Showing posts with label Dublin Consensus. Show all posts
Showing posts with label Dublin Consensus. Show all posts
Friday, 25 February 2011
Problems and Solutions
Sli Eile: Due to Blogger formatting problems, can't post this directly - but click here for a breakdown of the economic issues facing us, counterposing orthodox and unorthodox analyses and responses.
Monday, 23 August 2010
Airbrushing in
Michael Taft: Here is an antidote to recent attempts to airbrush out of the economic debate anyone who doesn’t follow the line. An Irish Times editorial stated, ‘There is near-universal agreement among this State’s independent economists that there is no option but to remain on the path of fiscal correction set out by the Government last December.’ Central Bank Governor Patrick Honohan stated that: ‘ . . we don’t have the flexibility to do a spending stimulus now. There’s no one who is even arguing for it.’
Never mind that a number of economists argued differently (and in the Irish Times) in the TASC open letter, something Sinéad Pentony reminded the leader writers.
There’s Paul Krugman writing (again, in the Irish Times) about ‘austerians’: ‘Anyone who doubts the suffering caused by slashing spending in a weak economy should look at the catastrophic effects of austerity programmes in Greece and Ireland.’
Of course, Professor Krugman can be dismissed on the grounds that he ‘doesn’t understand’ Irish exceptionalism. But the leader of the second largest union in ICTU, Jimmy Kelly of UNITE, wrote at length recently in the Sunday Tribune, arguing for an investment-led strategy to replace the failed fiscal policies pursued by the Government: ‘This is not a traditional stimulus programme, whereby the government temporarily boosts demand until such time as the private sector gets back on its feet. It is an investment-led programme constituting a major drive to modernise our economic base and boost productivity. It will increase job numbers and profitability throughout the private and public sectors.’
Yes, there is a debate going on – even if some don’t want to admit it and are doing everything possible to shield it from the public.
Never mind that a number of economists argued differently (and in the Irish Times) in the TASC open letter, something Sinéad Pentony reminded the leader writers.
There’s Paul Krugman writing (again, in the Irish Times) about ‘austerians’: ‘Anyone who doubts the suffering caused by slashing spending in a weak economy should look at the catastrophic effects of austerity programmes in Greece and Ireland.’
Of course, Professor Krugman can be dismissed on the grounds that he ‘doesn’t understand’ Irish exceptionalism. But the leader of the second largest union in ICTU, Jimmy Kelly of UNITE, wrote at length recently in the Sunday Tribune, arguing for an investment-led strategy to replace the failed fiscal policies pursued by the Government: ‘This is not a traditional stimulus programme, whereby the government temporarily boosts demand until such time as the private sector gets back on its feet. It is an investment-led programme constituting a major drive to modernise our economic base and boost productivity. It will increase job numbers and profitability throughout the private and public sectors.’
Yes, there is a debate going on – even if some don’t want to admit it and are doing everything possible to shield it from the public.
Sunday, 6 September 2009
Past lessons, future policy
Michael Taft: With the news that the increase in unemployment is slowing down (though the range of missing numbers suggest that emigration may be rising at a considerable rate), let’s take a historical look at the last time Ireland emerged out of a recession with a high rate of unemployment. If unemployment tops out at between 14 percent and 16 percent over the next 18 months, how long will it take for unemployment to start falling?
In 1988 (the first year the internationally accepted ILO measurement was used) unemployment stood at 16.3 percent. By 1993 – with the Celtic Tiger growth ready to appear – unemployment remained stubbornly high at 15.7 percent, with the actual number of unemployed marginally higher than in 1988.
During this same period, annual GDP grew in volume terms by an average 4 percent. Employment, however, only grew by an annual average of 1.2 percent. Employment growth lagged considerably behind GDP growth.
The situation could have been much worse if we hadn’t benefitted from that ol’ standby – emigration. Between 1988 and 1993, over 100,000 had emigrated. Given that unemployment rose marginally in nominal terms during that period – from 217,000 to 220,000 – we can see what the effect would have been if people actually stayed in the land of their birth.
So, while GDP growth increased substantially, employment creation lagged behind and the only reason that the unemployment didn’t climb every higher was due to the economic safety valve of emigration. We should expect – and the IMF has warned everyone of this – that when GDP returns to growth sometime mid-to-late next year, unemployment may not start to deline for some time.
But there is one crucial factor we should be aware of during the late 1980s/early 1990s – something that is a bit of an embarrassment to the deflationists calling for massive public expenditure cuts; namely the role of the considerable stimulus expenditure engaged in by the government. During that period:
• Current expenditure increased by an average of 6.9 percent annually
• Capital expenditure increased by an average of 11.4 percent annually
In addition, during that period Ireland received another big stimulus in the form of European social and regional development funds. During the five-year period, this amounted €3.6 billion. This boosted public investment by 30 percent (in addition to the Government’s own public investment), and amounted to nearly 10 percent of our GNP in 1993.
Now compare that situation to what we are looking into over the next five years – severe cutbacks in current public expenditure coupled with a decimation of the capital budget. And all this without the benefit of EU investment funds.
