Some of you may have always suspected that NAMA will be a body with close links to FF. This appears to be the smoking gun. Indeed, I’d say that this story doesn’t leave mushroom for doubts any more.
There has been a lot of discussion in recent months about the scale of tax reliefs in Ireland and I’ve been planning to write a couple of posts on this topic. In relation to this issue, an opinion that is commonly expressed by leading figures in the Irish media is that the very richest in Ireland pay very little in tax because of these reliefs.
The latest edition of the Economic and Social Review is now available online here. The papers in the edition are as follows.
”Modelling Credit in the Irish Mortgage Market”
Diarmaid Addison-Smyth, Kieran McQuinn and Gerard O’Reilly
”Politics and Fiscal Policy Under Lemass: A Theoretical Appraisal”
Frank Barry
”The Impact of Fiscal Shocks on the Irish Economy”
Agustin Benetrix and Philip R. Lane
”Language and Occupational Status: Linguistic Elitism in the Irish Labour Market”
Vani K. Borooah, Donal A. Dineen and Nicola Lynch
”A Code of Practice for Grocery Goods Undertakings and an Ombudsman: How to Do a Lot of Harm by Trying to Do a Little Good”
Paul K. Gorecki
‘”Income Inequality and Public Policy”
Brian Nolan
Following on from Philip’s recent post on domestic demand, I dug out this paper I wrote in 2000 with Rodney Thom to see what I was saying at the time. Philip suggested I post the link as part of our ‘nostalgia series’, so here it is.
I’d say about 5 people read the paper. We got some things right and some things wrong.
The context was the incipient inflationary pressures already building up in the economy. Some thought inflation was due to one-off supply side shocks. Rodney and I argued that the inflation was due to excess demand, and that the correct response (given that the first best policy — raising interest rates — was no longer available to us) was restrictive fiscal policy. We did recognise the political difficulties of cutting demand through restrictive fiscal policies at a time when the economy was booming. Sadly, that proved all too correct, but I don’t suppose that either of us anticipated the extent of McCreevy’s pro-cyclical folly.
We identified the risk of overshooting, followed by a hard landing, and I seem to recall that a few people at the time were worried about that — cf. the brief snippet of Krugman on this evening’s Prime Time. That wasn’t prescience, just basic macroeconomics.
One thing we got badly wrong was our assumption that if overshooting occured, and a hard landing ensued, social partnership would provide the means for reducing wages and other costs right across the economy in a coordinated manner. (This was based on the late 80s/early 90s experience. It hasn’t happened. Rather than all jumping together, we have jumped or been pushed one group at a time, which is economically ineffective and politically corrosive.) Worse, social partnership would soon become an important driver of pro-cyclical fiscal policy.
My conclusions from having gone down memory lane in this way is I guess a pretty obvious one: we don’t have either the fiscal or the labour market institutions that are required given EMU membership.
Why have an inquiry?
1. The fiscal cost of the banking collapse is likely to be so substantial as to dwarf any similar event that has occurred since the foundation of the State. This is not e-voting machines, or the cost over-run on Luas, not that these were undeserving of investigation.
2. There has been a systemic collapse of the Irish banks – all of them. This is not a cock-up comparable to the DIRT/offshore accounts episode, or Mr. Rusnak, nor is it a failure of a rogue bank, or of small banks.
3. The absence of a public explanation from the authorities or from the banks themselves has fed public perceptions that fiscal austerity is being pursued in order to bail out the banks. There would be fiscal austerity right now even if the banks were tickety-boo, but the absence of a factual public narrative on the banking collapse is damaging the credibility of the fiscal adjustment programme. Most economists regard this programme as necessary and desirable, at least in broad terms. It will take another three or four years, and it needs public acceptance.
4. Bank boards and bankers remain in situ with limited exceptions. The lack of contrition, given what has happened, fuels public anger and could damage the willingness to honour debts.
5. International capital markets have drawn their own conclusions about the extent of the fiscal cost, about the credibility of Irish regulatory authorities and about the probity of Irish business. The absence of a full narrative runs the risk of less favourable assessments than are actually warranted.
Inquire into What?
6. Inquiries are under way, mainly concerning Anglo, into doctoring of accounts, loans to directors, share-support operations and other matters which may lead to criminal prosecutions. But several banks, including the two largest, appear to have lost most or all of their capital through mismanagement, without benefit of any criminal behaviour. An inquiry into boards and management is justified for the simple reason that these are banks, and have had to be rescued at taxpayer expense. The behaviour of auditors, and the efficacy of accounting standards, should also get a mention. A true and fair view would be that the Irish banks have made no profits at all for many years.
7. There have also been major failures of regulation and supervision. How did a building society , for example, end up with a loan book 80% of which is headed for NAMA? Balance-sheet expansion, loan concentration and excessive exposure to funding risk on the liability side were permitted to proceed unchecked year after year.
8. Any inquiry should focus on these (non-criminal) issues – bank management, the performance of the regulatory authorities, auditors. The criminal investigations will take care of themselves.
9. Regulatory and supervisory functions are delegated to the Central Bank and its offshoots. The DoF and former Finance Ministers ought not to be in the firing line, on the principle that if you hire a dog, you don’t have to bark yourself. The media, and the Dail opposition parties, sometimes muddy the waters by seeking to pin the tail to the wrong donkey. So far as I am aware, the CB had adequate powers at all times, and never sought additional powers only to be refused.
How to Organise an Inquiry?
10. As a result of the Abbeylara episode, there may need to be special legislation to facilitate a parliamentary inquiry. There would be no public support for a ten-year extravaganza overseen by m’learned friends. Deputy Pat Rabbitte has apparently prepared a bill to deal with the Abbeylara fall-out, and Judge Yvonne Murphy appears to have done a competent job, quickly and at low cost, on the Dublin Archdiocese.