Ireland has an unusually high percentage of households that are “jobless” — where either none of the occupants are working or where they have very limited access to work.

Earlier this year, the Department of Social Protection reported that there are 253,000 such households in Ireland, out of a total of 1,440,600, some 17.6%. This is admittedly an improvement from 2014, when it was reported that 23% of Irish households were jobless.  It is nevertheless extraordinarily high.

Minister for Social Protection Regina Doherty, in explaining why there was a big difference between the figure of 17.6% and the (then) unemployment rate of 6.4%, stated that “Relevant groups, not normally considered to be unemployed, include economically inactive lone parents, people with disabilities, and the adult dependants of unemployed people, all of whom might benefit from closer attachment to employment and the labour market,”

So while many of these households are jobless due to single-parent circumstances or to disability, or to poor education or lack of skills, there can be no doubt that a significant proportion contain adults that are capable of work but find it unnecessary or undesirable to exert themselves in this direction.

There are a huge number of vacancies in Ireland for people with even modest skills, in areas such as hospitality, agriculture and construction. To fill these vacancies, employers are increasingly turning to migrant workers.  This in itself is not problematic, as these new arrivals tend to be hard-working and generally contribute a lot to society (and to the State’s tax revenues).

But immigrant workers need housing.

Consider a hypothetical situation where an incremental number of persons (say 100) who are currently in employment decide that it doesn’t suit their requirements and will instead draw unemployment/jobseekers benefit. This will lead to the creation of a similar number of job vacancies, which will inevitably be filled to a large extent by inward migrant workers.  These migrant workers need housing, but since the people whose jobs they are now doing will generally still be in the same housing they occupied before becoming “unemployed”, the net demand for housing will increase, I suspect by something like 60 or 70 units.

If say one in ten of the 125,000 currently unemployed, plus one adult (dependant or otherwise) from say 15% of jobless households, were to enter or re-enter the jobs market, this would supply 50,000 workers to fill the currently available vacancies. This would lead to a large fall in inward migration and an equivalent reduction in the need for additional housing – about 2 years’ worth of required home construction.

I am not suggesting that all or even most people who draw the dole are doing so as a matter of choice – I have no doubt that genuine unemployment is still a real problem for many in Ireland.  But our system, through its looseness and relative generosity (compare our Jobseekers Benefit rates with the UK for instance), and the high rates of marginal tax on even modest earned income, has an inbuilt disincentive for all but the most assiduous persons to fall into unemployed status.

It’s not as simple as saying that homelessness is caused by immigration.  But immigration is a necessary (and welcome) result of the fact that too many people who are already in housing do not (for whatever reason) take up the available jobs that need to be filled.  By focusing on immigration in the context of homelessness, we would be looking to a symptom rather than the disease itself.

The profile of Irish investment preferences discovered by Barclays Bank in preparing their latest issue of Wealth Insights is depressing.  According to press reports, their research shows that Irish high-net-worth individuals (HNWIs) hold an amazing 55 per cent of their wealth in property, despite the collapse in property values in the past 5 years.  This is a higher proportion than any other nationality.  Irish HNWIs also hold 18 per cent in cash, 16 per cent in financial investments and 7 per cent in assets such as collectables.  And just how much private wealth do you think is invested in enterprise or business, the sector which is arguably the most vital to our economic future?  A pitiful 2 per cent.

A long legacy of under-taxation of property assets and transactions, only partly being addressed now, is an important factor in this mis-allocation of investment funds.  We all continue to pay a price for past policy failings in this area.

Historic factors are often also quoted as an explanation for our obsession with property. There is a pithy phrase in the famous Vanity Fair article by Michael Lewis (“When Irish Eyes Are Crying”) about how we crashed our economy:

Irish people will tell you that, because of their sad history of dispossession, owning a home is not just a way to avoid paying rent but a mark of freedom. In their rush to freedom, the Irish built their own prisons.

That sums it up nicely.

It’s simple really.  As John Maudlin says: “… the money to solve the crisis does not exist. The only way to find it is for the ECB to print money and print in size, enough to lower the value of the euro and make exports cheaper (which gives southern Europe a chance to grow out of its problems).”

That’s step one.  But there would remain the problem of the relative uncompetitiveness of the peripheral countries, especially Greece.  So here is my cunning plan, worthy of Baldrick at his best: all German workers would be required to be given a 30% wage increase by their employers.  (Same would happen in quasi-German satellites such as Finland, Austria, Netherlands.)