Of course, we have to be careful in making comparisons between then and now. For instance, in the 1980s, the recession was relatively mild (GDP volume growth only contracted in one year). Agriculture played a more important role back then, while our export platform and infrastructural quality was relatively weak.
Still, a key issue which requires much more discussion is the role that increased public expenditure and investment played in eventually lowering unemployment, and its interaction with IDA policy, the devaluation and the emerging European single market. For while unemployment remained sluggishly high during the five year period we examined – starting in 1993, it fell quickly, from 15.7 percent to less than 7 percent in the following five year period.
Would this have happened without the massive stimulus the economy experienced? I would argue that it is doubtful. But what cannot be argued is the fact of that stimulus – something which the Dublin Consensus is in denial about.
In 1988 (the first year the internationally accepted ILO measurement was used) unemployment stood at 16.3 percent. By 1993 – with the Celtic Tiger growth ready to appear – unemployment remained stubbornly high at 15.7 percent, with the actual number of unemployed marginally higher than in 1988.
During this same period, annual GDP grew in volume terms by an average 4 percent. Employment, however, only grew by an annual average of 1.2 percent. Employment growth lagged considerably behind GDP growth.
The situation could have been much worse if we hadn’t benefitted from that ol’ standby – emigration. Between 1988 and 1993, over 100,000 had emigrated. Given that unemployment rose marginally in nominal terms during that period – from 217,000 to 220,000 – we can see what the effect would have been if people actually stayed in the land of their birth.
So, while GDP growth increased substantially, employment creation lagged behind and the only reason that the unemployment didn’t climb every higher was due to the economic safety valve of emigration. We should expect – and the IMF has warned everyone of this – that when GDP returns to growth sometime mid-to-late next year, unemployment may not start to deline for some time.
But there is one crucial factor we should be aware of during the late 1980s/early 1990s – something that is a bit of an embarrassment to the deflationists calling for massive public expenditure cuts; namely the role of the considerable stimulus expenditure engaged in by the government. During that period:
• Current expenditure increased by an average of 6.9 percent annually
• Capital expenditure increased by an average of 11.4 percent annually
In addition, during that period Ireland received another big stimulus in the form of European social and regional development funds. During the five-year period, this amounted €3.6 billion. This boosted public investment by 30 percent (in addition to the Government’s own public investment), and amounted to nearly 10 percent of our GNP in 1993.
Now compare that situation to what we are looking into over the next five years – severe cutbacks in current public expenditure coupled with a decimation of the capital budget. And all this without the benefit of EU investment funds.
Of course, we have to be careful in making comparisons between then and now. For instance, in the 1980s, the recession was relatively mild (GDP volume growth only contracted in one year). Agriculture played a more important role back then, while our export platform and infrastructural quality was relatively weak.
Still, a key issue which requires much more discussion is the role that increased public expenditure and investment played in eventually lowering unemployment, and its interaction with IDA policy, the devaluation and the emerging European single market. For while unemployment remained sluggishly high during the five year period we examined – starting in 1993, it fell quickly, from 15.7 percent to less than 7 percent in the following five year period.
Would this have happened without the massive stimulus the economy experienced? I would argue that it is doubtful. But what cannot be argued is the fact of that stimulus – something which the Dublin Consensus is in denial about.
Tuesday, 25 August 2009
'...the problems facing Ireland are too important to be left to the economists…'
Slí Eile: Speaking at the Michael Collins annual commemoration in Béal na mBláth, County Cork, former President Mary Robinson made a number of very interesting points in regard to where we stand. Two in particular caught my interest:
Ireland needs a vision of where it hopes to go; and
We should drawing on the Swedish model of consensus and tough medicine.
On the vision thing - I completely agree.
On the consensus issue - I am not sure.
Mary Robinson speaking of the Swedish response in the 1990s:
The alternative to a consensus is widespread social strife. That is a recipe for disaster, as Mary Robinson correctly said. It is what gave rise, in the 1930s, to the Swedish model of partnership stretching back over decades. However, the nature of any 'consensus' needs to be considered. If the Dublin Consensus is the only variety, on offer it may be that strife is - regrettably - the only way to proceed. I sincerely hope not.
Incidentally, the two principles proposed by Mary Robinson are worth highlighting:
Example from the 'top'; and
Protecting the weakest
But taking this latter point, along with Mary Robinson's comments on education (the need to defend it), I am sure that she would also apply the same reasoning to health. So, there you have the three major components of current spending: social welfare, health and education. If we wish to continue funding these 'big three' (not to mention the banks) then we need to pay for it by way of taxes - local, income, capital, spending etc. No other way.
Ireland needs a vision of where it hopes to go; and
We should drawing on the Swedish model of consensus and tough medicine.
On the vision thing - I completely agree.
On the consensus issue - I am not sure.
