Fairness and Fiscal Strategy

In addition to the budgetary strategy itself, I hope the Government are hard at work on the political strategy for the four-year plan.   Unfortunately, it seems chances are fading of a limited degree of political consensus to support the credibility of the plan.   As I have written before, I think it will be essential that people focus on the overall fairness on the package rather than on individual measures that particularly target them — there will be lots of the latter for all of us.   The ESRI’s SWITCH model is the best tool available for establishing the allocation of burdens for the plan as a whole.   Tim Callan and co-authors show the power of the model at today’s Budget Perspectives conference:  paper here; slides here.

In the UK the new government appear to realise the importance of the overall perception of the fairness of package, and the debate there is more advanced.   Philip Stephens has a nice piece on the politics of fiscal adjustment today’s FT.   (As a read it, it is hard not to think of the damage done by Mr. Sutherland’s fly-in pontificating.)  Using the example of changes to child benefit, Stephens captures well the challenges involved with coming up with a package that is widely viewed as fair:

Fairness, of course, lies in the eye of the beholder. Though it might seem entirely reasonable to most people that those earning more than £44,000 a year or so should lose child benefit, the anomalies thrown up as between two- and single-earner couples appear less so. What will ultimately matter, though, is how the nation comes to see the spending package as a whole.

We may know more after the weekend. The title of Brian Lenihan’s Keynote Address at the DEW 33rd Annual Economic Policy Conference in Kenmare is “Current Issues in Political Economy”.  

Grandfathered permits

Cement companies are bound to make a lot of money from selling surplus CO2 emission permits; see Irish Times.

The atmosphere is the common property of humankind. The European Union appropriated part of that. Instead of using this to the advantage of all Europeans, it decided to give most of it to selected companies and some of it to the Member States. The government of Ireland decided to pass its share on to the same companies.

These decisions were made years ago and cannot be reversed. In fact, emission allocations have been decided until 2020. We’ve been had, again.

Budget Perspectives 2010

The conference will start in 80 mins, and is fully booked. Background material is here.

Ricardo Strikes Back: The Net Effect of the Irish Credit Bubble on Cumulative GDP

A research colleague, Brian O’Kelly, and I have been looking at the impact of poor bank regulation in Ireland during 2003-2008, and the Irish credit bubble that this poor regulation fostered, on Irish GDP and other economic measures.  I am scheduled to talk about this research down in Kenmare this weekend.  I want to make some informal remarks in this blog, based on some simple calculations that are easy to follow.

Here is a simple question: what is the effect on cumulative GDP of the massive distortions in bank lending described in the Honohan report?  The good news is that the net cumulative effect, even after accounting for the €50 billion bank bailout costs, is not too far from zero.  The bad news is that the GDP benefits were all received during the 2003-2007 period when GDP was artificially increased by these extremely poor bank regulation policies, whereas the GDP costs are in the 2008-and-beyond period.   

Continue reading “Ricardo Strikes Back: The Net Effect of the Irish Credit Bubble on Cumulative GDP”

Paddy Morris on the economics of climate change

Over at Think or Swim, Paddy Morris accurately summarizes my work on the economics of climate change pre-Anthoff and pre-Weitzman. The comments are interesting too.