This would, at a stroke, level the competitiveness playing field within the Eurozone while, at the same time, putting lots of new Euros into the hands of Germans to spend on Greek holidays, Spanish wine and Italian shoes.

Ahern remains delusional

19 October, 2011

Apparently the press is to blame for the collapse of the Irish economy.  At least that appears to be the latest line being spun by Bertie Ahern.  Unbelievable. You couldn’t make it up.  See details of an interview with our dodgy, delusional, and disgraced former Taoiseach here.

A flavour of his ramblings:-

Former Taoiseach Bertie Ahern has called for an investigation into the media for what he said were failures to follow the economy because journalists were more concerned with following his dealings with the Mahon tribunal.

Mr Ahern said that from the time he began evidence to the tribunal, the media “just stopped following the economy”.

In an interview on Dublin City University’s radio station DCU FM, he said: “There should be an investigation into it. They should have been following the economy from August 2007, but they weren’t, they were following me. I think a lot of these guys really should have looked at themselves.

“The government were following the economy but the media weren’t. It was a very poor job by the media really. They were shown to be incompetent and that was the trouble – everything was on me.”

When will he ever recognise that the ultimate responsibility for the well-being of citizens came with the job of being Taoiseach, and it wasn’t just about lining his own pocket and being nice to his developer pals?  Trying to deflect responsibility to the media for our economic problems is beyond a joke.

Please, Bertie, get off the stage.

The Sunday Business Post had an article yesterday describing how “a new type of insurance product could help consumers to cut the premium they pay on other insurance policies”.   As I read the article, I became increasingly concerned about the consequences of the product described.

Irish insurance firm Blue Insurances …. will launch an excess insurance policy in the coming weeks. …. An excess is the part of any insurance claim that you have to pay yourself. For example, on a policy with an excess of €100, the customer will pay the first €100 of the cost of any claim, with their insurer covering the balance ….. Blue Insurance’s new product will allow customers to insure the excess applied on a range of products, such as home insurance, motor insurance, pet insurance and travel insurance policies. Customers can insure to a total of €750 in excesses …. Typically with insurance policies, having a higher excess can help to reduce your overall premium.

Why is this a bad idea?  Because the normal policy excess exists for very good reasons:-

  • by requiring that the insured person has a material financial interest in protecting against loss, the size and incidence of claims is lowered, and everybody gains through lower insurance premiums
  • it eliminates small claims which are disproportionately expensive to administer – again, everybody benefits from lower premiums as a result

So the effect of this new product being made available will be a much higher level of claims generally.  And it’s clear that the people who will be attracted to this new offering will be those who (for a variety of reasons) are most likely to be making claims.  The result will be higher premiums and a net loss for everybody (except those who have the excess cover and actually make a claim).  This is a classic “Tragedy of the Commons” in the making.

I am at a loss to understand the business model being adopted by Blue Insurances here.  I can’t see how they will avoid massive losses on this product, as the people who are most incentivised to take up this policy are the worst risks from an insurance perspective, not to mention prospective scammers and fraudsters.  I predict that the product will be withdrawn or modified before long, but probably not before it has caused unnecessary cost and inconvenience for nearly everybody.

I hope the major insurance companies will react by declining cover to anybody who insures all of any policy excess; it’s essential that insured persons have some financial interest in avoiding claims.

It’s an established part of the Irish economic and political cycle.  Just when we are starting to see Christmas goods appear in the shops (in October, damn it), then we also start to hear the plaintive and deceptive tones of the special-interest groups trying to bend the ear of the Minister for Finance, and promote their own causes at the expense of everybody else’s.

There is a pattern to these transparently self-serving submissions.  Reduce (or more likely these days, don’t increase) the tax on this activity or that product, they say, and the effect will be a wonderful growth in jobs and prosperity, which will more than offset the tax foregone.  Alternatively, NGOs and quangos fire off a fusillade of demands that this allowance or that subvention should not only not be reduced but that, because their constituents are uniquely vulnerable, it should be increased (with wholly beneficial effects on the economy, of course).

And newspapers and other media blandly regurgitate the related press release without adding some proper analysis.