Mary Robinson speaking of the Swedish response in the 1990s:
A key factor was that all sides of society, the opposition included, were brought on board so as to have as broad a consensus as possible around the tough measures that needed to be taken...The likelihood is that, in the absence of a vision of our future which enjoys broad support, every interest group will put its own concerns first and fight to protect what it has. That would be a recipe for disaster.The '1987-88' economic consensus, here, gave us social partnership, and with it the favourable conditions (along with many other factors, of course) that saw jobs double, the population increase and living standards rise very significantly. It worked - up to a point. Poverty also continued in its various forms, and we have seen a growing inequality in access to health services - to take one area. We also built up huge 'economic dependencies' - a bizarre tax profile leaving us vulnerable in many ways, massive dependence on foreign direct investment, a relatively enfeebled indigenous sector and 'growth' - plenty of it with lots of trickle-down. As long as world markets boomed, most of us could boom along and not face the hard and difficult decisions that now arise around sharing a declining national cake, and who should be made redundant first.
The alternative to a consensus is widespread social strife. That is a recipe for disaster, as Mary Robinson correctly said. It is what gave rise, in the 1930s, to the Swedish model of partnership stretching back over decades. However, the nature of any 'consensus' needs to be considered. If the Dublin Consensus is the only variety, on offer it may be that strife is - regrettably - the only way to proceed. I sincerely hope not.
Incidentally, the two principles proposed by Mary Robinson are worth highlighting:
Example from the 'top'; and
Protecting the weakest
But taking this latter point, along with Mary Robinson's comments on education (the need to defend it), I am sure that she would also apply the same reasoning to health. So, there you have the three major components of current spending: social welfare, health and education. If we wish to continue funding these 'big three' (not to mention the banks) then we need to pay for it by way of taxes - local, income, capital, spending etc. No other way.
Tuesday, 11 August 2009
Can we provide a Progressive Consensus?
Slí Eile: What type of society do we have (A)? What type of society do we want? (B) How do we move from A to B? Is such a move possible and, if it is, over what realistic time scale? I suggest that in a history of the Irish (and world) economy around the new Millennium some extraordinary findings will emerge:How little was achieved – humanly – compared to the extraordinary growth rates in (measurable economic) output at the end of the last millennium; How, for many people, ‘economic growth’ did not matter and only gave rise to an over-hang of debt, insecurity and animosity; How much lipservice was paid to environmental sustainability and how little was really done to change patterns of consumption and investment to avert catastrophe.
Not that living standards have not improved dramatically over the last quarter century and with them standards of health, education, self-confidence.
But, we are still a long way from an economy and polity that places human need as the primary goal and all else as instrumental in serving such need.
The alarming narrowing of vision and discourse in recent months as a selection of headline economic indicators instill fright, panic, caution and eventually capitulation. At the height of the 1940 Blitz in London in the underground tube stations where people were talkng refuge some people took to chalking up the daily scores in terms of enemy craft downed. It was a morale-boosting move.
After a period of despondency, terror and ‘did you hear the latest,,, unemployment figures, factory closure, tax returns, Moody’s downgrade ….’, it might be advisable to stop talking about it in company and keep up the spirits and keep going. Somehow V signs are not emerging – yet – on the balcony windows of Kildare Street
This is no ordinary economic war. One of the extraordinary features of political economy 2009 is the emergence of:
A confident, strident and ebullient Dublin Consensus
A partial but very pressing focus, more than ever, on issues to do with income distribution.
I say partial because the focus here is on a new class enemy – the over-paid and under-worked public sector worker, the cosseted social welfare recipient who has enjoyed more than workhouse levels of income (has society ever moved beyond subconscious assumptions about poverty, entitlement and incentives?) and the broad mass of workers (public and private) who are deemed to be over-paid and uncompetitive.
(A sinister and deeply worrying under-current is of course the view taken on the streets about newcomers in the labour force – a topic not encountered in fora like irisheconomy and progressive economy). To deflect attention, 'bankers' get the blame often (but who let them away with it?), or 'the Government' (and who elected them and why?)
This is no normal recession. I agree with Paul Sweeney that getting out of this one will be slow (and clearly very painful). It is now timely and urgent to provide an alternative strategy to the one that has clearly emerged under the Dublin Consensus. What shall we call it? A progressive consensus?
Would it consist of broad principles or detailed policy prescriptions? What budgetary, financial and economic scenarios are needed? Does public spending need to be cut? Taxes raised? Borrowing increased? Which institutional reforms are needed? What mix of policies now – this year – and next to address the crisis and move towards the society we dream of?
Not that living standards have not improved dramatically over the last quarter century and with them standards of health, education, self-confidence.
But, we are still a long way from an economy and polity that places human need as the primary goal and all else as instrumental in serving such need.
The alarming narrowing of vision and discourse in recent months as a selection of headline economic indicators instill fright, panic, caution and eventually capitulation. At the height of the 1940 Blitz in London in the underground tube stations where people were talkng refuge some people took to chalking up the daily scores in terms of enemy craft downed. It was a morale-boosting move.
After a period of despondency, terror and ‘did you hear the latest,,, unemployment figures, factory closure, tax returns, Moody’s downgrade ….’, it might be advisable to stop talking about it in company and keep up the spirits and keep going. Somehow V signs are not emerging – yet – on the balcony windows of Kildare Street
This is no ordinary economic war. One of the extraordinary features of political economy 2009 is the emergence of:
A confident, strident and ebullient Dublin Consensus
A partial but very pressing focus, more than ever, on issues to do with income distribution.
