By Philip LaneSeptember 16th, 2014
Paper by David Purdue and Rossa White here.
By Philip LaneSeptember 16th, 2014
Paper by David Purdue and Rossa White here.
By Alan AhearneSeptember 16th, 2014
John O’Hagan cautions against irrational exuberance in the lead up to Budget 2015 in today’s Irish Times. Link is here.
The programme for the third European Aviation Conference, on the general theme of aviation infrastructure, is now available. One topic will be the forthcoming report of the Davies Commission, on expanding airport capacity in the South-East of the UK, though many other issues relating to airport and ATC infrastructure will also be covered. The conference takes place at Schiphol airport on 6th and 7th November. There is a substantial conference fee discount for students.
As usual the EAC is preceded by a more academic meeting of the German Aviation Research Society (GARS), which attracts aviation researches from across the globe; more information will be available at www.garsonline.de nearer the date.
By Philip LaneSeptember 14th, 2014
New book out:
The Political Economy and Media Coverage of the European Economic Crisis: The Case of Ireland (Routledge), by Julien Mercille, University College Dublin.
The media have played an important role in presenting government policies enacted in response to the economic crisis since 2008. This book shows that the media have largely conveyed government views uncritically, with only a few exceptions (some of which are contributors to irisheconomy!). Throughout, Ireland is compared with contemporary and historical examples to contextualise the arguments made. The book covers the housing bubble that led to the crash, the rescue of financial institutions by the state, the role of the European institutions and the International Monetary Fund, austerity, and the possibility of leaving the eurozone for Europe’s peripheral countries. The Irish Times, Indo, Sindo, Sunday Business Post, Sunday Times and RTE are all covered.
“A book of record… An exceptionally rare example of an academically rigorous analysis forcing the powerful light of transparency and exposure into the murky world of Irish policy advocacy and punditry… A captivating account.”
Constantin Gurdgiev, Trinity College Dublin
“One of the most important political economy books of the year… Set to become the definitive account of the media’s role in Ireland’s boom and bust.”
Dr. Tom McDonnell, Macroeconomist at the Nevin Economic Research Institute (NERI)
“Tells the story of the economic crisis well and explains the media’s role in convincing the public that it was all very complicated and that government policy can do little to improve the situation.”
Dean Baker, Center for Economic and Policy Research
“Anyone who cares about democracy and economic policy should read this book and be deeply worried by it.”
Mark Blyth, Professor of International Political Economy, Brown University and author of Austerity: The History of a Dangerous Idea
“A stinging critique of how Irish media narrowed the debate on crisis and austerity.”
Seán Ó Riain, Author of The Rise and Fall of Ireland’s Celtic Tiger
“Outstanding research… Meticulous, balanced and clear.”
Costas Lapavitsas, Professor of Economics, School of Oriental and African Studies, University of London
“Engaging, lively, critical… A must read.”
Professor Rob Kitchin, National University of Ireland Maynooth
“An invaluable concise history of Ireland’s public discussion of economic issues.”
Terrence McDonough, Professor of Economics, National University of Ireland Galway
By Philip LaneSeptember 12th, 2014
The list is here. In addition to the obvious candidates, I was pleased to see the inclusion of Anne Wren (affiliated with the IIIS here at TCD), with the citation reading:
Wren’s work on the service economy deserves to be better known. The judges said that reading her work on low wages in the services sector had the effect of ‘turning on a light-bulb’ for them and noted that The Political Economy of the Service Transition was ‘a book for our times’. As a research associate of the Institute for International Integration Studies at Trinity College, Dublin, she combines economic insight with political acuity.
By Colin ScottSeptember 11th, 2014
The nominees for, and configuration of, the portfolios in the European Commission named by Jean-Claude Junckers this week gives some hint of the priorities in European governance over coming years. In this context we might ask how significant is it that Dutch Foreign Minister Frans Timmermans has been nominated as First Vice President with responsibilities to include Better Regulation, Inter-Institutional Relations, the Rule of Law and the Charter of Fundamental Rights? At first glance this portfolio appears to reflect procedural rather than substantive concerns for the new Commission. The mission letter from President-Elect Junckers suggests that the brief is one which crosses the concerns of all the other portfolios indicating a recognition of the link between process and performance on key issues such as regulation.
Maynooth University Department of Economics, Finance and Accounting in association with FMC2 (Financial Mathematics and Computation Research Cluster) are hosting a one-day conference on Financial Crises: Transmission and Consequences on Wednesday, September 24 in Renehan Hall, Maynooth University, Maynooth, Co.Kildare.
The event brings together leading international and domestic experts on financial crises, contagion and banking. The full programme of speakers and presentations is shown below. We invite you to join us in Maynooth. Registration is free, but please confirm your attendance by emailing: email@example.com. The conference programme is shown below the fold. Read the rest of this entry »
By Frank BarrySeptember 10th, 2014
Thanks to readers for the valuable comments on my last post on Scottish independence. I have just received the transcript (here) of some brief remarks I made on the above topic at a recent conference in the UK.