I am reminded of the famous candlestick makers’ petition revealed to us by Frédéric Bastiat (1801-1850) wherein they asked the French government “to pass a law requiring the closing of all windows, dormers, skylights, inside and outside shutters, curtains, casements, bull’s-eyes, deadlights, and blinds — in short, all openings, holes, chinks, and fissures through which the light of the sun is wont to enter houses, to the detriment of the fair industries with which, we are proud to say, we have endowed the country, a country that cannot, without betraying ingratitude, abandon us today to so unequal a combat”.

And how did our resourceful candlestick makers justify their demands? By pointing to the wonderful effects such a law would have on economic activity:

First, if you shut off as much as possible all access to natural light, and thereby create a need for artificial light, what industry in France will not ultimately be encouraged?

If France consumes more tallow, there will have to be more cattle and sheep, and, consequently, we shall see an increase in cleared fields, meat, wool, leather, and especially manure, the basis of all agricultural wealth.

If France consumes more oil, we shall see an expansion in the cultivation of the poppy, the olive, and rapeseed. These rich yet soil-exhausting plants will come at just the right time to enable us to put to profitable use the increased fertility that the breeding of cattle will impart to the land.

Our moors will be covered with resinous trees. Numerous swarms of bees will gather from our mountains the perfumed treasures that today waste their fragrance, like the flowers from which they emanate. Thus, there is not one branch of agriculture that would not undergo a great expansion.

The same holds true of shipping. Thousands of vessels will engage in whaling, and in a short time we shall have a fleet capable of upholding the honour of France and of gratifying the patriotic aspirations of the undersigned petitioners, chandlers, etc.

But what shall we say of the specialities of Parisian manufacture? Henceforth you will behold gilding, bronze, and crystal in candlesticks, in lamps, in chandeliers, in candelabra sparkling in spacious emporia compared with which those of today are but stalls.

There is no needy resin-collector on the heights of his sand dunes, no poor miner in the depths of his black pit, who will not receive higher wages and enjoy increased prosperity.

It needs but a little reflection, gentlemen, to be convinced that there is perhaps not one Frenchman, from the wealthy stockholder of the Anzin Company to the humblest vendor of matches, whose condition would not be improved by the success of our petition.

A wily bunch, these French candlestick makers.  But our own special-interest groups are more than a match for them.  I can already hear the thundering hooves as they launch their cavalry at the poor Minister, armed with blustering press releases and practised in tugging at our heart-strings.  Pass the popcorn.

Dan O’Brien had a good piece in Saturday’s Irish Times about house prices in Ireland.  But a couple of comments should be made.

Firstly, Dan (or the sub-editor) gave the piece the title “How low can house prices go?”  While the article was interesting in many respects, I don’t recall him answering that particular question.  OK, so headlines are always making false promises which the actual article fails to deliver;  not exactly Man Bites Dog.  Also, if you read the article expecting to see Dan’s own view, you would have been disappointed.

In fairness he does say “If the 2011 rate of decline in residential property prices continues for another 12 months, prices will fall by about 15 per cent from their current level. Given the headwinds facing the market, that is more likely than not.”  And he also notes that the Banks’ Stress Tests had a baseline assumption “that prices will fall by a further 20 per cent before the market hits bottom. In their worst-case scenario, the decline would be almost 30 per cent. That would bring the fall from the 2007 peak to 59 per cent.”

But it would have been nice to have the personal view of the Economics Editor of the Irish Times on the matter.

Secondly, and more surprisingly, Dan doesn’t seem too hot on the calculation of percentages.  Two sentences in the article offer contrasting views on the extent of the rise in Irish house prices during the bubble phase:

Compare “In the decade from the index’s start date, in early 1997, Irish property prices quadrupled” with “Although the US did not look out of the ordinary in the property-price rises it experienced from 1997 to 2006 (130 per cent compared with Ireland’s 400 per cent), it has suffered the second-worst rich-world crash (after Ireland)…”

Surely Dan doesn’t think that if a number quadruples, it has risen by 400%?  Surely he knows that it has only risen by 300%?  Must be an error by the pesky sub-editor again.

Lowry should read Bastiat

27 September, 2011

So former Fine Gaeler Michael Lowry is miffed that the Government has turned down the plan he was promoting for a super-casino in Tipperary. That’s not a surprise, nor is it a surprise that the present incumbents have taken the first available opportunity to stick it to Michael, given his disgraceful and self-serving support of the last Government.  Of course it’s always possible that the fact that Lowry (whom Matt Cooper described as the most disreputable politician he’d ever met) was involved had nothing to do with the decision, and that it was made entirely on its merits. Anyway, the decision was undoubtedly the right one, whatever the reasons for it.