I say partial because the focus here is on a new class enemy – the over-paid and under-worked public sector worker, the cosseted social welfare recipient who has enjoyed more than workhouse levels of income (has society ever moved beyond subconscious assumptions about poverty, entitlement and incentives?) and the broad mass of workers (public and private) who are deemed to be over-paid and uncompetitive.
(A sinister and deeply worrying under-current is of course the view taken on the streets about newcomers in the labour force – a topic not encountered in fora like irisheconomy and progressive economy). To deflect attention, 'bankers' get the blame often (but who let them away with it?), or 'the Government' (and who elected them and why?)
This is no normal recession. I agree with Paul Sweeney that getting out of this one will be slow (and clearly very painful). It is now timely and urgent to provide an alternative strategy to the one that has clearly emerged under the Dublin Consensus. What shall we call it? A progressive consensus?
Would it consist of broad principles or detailed policy prescriptions? What budgetary, financial and economic scenarios are needed? Does public spending need to be cut? Taxes raised? Borrowing increased? Which institutional reforms are needed? What mix of policies now – this year – and next to address the crisis and move towards the society we dream of?
Wednesday, 5 August 2009
Social welfare cuts and NAMA
Peter Connell: Brian Lenihan is quoted in Saturday’s Irish Times as insisting that the banking crisis is ‘entirely separate’ to the financial crisis. This is patently untrue. It represents an attempt to decouple the two issues as the government realises that the simultaneous cuts in public spending that will form a large part of the December budget, and the bailing out of the banks via the NAMA gamble, will be politically toxic.
What links the financial and banking crises (Lenihan omitted to mention the crises in unemployment, growing poverty and plummeting GNP and domestic demand) is the fiscal deficit and the national debt. The government, with the support of the Dublin Consensus, regard these as setting the framework for all policy discussion relating to how the country can emerge from the crisis. Colm McCarty has helpfully provided the media with a shorthand for describing this with his pithy ‘€400 million a week’ catchphrase. David Murphy, RTE’s Business Correspondent, simplified things even further for us by stating that the government is ‘losing €400 million a week’. On the same Morning Ireland programme, he suggested we’re in the same position as a spendthrift teenager blowing his pocket money. The bond markets (our parents!) look on and are not impressed. Add in the wheeze of publishing ‘Ireland’s Debt Clock’, where ‘you can see Ireland’s debt mount before your own eyes’, and the case for slashing public spending seems irrefutable.
One of the saner voices in the national media over the past few weeks has been Dr. Michael Somers, director of the NTMA. The NTMA’s annual report for 2008 makes for very interesting reading and, in some respects, is a useful antidote to the wilder outpourings of the dismal scientists. The report doesn’t underestimate the scale of the rapid growth in the state’s indebtedness. What it does do, though, is set this financial crisis in context. Here are a few snippets from the report that are worth airing:
• the National Debt increased from €37.6 billion at end 2007 to €50.4 billion at end 2008. The National Debt/GNP ratio increased from 23.3 per cent at end 2007 to 32.2 per cent at end 2008.
• the General Government Debt/GDP ratio stood at 43.2 per cent at end 2008, up from 25 per cent at end 2007. This was well below the euro area average of 69.3 per cent. The General Government Debt measure does not allow the €21.4 billion in Exchequer cash balances (more than 10 per cent of GDP) to be offset against the gross position.
• deducting the value of the National Pensions Reserve Fund and other funds managed by the NTMA from the gross debt would give a Debt/GDP ratio of around 33 per cent at end 2008. Subtracting Exchequer cash balances reduces the ratio further to 23 per cent. (None of this is reflected in our debt clock).
• forecast debt ratios for 2009–2013, accepting for the moment the figures set by the Department of Finance in the April budget, would see the Gross Debt/GDP ratio rise to 77% (or 73% allowing for cash balances). Both of these figures would be well below the EU average.
• interest payments on the debt were 3.8 per cent of tax revenue in 2008; the equivalent figure was 26.7 per cent when the NTMA was established in 1990. In 2009 the forecast is for 9.4 per cent of tax revenue, reflecting higher interest costs on a larger debt and lower tax revenues. While the interest burden will increase substantially over the period 2009–13, it will be no greater than the levels experienced in the mid-1990s.
Allowing for the fact that the government’s projections for economic growth and tax revenue are almost certainly optimistic, it’s quite clear that the scale of the debt, while serious, is manageable in the medium term. And this is according to Michael Somers.
On the other hand, the Dublin Consensus and the ‘€400 million a week brigade’ insist that our international credit rating is slipping and point to reports issued over the summer by Standard & Poor’s, Moody’s and others, using this as a rationale for swingeing cuts in public spending. What’s interesting in these reports is the focus on the banking crisis and NAMA. Standard & Poor’s very explicitly links the downgrading of Ireland’s rating from AA+ to AA to the enormous risks associated with NAMA – ‘We consider that NAMA's ability to meet its financial objectives is uncertain because of the risk that cash flows from its assets could fall below its funding costs if their underlying performance worsens compared with NAMA's expectations at the time of purchase. At the same time, we believe the recently announced losses (for the six months to the end of March 2009) at nationalized Anglo Irish Bank Corp. Ltd. (A-/Watch Neg/A-1) highlight both the continued fragility of the Irish banking sector and its reliance on the government for ongoing financial support.’
