Author: Richard Tol

A smart economy is a green economy

A green new deal (US), green collar jobs (UK), a smart economy is a green economy (Eire) — slogans are one thing, but now the government is putting our money where their mouth is.

See http://www.edie.ie/news/news_story.asp?id=16444

Summary: “Concerned about the loss of jobs that comes about by exporting waste, the Government has launched a €13 million market development programme to help create new Irish jobs by using recycled materials to produce environmentally-friendly goods.”

It’s only 13 million euro, but it is still 13 million euro wasted.

Recycled material is of lower quality than virgin material so it has to compete on price. This means that recycling is done by people on really low wages — that is, low wages on the Indian wage scale. There are substantial occupational hazards in recycling, so Irish labour costs would be high even if wages were low (on an Irish scale). Recycling in Ireland is just not an option, unless the process can be almost fully automated, in which case few jobs would be created.

Increasing the share of recycled materials in Irish manufacturing cannot be good for employment either. Irish companies already have the option to use such materials. The fact that they do not avail of that option would suggest that there is something not right with the cost or quality of recycled material. A subsidy would change the balance, of course, but subsidised input substitution is not known to lead to output growth (and hence new employment).

There is, of course, a niche market for products that serve the environmentally conscious consumer. Real money can be made in designs for that market, even if little money is made in the actual production. Eco-design is a saturated market, however, and Ireland has no obvious edge over its would-be, well-established competitors.

As I said, it’s only 13 million euro. But it is more money down the drain, and it shows that the government really does not understand much about the creation of jobs or wealth.

Competitiveness

Ireland’s economy may not be doing so well, but Ireland’s economists are. Karl Whelan is the latest entry in the IDEAS/RePEc Global Top 1000 of Economists. With Karl, there are now 8 Ireland-based economists in the Top 1000. That is 0.8%. The population of Ireland is less than 0.1% of the world population, about 0.3% of the population of developing countries, and about 0.4% of the population of high income countries. So, we’re punching above our weight.

Voting with their feet

Not literally, of course, as no one since Fionn mac Cumhail has left the island on foot. Most people fly. While reliable and timely data on migration are hard to get, we do know how many people fly out of country, and how many fly in. This data can be had from the CSO for every month since January 2006. Unfortunately, the data are released with a six-month delay (courtesy of Dublin Airport Authority). They are instructive nonetheless.

Between Jan 2006 and Oct 2008, 30,282 more people arrived at one of the seven airports than left. This trend has reversed however. While 35,453 entered the Republic of Ireland between Jan 06 and Oct 06, and 72,936 between Nov 06 and Oct 07, 78,106 people left between Nov 07 and Oct 08.

That is, eighty thousand people took a one-way flight, before the scale of the recession was clear.

Of those 78,106 people, 58,980 left for Great Britain, 11,018 for Germany, 6,750 for Poland, 6,409 for the Czech Republic, and 4,161 for the Baltic countries. Between Nov 07 and Oct 08, 4,164 people came from Italy, 3,966 from France, and 2,456 from Hungary.

Brian Lucey honoured

Brian made it into the global Top 200 Young* Economists according to IDEAS/RePEc

*Active for less than 10 years

Retirement postponed

The English language has many ugly expressions about the Dutch. Most go back to the 16th and 17th century, when there was intense competition and armed conflict across the North Sea. Dutch Disease is a more recent expression. Having suffered the consequences first-hand, my definition is not the standard textbook one. The crucial elements, to my mind, are a bloated public sector that crowds out the private sector, a nasty external shock that exposes the weaknesses of the economy, and incompetent politicians who make things worse.

For the current predicament of the Irish economy, it may therefore be useful to look at the solutions offered by the Dutch government. Since the early 1980s, there has been a broad political consensus on how to run the economy, and the Dutch economy has fared well as a result. The plan announced last night is not particularly impressive. There are four options to partly restore order to the public finances, but implementing all four would be too much.  Three of the four options are politically tainted for one of the three parties in the governing coalition. In a coalition, all three have to swallow their price or none will. So, only one option will be implemented, and the fiscal balance will be worse than needed.

The one big measure is a clever one, though. The retirement age will be raised from 65 to 67 years. This increases taxes and reduces expenditures. It also means reduced trouble for pension funds, so that contributions (and labour costs) do not have to go up that much. It does of course increase unemployment in the short run, but on balance I would think this is a positive development.