The Irish Times reported that

Mr Lowry …. said he wanted to support plans that would bring an economic boost and up to 2,000 jobs to his Tipperary North constituency….Thurles Chamber of Commerce president Austin Broderick said the area was “totally devastated” by the Government’s refusal to allow a large casino. “It’s unreal. One thousand jobs gone down the Swanee…”

Here we go again, with alleged job creation/saving potential being used to justify everything from continuance of dodgy tax breaks to loss-making capital investments, to opening yet more shops.  John Kay has neatly disposed of similar fallacies (see here), but to see the rebuttal done elegantly and forcefully, one needs to travel far back in time and read the works of Frédéric Bastiat (1801-1850), particularly his famous Parable of the Broken Window.

In Bastiat’s tale, a man’s son breaks a pane of glass, meaning the man will have  to pay to replace it. The onlookers consider the situation and decide that the  boy has actually done the community a service because his father will have to  pay the glazier to replace the broken pane.  The glazier will then presumably spend the extra money on something else,  thus helping the local economy. The onlookers come to believe that breaking  windows stimulates the economy, but Bastiat exposes the fallacy. By breaking the window, the man’s son has reduced his  father’s disposable  income, meaning his father will not be able purchase new shoes or some  other luxury good. Thus, the broken window might help the glazier, but at the  same time, it robs other industries and reduces the amount being spent on  other goods. Net result: a loss to the economy overall.

Building a super-casino in Tipperary may create jobs, but overall it will have a negative effect on the economy as it will divert limited investment capacity from more sensible (and more socially responsible?) projects which, as it happens, would also create jobs.

You may have read about a report prepared by Amárach Research which said that if consumers were to spend as little as €4 extra a week on Irish-produced goods then over 6,000 new jobs could be created. Minister for Enterprise and Jobs Richard Bruton formally launched the research in Dublin last Monday.

This prompted an Irish Times editorial urging us to Buy Irish, and the editorial was in turn criticised by a letter to the editor of 8th September .

The letter-writer was 100% correct in his scepticism about these developments, for such campaigns constitute a form of “soft” protectionism: if we are consistently willing to favour Irish products which are either more expensive or of lesser quality than the equivalent import, then we allow Irish producers to be less efficient than foreign competitors, and thereby almost ensure that they will not be able to compete with them in overseas markets.  This condemns Irish firms to being small-scale domestic producers.

Any campaign to Buy Irish is against the spirit (if not the letter) of the law governing the Single Market, and we have more to lose than to gain if other EU countries follow suit.

The Irish Times editorial did admit that “long-term prosperity depends on winning in world markets” but asserted that “a shot in the arm for the domestic economy is desperately needed in the short term”.  But what constitutes the short term?  Irish firms cannot postpone the achievement of greater efficiencies for even a short period, and I have no doubt that firms (under pressure from their workforce and the trade unions) will see any indulgence by the Irish consumer as an opportunity to postpone hard decisions.

More importantly, many of the inefficiencies and cost burdens under which Irish businesses toil are directly as a result of Government policy or inaction.  Whether it’s electricity costs, local government charges, unrealistic pay rates, gold-plating of EU directives or monopolistic legal fees, it is the government that is to blame for imposing high costs on Irish businesses, or allowing others to do so.

The “Buy Irish” campaign is a potential distraction from the meaningful reform that is needed to make Ireland competitive once again in the world marketplace; it should be regarded with suspicion, and treated as a red herring.

This short paper (Smart Taxes: An Open Invitation to Join the Pigou Club) is worth reading for its discussion of Pigovian taxes, of gasoline taxes (in a USA context), and generally of “topics about which there is a large gap between the beliefs of economists and those of the general public”. It’s written by an economist whom I have mentioned previously, Gregory Mankiw.

As the financial world goes into meltdown mode, the following extract from Mankiw’s paper struck me as an encapsulation of where it all went  wrong for free-market democracies in most of the western world.

In a democracy, of course, economic policy is set not by economists but by the general public. One of my favorite books of recent years is Bryan Caplan’s treatise The Myth of the Rational Voter, subtitled Why Democracies Choose Bad Policies. The answer Caplan offers is that voters are worse than ignorant about basic economic principles of good policy. Ignorance, at least, would have the virtue of being random and so perhaps would average out to zero in a large population. Instead of being merely ignorant, voters hold onto systematically mistaken beliefs. And politicians, whose main job is to get elected, mold those mistaken beliefs into bad public policy. To quote Caplan, “What happens if fully rational politicians compete for the support of irrational voters–specifically, voters with irrational beliefs about the effects of various policies? It is a recipe for mendacity.”