As the government formulates the December budget during the autumn, and we’re repeatedly told that the country can no longer afford current levels of welfare spending, ministers will desperately seek to disguise the fundamental link between our fiscal and banking crises. And if the budget does implement those cuts then a bright light needs to shine on that grubby transaction that will see money taken from the unemployed to prop up our profligate banks.
What links the financial and banking crises (Lenihan omitted to mention the crises in unemployment, growing poverty and plummeting GNP and domestic demand) is the fiscal deficit and the national debt. The government, with the support of the Dublin Consensus, regard these as setting the framework for all policy discussion relating to how the country can emerge from the crisis. Colm McCarty has helpfully provided the media with a shorthand for describing this with his pithy ‘€400 million a week’ catchphrase. David Murphy, RTE’s Business Correspondent, simplified things even further for us by stating that the government is ‘losing €400 million a week’. On the same Morning Ireland programme, he suggested we’re in the same position as a spendthrift teenager blowing his pocket money. The bond markets (our parents!) look on and are not impressed. Add in the wheeze of publishing ‘Ireland’s Debt Clock’, where ‘you can see Ireland’s debt mount before your own eyes’, and the case for slashing public spending seems irrefutable.
One of the saner voices in the national media over the past few weeks has been Dr. Michael Somers, director of the NTMA. The NTMA’s annual report for 2008 makes for very interesting reading and, in some respects, is a useful antidote to the wilder outpourings of the dismal scientists. The report doesn’t underestimate the scale of the rapid growth in the state’s indebtedness. What it does do, though, is set this financial crisis in context. Here are a few snippets from the report that are worth airing:
• the National Debt increased from €37.6 billion at end 2007 to €50.4 billion at end 2008. The National Debt/GNP ratio increased from 23.3 per cent at end 2007 to 32.2 per cent at end 2008.
• the General Government Debt/GDP ratio stood at 43.2 per cent at end 2008, up from 25 per cent at end 2007. This was well below the euro area average of 69.3 per cent. The General Government Debt measure does not allow the €21.4 billion in Exchequer cash balances (more than 10 per cent of GDP) to be offset against the gross position.
• deducting the value of the National Pensions Reserve Fund and other funds managed by the NTMA from the gross debt would give a Debt/GDP ratio of around 33 per cent at end 2008. Subtracting Exchequer cash balances reduces the ratio further to 23 per cent. (None of this is reflected in our debt clock).
• forecast debt ratios for 2009–2013, accepting for the moment the figures set by the Department of Finance in the April budget, would see the Gross Debt/GDP ratio rise to 77% (or 73% allowing for cash balances). Both of these figures would be well below the EU average.
• interest payments on the debt were 3.8 per cent of tax revenue in 2008; the equivalent figure was 26.7 per cent when the NTMA was established in 1990. In 2009 the forecast is for 9.4 per cent of tax revenue, reflecting higher interest costs on a larger debt and lower tax revenues. While the interest burden will increase substantially over the period 2009–13, it will be no greater than the levels experienced in the mid-1990s.
Allowing for the fact that the government’s projections for economic growth and tax revenue are almost certainly optimistic, it’s quite clear that the scale of the debt, while serious, is manageable in the medium term. And this is according to Michael Somers.
On the other hand, the Dublin Consensus and the ‘€400 million a week brigade’ insist that our international credit rating is slipping and point to reports issued over the summer by Standard & Poor’s, Moody’s and others, using this as a rationale for swingeing cuts in public spending. What’s interesting in these reports is the focus on the banking crisis and NAMA. Standard & Poor’s very explicitly links the downgrading of Ireland’s rating from AA+ to AA to the enormous risks associated with NAMA – ‘We consider that NAMA's ability to meet its financial objectives is uncertain because of the risk that cash flows from its assets could fall below its funding costs if their underlying performance worsens compared with NAMA's expectations at the time of purchase. At the same time, we believe the recently announced losses (for the six months to the end of March 2009) at nationalized Anglo Irish Bank Corp. Ltd. (A-/Watch Neg/A-1) highlight both the continued fragility of the Irish banking sector and its reliance on the government for ongoing financial support.’
As the government formulates the December budget during the autumn, and we’re repeatedly told that the country can no longer afford current levels of welfare spending, ministers will desperately seek to disguise the fundamental link between our fiscal and banking crises. And if the budget does implement those cuts then a bright light needs to shine on that grubby transaction that will see money taken from the unemployed to prop up our profligate banks.
Wednesday, 29 July 2009
Dublin Consensus rattled by Begg article
Slí Eile: Nothing better to create some heat over on irisheconomy.ie or in follow-up comments to an op ed on the Irish Times than an article by ICTU General Secretary, David Begg, arguing against deflation and for a fiscal stimulus. Fulminations followed in quick succession. Interesting to see such passion, conviction and certitude. Remember, a key point of the Dublin Consensus is that There Is No Other Way. Say it often enough, loud enough and confidently enough and the message will stick especially when it is backed by stylised and 'obvious facts'. One commentator on irisheconomy.ie even commented: 'Begg’s quoting of Joe Stiglitz’s comments on the US fiscal stimulus in support of his (Begg’s) critique of Irish fiscal policy is quite ridiculous.' Others were even more strident and impolite.
