Category: Uncategorized

Work Experience Programme Being Reviewed

David Blanchflower’s ideas on stimulus have received a lot of attention but the core of his paper, namely the imperative to act on the youth labour market side did not receive much debate. It is good though to see that the most downloaded article for the last day on the Irish Times website deals with this part of his talk and hopefully he has succeeded in pressing home the urgency of this problem.

However, those who argue that active intervention in the Irish labour market is counter-productive will be given further credence by the reports on the FAS Work Experience Programme. If the Times is correct, it is very likely that this has flopped and is currently under review.

However, if something is designed in such a way that it has no chance of success then its unclear how much we have learned from its failure. In terms of graduates, FAS simply does not have a recognition among graduates as a place to go to look for work (though even with this caveat it seems to have attracted greater interest from graduates than nongraduates). The process required companies to actively apply to FAS and also made the stipulation that the applicants themselves be unemployed for six months or more before applying. Even with this, it still got nearly 2,000 applicants.

It is important that they get this right, and start by taking it out of FAS and placing it between departments packaged in a way that will attract both the companies and the graduates. The 6 month proviso is also pointless in the current market and this should be relaxed. We cannot say that active interventions do not work until we actually begin to experiment properly with their design and approach them with more vigour than these efforts.

Is Ireland That Different?

Table 2.1 of the OECD’s recent survey of the Irish economy provides a sobering statistic: when the anticipated adjustment in the December budget is included, the total discretionary fiscal adjustment for 2010 implemented this year will add up to 6.4 percent of GDP.    This is an extremely pro-cyclical fiscal policy by any standard.   It is also occurring while other industrialised economies are applying discretionary fiscal stimulus.  Unnerved as we all are by the escalation in debt and the rise in the risk premium, there seems to be broad agreement among academic and financial-sector economists that Ireland is different and has really no choice but to pursue this fiscal course.   Maybe it is my unhealthy suspicion of too much consensus, but I think it is worth asking if the Irish case is really that different.

Continue reading “Is Ireland That Different?”

The benefits of financial globalization have been oversold

International capital flows are supposed to be good for two reasons. First, they divert capital to where it can be invested most productively, enhancing efficiency and growth. Second, they help diversify risk. As regards the first benefit, helping rich country consumers borrow and consume is not what we typically think of as a productive investment. As regards the second benefit — well, the less said the better, really.

In a widely noticed article in the FT, Nouriel Roubini has argued that capital flows are now creating major asset bubbles outside the US, as investors exploit the weakening dollar to borrow at negative interest rates and invest the proceeds overseas. If he is right, then central banks are faced with an impossible dilemna. Outside the US, if they raise interest rates to prick incipient bubbles they jeopardize the recovery, and/or attract even more capital inflows. Inside the US, raising interest rates clearly places the recovery at risk.

I understand where Wolfgang Münchau is coming from when he calls for interest rates to be raised sooner rather than later, but having seen the world economy edge away from the precipice, I am not keen on measures that would bring us closer to it yet again.

If the problem is indeed being caused by ‘the mother of all carry trades’, as Roubini suggests, then throwing a few bucket-fulls of sand into the wheels of international finance seems to me to be a far less risky way of trying to deal with it. International capital flows have been associated with enough crises to be going on with these last few years.

Unemployment Taskforce

It is worth discussing whether the report that the unemployment taskforce does not seem to have gotten off the ground is worrying. On the one hand, it potentially points to a failure to take seriously an issue that may have enormous consequences for the future economic and social well-being of everyone living in the country, particularly younger people. On the other hand, it may be saving the waste of another talking shop that will have no teeth and ultimately will not be able to achieve anything. Can a committee meeting on a regular basis to draft recommendations to government bodies on unemployment achieve something? If so, what should this committee be doing and what should it be empowered to do? If not, then should it simply be wound down now rather than cluttering the policy environment?

FT: NAMA, SPVs and Other Irish Magic

Here‘s an interesting column on NAMA from the FT’s Alphaville.