Of course, while admitting that free-market democracies are having it tough, it must also be emphasised that alternative systems work even less well, at least in anything other than the short term – as the USSR found out, and as China undoubtedly will in the near future.  That’s why it’s distressing to find commentators wobbling in their support for free-market solutions.  See, for instance, the Telegraph’s Charles  Moore who wrote a recent article* headlined “I’m starting to think that the Left might actually be right”.  Just the bathwater, please, not the baby too.

Not surprisingly, there’s no easy solution to this crisis of economics and politics. But any long-term fix must include a much more rigorous teaching of the basic principles of economics to all citizens. We allow all those of a certain age to vote for whatever government they want, yet we fail to educate those voters properly about the economic consequences of so doing. We should not then be surprised when (as Caplan noted) rational politicians compete for the support of irrational voters with ultimately calamitous policies.

*Although one is tempted to have some sympathy with Moore’s views on banks: “…. when the banks that look after our money take it away, lose it and then, because of government guarantee, are not punished themselves, something much worse happens. It turns out – as the Left always claims – that a system purporting to advance the many has been perverted in order to enrich the few. The global banking system is an adventure playground for the participants,  complete with spongy, health-and-safety approved flooring so that they bounce when they fall off. The role of the rest of us is simply to pay.”

One of my favourite books ever is John Lanchester’s first novel “The Debt to Pleasure”, published some 15 years ago.  John Banville reviewed it in the Guardian (here).  I have it on my list to re-read it, as I am curious as to whether it will stand up well to the passage of time.  I have also read and enjoyed a number of Nabokov books since, and Banville says that Lanchester’s style is “uncomfortably close to late Nabokov, at once brilliant and unfocused, and glutted on its own richness, but of course, this is part of the joke”.  So perhaps I will be disappointed.

Anyway, Lanchester has recently published a book about the financial crisis, called Whoops!, which I haven’t read but which got pretty good reviews (particularly from non-financial reviewers).  Lanchester writes that “I’ve been following the economic crisis for two years now.  I began working on the subject as part of the background to a novel, and soon realized that I had stumbled across the most interesting story I’ve ever found.”

I followed a Twitter link the other day to an article by Lanchester in the London Review of Books, where Lanchester is a contributing editor.  The article, covering the Greek financial mess, the Euro, German attitudes and more, is worth reading.  Here’s a short extract:

From the worm’s-eye perspective which most of us inhabit, the general feeling about this new turn in the economic crisis is one of bewilderment. I’ve encountered this in Iceland and in Ireland and in the UK: a sense of alienation and incomprehension and done-unto-ness. People feel they have very little economic or political agency, very little control over their own lives; during the boom times, nobody told them this was an unsustainable bubble until it was already too late. The Greek people are furious to be told by their deputy prime minister that ‘we ate the money together’; they just don’t agree with that analysis. In the world of money, people are privately outraged by the general unwillingness of electorates to accept the blame for the state they are in. But the general public, it turns out, had very little understanding of the economic mechanisms which were, without their knowing it, ruling their lives. They didn’t vote for the system, and no one explained the system to them, and in any case the rule is that while things are on the way up, no one votes for Cassandra, so no one in public life plays the Cassandra role.

The last sentence is so sadly true.  We needed more Cassandras in Ireland from 2002 to 2005 (after that it was too late anyway).  Voters everywhere, but particularly in Ireland, are not interested in deferred gratification.  As they say, democ­racy is the worst form of gov­ern­ment ……… except for all the oth­ers.

Todays Financial Times has an interesting comment piece from Bill Clinton’s former Treasury Secretary, Lawrence Summers.  Here is a small extract.

 ….no country can be expected to generate huge primary surpluses for long periods  for the benefit of foreign creditors. Meeting debt burdens at rates currently  charged by the official sector for credit – let alone the private sector – would  involve burdens on Greece, Ireland and Portugal comparable to the reparations’ burdens Keynes warned about in The Economic Consequences of the Peace ….  The twin realities that Greece, Italy and Ireland need debt relief and that the  creditors have only limited capacity to take immediate losses, mean that all  approaches require increased efforts from the European centre.