Michael Taft has been contesting some of these 'obvious facts'.
David Begg was spot on in drawing attention to the very dangerous policy currently pursued. Analysis based on modelling of the Irish economy shows how various policy scenarios including pay cuts, public spending cuts and international recovery would impact on GDP, public sector borrowing and consumption (which I will hasten to add doesn't deter the ESRI from joining the Dublin Consensus). Public sector pay cuts offer extremely limited returns in terms of borrowing reductions.
Two key point that should not be lost in today's article by David Begg are the following:
The first point is vital because I sense that the room for rational debate based on evidence, research and values is very limited because:
In conclusion - the switching to terminology of 'devaluation' over on irisheconomy.ie is very misleading. The 1986 and 1993 currency devaluations adjusted the prices of Irish exports on world markets and imports on Irish markets. It also kept inflation high for a time. Many differences apply between now and then, one of which was the extent to which product and labour markets internationally played a role in helping - eventually - Irish recovery. A so-called real devaluation now based, on wage-cutting, is a dangerous and possibly ruinous gamble. This was the point of Begg's article. The alternative is targetted stimulus based on recovery bonds in the context of a high national savings rate (as consumers are scared to spend) and the beginnings of a strategic investment in skills, jobs, innovation, new traded services. Otherwise, we may face a missed decade like we had in the 1950s, and like Finland initially underwent in 1991-94. Can we not learn from this? There is another way.
Michael Taft has been contesting some of these 'obvious facts'.
David Begg was spot on in drawing attention to the very dangerous policy currently pursued. Analysis based on modelling of the Irish economy shows how various policy scenarios including pay cuts, public spending cuts and international recovery would impact on GDP, public sector borrowing and consumption (which I will hasten to add doesn't deter the ESRI from joining the Dublin Consensus). Public sector pay cuts offer extremely limited returns in terms of borrowing reductions.
Two key point that should not be lost in today's article by David Begg are the following:
1 "A very formidable deflationary coalition has been assembled in support of current policy. This was in evidence at the MacGill Summer School – an irony given Patrick MacGill’s commitment to working people – and it includes many of the State agencies like the ESRI and IDA."
2 ".... there is a growing chasm of scepticism between the elite and the population at large concerning the efficacy of the policy prescription."The first point is vital because I sense that the room for rational debate based on evidence, research and values is very limited because:
- openess to debate and conflicting ideas is not as welcome as it should be in state organisations
- the Irish economics profession is predominantly ... well, right-wing (how else can one put it)
- issues which have a long-term implication (environment, social equality, democractic reform) are crowded out due to an unusually high degree of short-termism - hence, for example, Oireachtas reform is reduced to a discussion about how many T.D.s we should have.
In conclusion - the switching to terminology of 'devaluation' over on irisheconomy.ie is very misleading. The 1986 and 1993 currency devaluations adjusted the prices of Irish exports on world markets and imports on Irish markets. It also kept inflation high for a time. Many differences apply between now and then, one of which was the extent to which product and labour markets internationally played a role in helping - eventually - Irish recovery. A so-called real devaluation now based, on wage-cutting, is a dangerous and possibly ruinous gamble. This was the point of Begg's article. The alternative is targetted stimulus based on recovery bonds in the context of a high national savings rate (as consumers are scared to spend) and the beginnings of a strategic investment in skills, jobs, innovation, new traded services. Otherwise, we may face a missed decade like we had in the 1950s, and like Finland initially underwent in 1991-94. Can we not learn from this? There is another way.
Monday, 27 July 2009
Dublin Consensus backed by Garret
Slí Eile: The Dublin Consensus is solid. Garret the Good has added his voice to the Consensus in his most recent Saturday column. He writes:
In the same edition, Noel Whelan ('Lee's economic solutions look unrealistic') suggests a type of clock:
Something similar has been suggested by Swedish economist Jens Henricksson.
Yet again, we are served a diet of mild hysteria and tilted ideology. Taking a figure of €50m per day (dividing €18bn net borrowing by 365 days) - approximately €25m of that goes for capital spending. The remaining €25m arises largely from cyclical factors associated with the surge in payments of unemployment benefit. These may be viewed as partial stabilisers.
We don't hear a prominent chorus for a 'national unemployment clock' on our thoroughfares. Neither do we hear calls for a 'tax relief clock' showing an estimate of how much Government is losing in taxes on subsidised private health, pensions for super-earners etc.
Political and union forces on the left need to stand up to this.
