes.”
It is certainly vital that the political system in the post-crisis era finds institutional mechanisms that can guard against procyclicality. It would have been helpful in responding to the current crisis if the fiscal situation had permitted some level of counter-cyclical fiscal intervention. However, the scale of the structural fiscal deficit (determined by the skewed nature of the pre-crisis tax system) means that the general nature of the government’s fiscal adjustment strategy is conditionally optimal – it cannot un-do the past. (Of course, there is still plenty to debate in terms of the precise design and timing of the fiscal adjustment.)
As suggested by Chris Horn in the comments, you can make a submission to the Innovation Taskforce via this website.
Colm McCarthy’s suggestion that an inquiry into what went wrong is gaining some level of support in political circles. While there is plenty of material to digest in terms of what went wrong locally, there is also a lot of interest in understanding what went wrong in the international financial system. Part of the debate concerns the role of economists, especially in terms of forecasting such crises.
A reader recommends this blog post which is critical of mainstream macroeconomic models. Of course, Willem Buiter of the LSE issued a notorious critique a while back.
More recently, a group associated with the British Academy wrote a letter to the Queen to answer her question to Luis Garicano of the LSE as to “if these things are so large, how come everyone missed it?”, while Robert Lucas defended mainstream macroeconomics in the Economist magazine in this article.
An important dimension of this debate is the relative roles of economists in policy organisations, the financial sector and academia in assessing the risks of a crisis and speaking out on these risks. While some of the debate has focused on the role of academic economists, it is maybe more difficult to evaluate from the outside the performance of economists in policy organisations in providing risk assessment, since their advice is often confidential. In this regard, the external evaluations of the performance of the IMF in previous international crises sets an interesting precedent, with the Independent Evaluation Office now playing this role on a regular basis.
In relation to Ireland, the testimony of Kevin Cardiff of the Department of Finance at a recent Oireachtas Committee hearing is quite interesting in explaining the evolution of the thinking of the Department in the run up to the crisis. You can read the transcript here.