Over at Comhar, Frank Convery has posted a detailed analysis of this Blog.
Alan Auerbach and Yurij Gorodnichenko have a nice piece over at Vox which reports empirical evidence that the size of the fiscal multiplier in the US is not constant over time, but varies over the business cycle. During good times, it is small — between 0 and 0.5 — while during recessions it is high — between 1 and 1.5. (During depressions it is even higher.) This is of course exactly what we teach our undergrads in standard macro courses (at least, I think of them as standard macro courses, but I guess not everyone agrees nowadays): here is more evidence consistent with those models.
Recessions are not a good time to have to cut government expenditure. They’re an even worse time to cut expenditure if you don’t have to.
The response to Brian Lucey’s article has been quite astonishing (over 300 comments at last count!). Although clearly we don’t all agree, the debate has been enlightening – and entertaining – thanks to Brian and the many excellent participants on this site.
But with all the excitement over default, I think we passed over too quickly the important set of IMF fiscal policy papers that Philip linked to on Wednesday. The papers provide a useful analytical perspective on Ireland’s fiscal challenge, which could frame a more productive discussion on fiscal (and indeed banking) policy.
In yesterday’s Prime Time, Paul Cunningham revealed that there is a break clause in the contract between DCC and Covanta. The write-up is here, and it is about as informative as the broadcast.
Under certain, unspecified conditions, either party is free to walk away tomorrow. Not having seen the contract, I can only guess that a ministerial campaign against government policy is not among those conditions.
Does this change the calculus of the desirability of incineration of Poolbeg? Two arguments have not changed. We’re still in breach of the landfill directive, and the alternatives to incineration are expensive and will take a long time to plan and build. Two other arguments would change their importance. We may need to pay less compensation to Covanta, but the signal “Ireland: Closed for business” would be louder.
It may of course be that both parties have invested so much already that they have no desire to walk away.
Cue the green trolls.
UPDATE: The Dublin City Council says that RTE’s report is incorrect. IWMA says the taxpayer will pay 2 billion euro for the incinerator.
Brian Lucey makes the case for senior bond holders to bear a share of the Anglo losses post-September. You can access his Irish Times opinion piece here.