It is now crucially important that the Government secure sufficient Dáil support in the December budget to deliver on its 2010/2011 commitment to reduce current and capital spending by €3 billion and €1.75 billion respectively, as well as to raise tax revenue by €4.6 billion. Failure to secure this support would gravely damage our financial credibility.He also goes on to support - reluctantly - some reductions in social welfare:
While I am certainly not happy about that proposal, the alternative of up to €2 billion in cuts in the total cost of health and education means that I cannot rationally reject the need to take some action in relation to social welfare.Again, it is part of the old Dublin Consensus line that 'There Is No Alternative'. It's a zero sum game: if you don't agree to slash A you are, effectively, supporting a slashing of B and/or C. The 'markets' have already ruled out any discretion on borrowing and any increases in taxes must be moderated (even though we continue to tax the very wealthy very lightly).
In the same edition, Noel Whelan ('Lee's economic solutions look unrealistic') suggests a type of clock:
...a “national debt clock” should be erected in Dublin city centre as a means of focusing minds on how rapidly our national debt is rising....Like 'Today we are borrowing €70 million' as the digits keep rising.
Something similar has been suggested by Swedish economist Jens Henricksson.
Yet again, we are served a diet of mild hysteria and tilted ideology. Taking a figure of €50m per day (dividing €18bn net borrowing by 365 days) - approximately €25m of that goes for capital spending. The remaining €25m arises largely from cyclical factors associated with the surge in payments of unemployment benefit. These may be viewed as partial stabilisers.
We don't hear a prominent chorus for a 'national unemployment clock' on our thoroughfares. Neither do we hear calls for a 'tax relief clock' showing an estimate of how much Government is losing in taxes on subsidised private health, pensions for super-earners etc.
Political and union forces on the left need to stand up to this.
Wednesday, 1 July 2009
The Dublin Consensus
Sli Eile: We recall the term ‘Washington Consensus’ as it was first coined in the 1980s. Dani Rodrik summed it up as:
Stablize, Privatise, Liberalise.
Part of the recipe was to get your ‘macro balances in order’
In Table 1 of his paper, Rodrik (a critic of same) lists the 10 Washington Consensus principles as:
1. Fiscal discipline
2. Reorientation of public expenditures
3. Tax reform
4. Financial liberalization
5. Unified and competitive exchange rates
6. Trade liberalization
7. Openness to DFI
8. Privatization
9. Deregulation
10. Secure Property Rights
Sounds familiar?
Rodrik outlines a supplementary list in the ‘Augmented Washington Consensus’ (sounds a bit less familiar) as follows:
11. Corporate governance
12. Anti-corruption
13. Flexible labor markets
14. WTO agreements
15. Financial codes and standards
16. “Prudent” capital-account opening
17. Non-intermediate exchange rate regimes
18. Independent central banks/inflation targeting
19. Social safety nets
20. Targeted poverty reduction
I suggest that there is, already, a real ‘Dublin Consensus’ and it goes as follows:
1. Sort out Banking through some form of toxic-containment (folks differ on the details)
2. Frontload big, immediate cuts in nominal wages in the private and especially the public sectors (real ‘plain vanilla’ cuts and not just voluntary contributions from the judiciary, contrived ‘pension’ levies and various stealth charges)
3. Frontload big, immediate cuts in public spending across the board from pay (see above) to social welfare (‘the highest in Europe’ false claim) to ‘wasteful’ capital projects to other items
4. Bring the low and middle-income groups back into the tax net
5. Downsize and reform the public sector
There are a few supplementaries like privitising some state assets – but the core of the Dublin Consensus is captured in the above five points. This is a real, audible and visible consensus from the pages of the Irish Times to learned articles and conference papers to ‘economics for the simple’ on the public airways – and of course many but not all the comments among our separated brethren on irisheconomy.ie.
By the way, I completely disagree with the view that the ‘left’ is in any way winning the economic argument.
The right is winning hands down and we are looking at, potentially, the most deflationary fiscal stance since at least the 1950s and further erosion in our already weak public and social infrastructure – relative to the standard of provision and living standards people have become accustomed to following the Celtic Tiger.
So, when journalist Sarah Carey writing in today’s Irish Times argues that the ICTU should roll over and declare:
Is there no other show in town?
Has the Dublin consensus won?
Should we fold up, go home and concede that the logic of market economics, international finances, a failed domestic banking model and an overwhelming media, economics and political consensus that the only path to recovery is through cuts, more cuts, unemployment and dramatic falls in living standards. Nobody likes to say it quite like this – but that is what most people are assuming – there is no other way – we have to price ourselves back into markets, we have to balance the public books fast and hold on until the tide comes back in on an international recovery.
The debate about jobs subsidies is a deflection.