Given the comparison used by Summers, it’s ironic that it is the Germans that are in the vanguard of attempts to avoid sensible burden-sharing among the wealthier Eurozone nations.  Current ECB policy is trying to impose a “Carthaginian Peace” on the Eurozone, which will have severe consequences for all, not just the bailed-out countries.

As an aside, I wonder does German Chancellor Angela Merkel (a highly-qualified physicist) agree with Summers’ controversial remarks in a 2005 speech where he suggested that the under-representation of women in science and engineering could be due to a “different availability of aptitude at the high end,” and less to patterns of discrimination and socialization?  His remarks are believed to have contributed to his resigning his position as president of Harvard University the following year.

It’s a commonplace that the Celtic Tiger died in the early noughties, when real growth was replaced by false growth based on inappropriately low interest rates, an over-stimulated construction sector, and excessive pay increases for all sectors.  At the same time, the public sector and its various agencies grew stale and bloated.  Proper management skills withered on the vine, as the solution to every problem became the throwing of money at it.  Those who shouted loudest, or who had an inside track, got an even greater share of the spoils.  Welfare benefits began to outstrip those available almost anywhere else.

And now that the tide has gone out, we see that the State’s finances are in ruins because we have an inflated public sector cost base and welfare budget, but our tax revenues have shrunk dramatically (the bank bailout is not the main reason we are bust).  The fiscal gap will have to be closed by higher taxes, lower public sector costs and decreased welfare benefits, and the process has started.  It is a condition of the bailout deal that we travel down this road, but most of what we are going to do would have to have happened even without the bailout.

We need to look back to a time before things went pear-shaped, to a time when tax rates and yields were sensible, when we got reasonable value for money from our public sector, and when welfare benefit levels were appropriate to our real standard of living as a country.

Realistically, this would be sometime around 2002.  At that time, we hadn’t yet experienced a prolonged period of low Euro interest rates which was to prove such a part of our problem; we hadn’t seen the worst of the crazy pro-cyclical property incentives and unnecessary tax cuts; and the three-card-trick of public sector bench-marking lay in the future.

Did we feel poor as a country in 2002?  Were welfare recipients marching in the streets at the low level of benefits available?  Were civil servants and politicians noticeably underpaid?  Were there PAYE marches as there were in the 1970s?

No, no, no and no.

So let us turn back the clock, fiscally speaking, and revert to a position that is acceptably fair and is affordable.  This will involve further big cuts in pay, pensions and benefits, combined with additional tax increases for all taxpayers, including a substantial annual property tax.  Let’s do it, and do it quickly.   While we are at it, we need to get smart with our policy on the statutory minimum wage by re-setting it every 6 or 12 months at the average of the currently prevailing minimum wage in a “basket” of competitor countries.

And let us be prepared to resist the shouts and roars from politicians, the media, NGOs and commentators that we are being savage in our treatment of this sector or that sector.  After all, all we are doing is trying to reconstitute the sort of economic and fiscal conditions that applied in 2002.  We thought we were doing all right then, and we were.  The social fabric was certainly not collapsing then, in fact we had a bright future ahead of us and, in contrast to the present national mood, optimism was the order of the day.

 À propos my previous post, may I introduce a member of that (seemingly) rare breed, a humble economist.  Unlike our home-grown celebrity versions, I see that Gregory Mankiw, a professor of economics at Harvard, is prepared to admit that he doesn’t have all the answers, or even some of them.  Compare and contrast with (for instance) Morgan Kelly.

Recently, Mankiw wrote this in The New York Times:

After more than a quarter-century as a professional economist, I have a confession to make: There is a lot I don’t know about the economy. Indeed, the area of economics where I have devoted most of my energy and attention — the ups and downs of the business cycle — is where I find myself most often confronting important questions without obvious answers.

Now, if you follow economic commentary in the newspapers or the blogosphere, you have probably not run into many humble economists. By its nature, punditry craves attention, which is easier to attract with certainties than with equivocation.

But that certitude reflects bravado more often than true knowledge……. If you find an economist who says he knows the answers, listen carefully, but be skeptical of everything you hear.

Amen to that.  Mankiw is obviously more of a fox than a hedgehog.

For sure, attention is easier to attract with certainties than with equivocation, and this point has not been lost on contributors to the Irish debate on our economic future (“….lacking the means to make reasonable opinions interesting, [they] must resort to unreasonable opinions in order to get the reader’s attention”).  What a pity editors and producers fall for this every time.

