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Author: Stephen Kinsella
Senior Lecturer in Economics at the University of Limerick.
In today’s Sindo Colm puts the context around Willem Buiter’s comments earlier this week that Ireland might need a second bailout and should negotiate one in good time.
From Colm’s piece:
Economists who work for banks have acquired a bit of an image problem, well-deserved in many cases. Buiter is not one of these. Before joining Citicorp last year, Willem Buiter held economics professorships at Yale, Cambridge and the London School of Economics, three of the top economics departments in the world, and served a term on the Bank of England’s monetary policy committee. Along the way, he has built a reputation as a thoroughly competent analyst of the international monetary system, one of the best around. He did not come over to Dublin to shred his reputation with some off-the-wall comment about Ireland. With all due respect to Mr Noonan, Buiter’s comments are not “ludicrous”. They are consistent with the behaviour of interest rates on Irish bonds in the secondary market and with the arithmetic of debt sustainability.
It is difficult for politicians to stick with an unavoidable fiscal adjustment programme in the secure knowledge that it may not be enough to deliver its declared objective — an end to reliance on official lenders. That, unfortunately, is the position in which the Irish Government has been placed. The budget deficit needs to be eliminated, in any plausible scenario, and as quickly as possible. The small print in the Memorandum of Understanding with the EU and the IMF says that the temporary period of emergency lending will be over at the end of 2013 provided only that the budget tightening stays on track. Ireland will, according to the programme, be able to finance itself in the markets by 2014, without any support from official lenders. You either believe this or you do not. Most Irish economists do not, so Willem Buiter is not saying anything you have not heard before. The Government may well privately agree with this assessment, and their efforts to secure burden-sharing on the massive bank rescue costs suggest that they do. But they can hardly be expected to persist with tax increases and cutbacks while openly admitting that the planned deficit reduction will not be enough.
This is where Kevin O’Rourke’s work on the political trilemma is so useful. We have to consider the economic situation (and sets of constraints) at the same time as the political situation, with its attendant sets of constraints.
This is worth a thread on Irisheconomy: do commenters feel that a second bailout may be required? If so for how long? What conditions would you think might be attached to such a bailout? One really useful reading to think about this is the Fiscal Council report, pages 22-24 especially.
The new issue of the Economic Journal carries a fascinating study in the UK on the links between increased debt burdens and depression. Here’s the abstract of the paper:
Individuals exhibiting problems repaying their debt obligations also exhibit much worse psychological health. Selection into problem debt on the basis of poor psychological health accounts for much of this difference. The causality between problem debt and psychological health may be two-way. Using individual-level UK panel data, local house price movements exogenous to individual households are used to establish the causality from problem mortgage debt to psychological health. In addition, the social norm effects of problem debt are investigated using local bankruptcy and repossession rates. Results indicate there are sizeable causal links and social norm effects in the debt-psychological health relationship.
The study’s findings are somewhat in contrast to the recent work by Brendan Walsh on the Irish Economy which showed we were bearing up rather well, but to be fair Brendan didn’t look at this link explicitly. An ungated version of the paper by Dr John Gathergood of the University of Nottingham is here (.pdf), the tables at the back of the paper are worth going through if you’re feeling wonkish.
Congratulations to Philip for the award of an INET grant in the Spring round of grants by the Institute.
One of the most interesting things to come out of this year’s American Economic Association (AEA) meetings is the formal adoption of a code of conduct in relation to potential conflicts of interest in the AEA’s publications. The idea of the code is to provide more information to readers of published work about the funding sources and other commitments authors of reports may have about their subject matter.
The code of conduct, reports Olaf Storbeck, contains the following points:
(1) Every submitted article should state the sources of financial support for the particular research it describes. If none, that fact should be stated.
(2) Each author of a submitted article should identify each interested party from whom he or she has received significant financial support, summing to at least $10,000 in the past three years, in the form of consultant fees, retainers, grants and the like. The disclosure requirement also includes in-kind support, such as providing access to data. If the support in question comes with a non-disclosure obligation, that fact should be stated, along with as much information as the obligation permits. If there are no such sources of funds, that fact should be stated explicitly. An “interested” party is any individual, group, or organization that has a financial, ideological, or political stake related to the article.
(3) Each author should disclose any paid or unpaid positions as officer, director, or board member of relevant non-profit advocacy organizations or profit-making entities. A “relevant” organization is one whose policy positions, goals, or financial interests relate to the article.
(4) The disclosures required above apply to any close relative or partner of any author.
(5) Each author must disclose if another party had the right to review the paper prior to its circulation.
(6) For published articles, information on relevant potential conflicts of interest will be made available to the public.
(7) The AEA urges its members and other economists to apply the above principles in other publications: scholarly journals, op-ed pieces, newspaper and magazine columns, radio and television commentaries, as well as in testimony before federal and state legislative committees and other agencies.
Storkbeck did a follow up interview with one of the progenitors of the idea, Prof. Gerald Epstein, who seemed cautiously optimistic about the wording, while wisely holding judgement on the efficacy of the code until five years or so have elapsed. Interestingly, Epstein argues for the adoption of codes like this in other professional economic associations:.
Would you recommend economic associations abroad to adapt similar guidelines?
Yes. Absolutely. I think this would be a good starting point for other associations. If they do not have publications, then they could still recommend the broad guidelines as indicated in point 7 of the guidelines. In fact it would be good to start with point 7 and then if they have publications, then require that they apply to the organizations’ publications.
In Ireland we have the Irish Economic Association, and its publication, the Economic and Social Review. The annual meeting of the IEA is on 26/27 of April this year in Dublin. Does it make sense to consider these types of resolutions, and if so, what do commenters feel the wording should look like?