Whether or not you think such subsidies will work is not the point. My original blog questioned the evidence that they would work and implied that other uses of this expenditure would be more effective. At this point in time it is hard to cast judgment since we have no details or analysis beyond a few media leaks. And there is no certainty on where different interests stand on the various issues. The point is that we need to move away from marginal debates about relatively marginal issues to confronting the real issues:
1. Domestic fiscal stimulus versus profound fiscal deflation for 2009-2012/13
2. Skills, innovation and growing the indigenous economy on world markets versus business as usual depending on FDI and a relatively protected and cosseted non-traded sector (as in price controls, costs and rigid work practices in the case of the public and civil service)
3. Corporate governance change versus cosmetic name change
4. Finding another way of dealing with banking rather than bleeding the whole country with a blanket cheque to recapitalise the failed (with the bail-out of Anglo-Irish ultimately costing more than an entire year’s education budget)
This is where the real debate needs to be reclaimed and the Dublin Consensus challenged. Self-proclaimed progressive and left folk including public sectors unions need to get serious about reform of the public service (which is one area where the Dublin Consensus is partially right) – how can we expect people to buy-into Scandinavian tax levels and redistribution policies unless we reform, root and branch, a slowing-moving, under-funded, under-staffed (yes I meant under-staffed) and inefficient public service operating in a very inefficient manner and subject to all sorts of political constraints and centralisation that is out of line with 21st Century public management.
(Glad that progressive economy trumps Grey’s Anatomy).
Stablize, Privatise, Liberalise.
Part of the recipe was to get your ‘macro balances in order’
In Table 1 of his paper, Rodrik (a critic of same) lists the 10 Washington Consensus principles as:
1. Fiscal discipline
2. Reorientation of public expenditures
3. Tax reform
4. Financial liberalization
5. Unified and competitive exchange rates
6. Trade liberalization
7. Openness to DFI
8. Privatization
9. Deregulation
10. Secure Property Rights
Sounds familiar?
Rodrik outlines a supplementary list in the ‘Augmented Washington Consensus’ (sounds a bit less familiar) as follows:
11. Corporate governance
12. Anti-corruption
13. Flexible labor markets
14. WTO agreements
15. Financial codes and standards
16. “Prudent” capital-account opening
17. Non-intermediate exchange rate regimes
18. Independent central banks/inflation targeting
19. Social safety nets
20. Targeted poverty reduction
I suggest that there is, already, a real ‘Dublin Consensus’ and it goes as follows:
1. Sort out Banking through some form of toxic-containment (folks differ on the details)
2. Frontload big, immediate cuts in nominal wages in the private and especially the public sectors (real ‘plain vanilla’ cuts and not just voluntary contributions from the judiciary, contrived ‘pension’ levies and various stealth charges)
3. Frontload big, immediate cuts in public spending across the board from pay (see above) to social welfare (‘the highest in Europe’ false claim) to ‘wasteful’ capital projects to other items
4. Bring the low and middle-income groups back into the tax net
5. Downsize and reform the public sector
There are a few supplementaries like privitising some state assets – but the core of the Dublin Consensus is captured in the above five points. This is a real, audible and visible consensus from the pages of the Irish Times to learned articles and conference papers to ‘economics for the simple’ on the public airways – and of course many but not all the comments among our separated brethren on irisheconomy.ie.
By the way, I completely disagree with the view that the ‘left’ is in any way winning the economic argument.
The right is winning hands down and we are looking at, potentially, the most deflationary fiscal stance since at least the 1950s and further erosion in our already weak public and social infrastructure – relative to the standard of provision and living standards people have become accustomed to following the Celtic Tiger.
So, when journalist Sarah Carey writing in today’s Irish Times argues that the ICTU should roll over and declare:
'Comrades, I have nothing to offer you but cuts and taxes. The deeper the pain now, the quicker all this will be over’we have to ask:
Is there no other show in town?
Has the Dublin consensus won?
Should we fold up, go home and concede that the logic of market economics, international finances, a failed domestic banking model and an overwhelming media, economics and political consensus that the only path to recovery is through cuts, more cuts, unemployment and dramatic falls in living standards. Nobody likes to say it quite like this – but that is what most people are assuming – there is no other way – we have to price ourselves back into markets, we have to balance the public books fast and hold on until the tide comes back in on an international recovery.
The debate about jobs subsidies is a deflection.
Whether or not you think such subsidies will work is not the point. My original blog questioned the evidence that they would work and implied that other uses of this expenditure would be more effective. At this point in time it is hard to cast judgment since we have no details or analysis beyond a few media leaks. And there is no certainty on where different interests stand on the various issues. The point is that we need to move away from marginal debates about relatively marginal issues to confronting the real issues:
1. Domestic fiscal stimulus versus profound fiscal deflation for 2009-2012/13
2. Skills, innovation and growing the indigenous economy on world markets versus business as usual depending on FDI and a relatively protected and cosseted non-traded sector (as in price controls, costs and rigid work practices in the case of the public and civil service)
3. Corporate governance change versus cosmetic name change
4. Finding another way of dealing with banking rather than bleeding the whole country with a blanket cheque to recapitalise the failed (with the bail-out of Anglo-Irish ultimately costing more than an entire year’s education budget)
This is where the real debate needs to be reclaimed and the Dublin Consensus challenged. Self-proclaimed progressive and left folk including public sectors unions need to get serious about reform of the public service (which is one area where the Dublin Consensus is partially right) – how can we expect people to buy-into Scandinavian tax levels and redistribution policies unless we reform, root and branch, a slowing-moving, under-funded, under-staffed (yes I meant under-staffed) and inefficient public service operating in a very inefficient manner and subject to all sorts of political constraints and centralisation that is out of line with 21st Century public management.
(Glad that progressive economy trumps Grey’s Anatomy).
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