From a review in the Financial Times of Future Babble: Why Expert Predictions Fail and Why We Believe Them Anyway, by Dan Gardner.

Part of the problem, Gardner explains, lies with a lack of accountability within the [economics] profession itself. Make a bold prediction and the journalists and TV cameras come running; no one remembers when it fails to come about. Following Isaiah Berlin’s celebrated distinction, Gardner divides pundits and forecasters into two kinds of beast – the fox who knows many different things, and the hedgehog who knows one big thing. Hedgehogs, he says, have a narrow range of expertise and tend to arrive at bold, bullish predictions. The forecasts of hedgehogs are simpler and more entertaining, so they soak up all the media attention. But they are much more likely to be wrong than foxes. With a wider range of data and disciplines to scavenge from, foxes tend to be more careful with their predictions, and to fare better as a result.

Morgan Kelly: definitely a hedgehog.

Well done to Richard Tol for putting the boot into celebrity economists.  His piece in the Irish Times (here) compared for various economists the ratio of the number of citations in the popular literature and the number of citations in scholarly literature – on the basis that, in Tol’s words, “media exposure should be commensurate with expertise – the mouth should not be larger than the brain”. 

The table which was carried in the newspaper does not seem to be available in the online version, but is available here.  Let me mention some of the results.

Hardly surprising that top of the heap is our hyperactive old friend (and Brian Lenihan’s) David McWilliams with a ratio of 27.0, although, to be fair, David has a second career as a popular author and one-man stage performer.  Dark and gloomy Constantin Gurdgiev  comes in at a hefty 6.65.  Down the other end of the table are Alan Ahearne (0.13), Richard Tol himself (0.04),Philip Lane (0.01) and Jim Markusen (0.00).

Celebrity economists are a group about which I have blogged previously

Whenever I hear somebody described as a “well-known economist”, I think of the expression “celebrity chef”. Usually the latter is somebody who is too busy being a celebrity to devote sufficient energy to getting the chef bit right. The drug of fame and the lure of publicity seem often to eat away at the proper exercise of the very craft in which they made their name.

Incidentally, Richard Tol, who works for the Irish Economic and Social Research Institute (ESRI) is, according to Wikipedia, among the US Senate Republican Party’s “list of scientists disputing man-made global warming claims”, which stated that Tol “dismissed the idea that mankind must act now to prevent catastrophic global warming”.  Village magazine did a hatchet job on him earlier this year.  Tol, however, characterises his position as simply arguing that the economic costs of climate policy should be kept in proportion to its benefits.

Morgan Kelly‘s latest episode of “The Sky is Falling” appeared in Saturday’s Irish Times (here).  The opening sentence says it all: “With the Irish Government on track to owe a quarter of a trillion euro by 2014, a prolonged and chaotic national bankruptcy is becoming inevitable.”

I took refuge in Seamus Coffey’s “Economic Incentives” blog, which was more measured and thoughtful.  I hope he doesn’t mind me quoting a few paragraphs.  His analysis helps me to get a clear picture of the components and dynamics of our indebtedness as a nation, and underscores the fact that the cost to the taxpayer of the bank bailout(s) is responsible for only a minority of the debt mountain we are bequeathing to future taxpayers.  The real issue continues to be the chasm that exists between tax revenues and government spending, a problem that we have barely begun to fix.

Starting with the €154 billion GDP outturn for 2010, and assuming moderate nominal GDP growth rates of 1.0%, 2.0%, 3.0%, 3.0% and 3.0% between now and 2015, means that the debt ratio in 2015 will be around 120% of GDP using the General Government Debt measure.  By just looking at the money that would actually have been borrowed by then the debt-to-GDP ratio will be around 108%.  Higher nominal GDP growth would reduce that but there is little sign of that at present.

If the country had avoided assuming the debts of the banking sector the GGD ratio in 2015 would still be around 95% of GDP, which is better than 120% but would not eliminate the fear of default because of the annual deficits……

Servicing the €205 billion debt mountain we have created will cost about €10 billion a year and this will consume close to one-fifth of government revenue.  The actual servicing cost will depend on the average interest rate.  This is a huge burden for the country to carry and one that will require further adjustments just to keep expenditure constant.  It will be just possible to manage this but it may be decided that this is a burden that the country should not carry…..

If the option to default is to be taken those to suffer will be holders of Irish government bonds.  It is more than a little incongruous that those who invested in our delinquent banks are getting their money back while those who invested in our country may be forced to carry losses.  As with a lot of things in this crisis, this just does not add up.

 This nugget is too good to do any fact-checking on – I want to pass it on even if should ultimately prove to be exaggerated.  I will do the validation when I get time, or maybe wait for my loyal band of followers (all three of them) to do the spadework for me instead.

One of the results of the barmy and corrupt Bertie Ahern regime is, as we all know, that our senior public sector employees (including our politicians) are ridiculously overpaid compared to their counterparts in any reasonably equivalent country. 

The most egregious and commonly quoted example is that our Taoiseach (even with his recently reduced salary of €200,000) is paid a lot more than the UK Prime Minister (€172,000).  See here for the figures.

But how about this?  I am told that the head of the Irish Navy – more formally known as  The Flag Officer Commanding the Naval Service (FOCNS) – earns more than the head of the US Navy!

What a great little country.  Now if only those bloody foreigners in the Eurozone and elsewhere would charge less interest on all the money they lend us to keep on paying ourselves these highly-deserved salaries.  They have a cheek.  Next thing you know, they’ll be asking Enda and Eamonn and all our other public servants to accept the sort of chickenfeed salaries they seem to be happy with in their under-privileged countries.

I saw this headline a few days ago. Finally, I thought, some sign of life from the various criminal inquiries related to Irish banking scandals.   At last, we would see a degree of accountability and justice!

Alas, ’twas not to be.  Disappointingly, it was about two UK property tycoons being arrested in London as part of a fraud investigation into a failed Icelandic bank.

Here in Ireland, we struggle to achieve a level of accountability which is taken for granted even in Nigeria.  I don’t care how many enquiries we have under way, or how thorough they are, if they cannot move forward at a reasonable pace then they are simply a waste of time and money, while generating justifiable cynicism.

From the Irish Times a few days ago:

GERMANY’S MOST influential economist has said the Irish economy is “in rude health” and the incoming government should increase income taxes before demanding a cut in interest rates on Ireland’s EU-IMF loans.

Prof Hans-Werner Sinn, head of Munich’s Ifo economic institute, insisted yesterday that Ireland doesn’t need any EU bailout because there was “huge room to manoeuvre” on tax.

The German tax ratio is 40 per cent and the Irish is 29 per cent, 11 percentage points lie in between,” he said. “If you take just three points from the 11 you still have a huge difference to Germany and would have all the money you need.”

He said the Irish desire to renegotiate an interest rate cut was understandable, but that it should not be considered “if Ireland isn’t prepared to increase its taxes”.

“Ireland is a country in rude health, in no way comparable to Greece and I cannot understand any of these insolvency stories, there’s no reason to place Ireland under the rescue shield,” said Prof Sinn, head of the Ifo institute which is behind Germany’s closely watched monthly business confidence index.

His pronouncements on our tax take are rubbish, and I’m surprised not to see the figures being challenged.  It is very important, given the continuing debate as to whether we should place the emphasis on cutting public sector costs or on raising taxes further, that we at least use correct figures when referencing our existing tax burden.

It would appear that Prof Sinn is basing his diatribe on Taxation trends in the European Union, 2010 edition which uses outdated 2008 numbers and, moreover,  bases the comparative ratios on Gross Domestic Product (GDP), not on Gross National Product (GNP).  Ireland’s GDP figure is distorted by multinational profits and their repatriation, and is some 20% higher than our GNP (in most countries the figures are effectively the same).  It is therefore misleading where Ireland is concerned to compare our tax burden based on % of GDP.   

In addition, as anybody who lives in Ireland can tell you, Irish taxes have risen sharply since 2008  and GDP/GNP has fallen significantly.  Therefore, I would be surprised if our tax take wasn’t now higher than the German tax take in percentage of GNP terms.

The other factor which may be at play here (and I would be grateful if some reader would confirm this) is that sometimes elements of PRSI are excluded from reported tax take and netted in our statistics against certain social welfare costs.  This naturally has the effect of understating the tax burden ratio.

I have a horrible feeling that we will see Prof Sinn’s comments regurgitated by the usual suspects (Vincent Browne / Fintan O’Toole / Social Justice Ireland / ICTU etc), not because his pronouncements are accurate, but because they assist a particular agenda.  And if as a result policy is skewed excessively towards higher taxes, or our case for lower EU/IMF interest rates is damaged, we will ultimately all be the poorer.