Many readers of Irish Economy are likely to be aware of a project to rethink the teaching of Economics, linked to the Institute for New Economic Thinking, and organised by a committee chaired by Professor Wendy Carlin of UCL. Some people associated with this blog, including Kevin O’Rourke, are also involved in this work.
On my preliminary and (so far) partial reading of ‘The Economy’, it achieves its goal of being strikingly different to the standard first-year textbook. It places at the centre of the story familiar ideas that students and the public expect to feature in Economics and understand better through Economics, including capitalism, technology, living standards, the environment, institutions, and property rights before turning to the more abstract aspects of microeconomics. All the bells and whistles of digital publication are there too including hyperlinks to many of the readings. And of course it’s all freely available. The organisers are seeking user (student and faculty) feedback via a Facebook page and it seems there is supplementary material to follow in due course.
By Philip LaneSeptember 8th, 2014
By Ronan LyonsSeptember 8th, 2014
Later this month sees the launch of “From Prosperity to Austerity: A socio-cultural critique of the Celtic Tiger and its Aftermath”, a book on the Irish economy and society edited by Eamon Maher (IT Tallaght) and Eugene O’Brien and published by Manchester University Press.
The launch take places 6pm, Thursday September 25 in Hodges Figgis on Dawson Street. Brian Lucey (TCD) will giving an address at the launch – and if that weren’t incentive enough to head along, there will also be refreshments!
By Philip LaneSeptember 5th, 2014
Ireland’s two-year yield turns negative: Bloomberg article here.
In his press conference yesterday, Mario Draghi said the following:
Within the Stability and Growth Pact, one could do things that are growth-friendly and also would contribute to budget consolidation, and I gave an example of a balanced budget tax cut. Reducing taxes that are especially distortionary, where the short-term multipliers could be higher, and cutting expenditure in the most unproductive parts, so mostly, actually not mostly, entirely, current government expenditure.
There are at least three possible interpretations of this statement.
1. Draghi genuinely thinks that balanced budget multipliers are negative, which I find hard to believe. A balanced budget tax cut under current circumstances would be contractionary, not expansionary; at least, that is what we teach our students.
2. Draghi genuinely thinks that the Eurozone’s problems right now are on the supply side, and that tax cuts will help address these problems. I also find that hard to believe. The major problems facing the Eurozone right now are pretty clearly on the demand side.
3. Despite its nominal independence, the ECB is in fact the most politically constrained of the major central banks. If Draghi is going to push the ECB towards QE, and question the overall fiscal stance of the Eurozone, he has to come out with this sort of stuff from time to time, to appease the Germans.
I find the last of these three explanations entirely plausible, and it helps explain the ECB’s poor performance in the crisis to date. But why should a nominally independent central bank feel that its hand are tied in this way? Ultimately, perhaps, because the Eurozone is not a political union, and because democratic legitimacy resides at the level of the member states. This means that exit from the Eurozone is always an option, even if it is not openly acknowledged.
Another reason to think that monetary union without political union is a bad idea.
The Dublin Economics Workshop holds its annual Economic Policy conference at the River Lee hotel in Cork on October 17/18 next. Proposals for papers are still being accepted and should be submitted to firstname.lastname@example.org.
The full programme and booking details will be posted here in due course.
By Philip LaneSeptember 3rd, 2014
Helios Herrera, Guillermo Ordonez, Christoph Trebesch
CESifo Working Paper No. 4935 (August 2014)
Download available here.
We show that political booms, measured by the rise in governments’ popularity, predict financial crises above and beyond other better-known early warning indicators, such as credit booms. This predictive power, however, only holds in emerging economies. We show that governments in emerging economies are more concerned about their reputation and tend to ride the short-term popularity benefits of weak credit booms rather than implementing politically costly corrective policies that would help prevent potential crises. We provide evidence of the relevance of this reputation mechanism.
By Philip LaneSeptember 3rd, 2014
Mario Draghi is sure to be quizzed about this Jackson Hole speech at tomorrow’s ECB press conference.
I outline the shifting macro policy debate in Europe (and the implications for the Irish budget) in this Irish Times op-ed.
Also, David McWilliams writes about this optimistic prognosis for the Irish economy here.
By Philip LaneSeptember 2nd, 2014
The new issue of the International Journal of Central Banking includes this article by Robert Kelly and Kieran McQuinn – here.
The media faithfully reported Eurostat’s flash estimate of yoy inflation in the Eurozone at 0.3% for August on Friday last. The yoy rate says merely that prices were 0.3% higher in August than they had been twelve months previously. Just two pieces of information are employed – today’s number and the number twelve months earlier. The intervening eleven pieces of info are ignored.
What do these eleven observations have to say? Well it is not pretty. The index was unchanged over eight months, and actually fell over four months. The country-by-country numbers are only available for July. Here is what happened over the four months from March.
HICP July % Change over March
Belgium -1.5 Germany +0.2
Greece -0.8 Estonia +0.5
Spain -1.0 Ireland +0.1
Italy -1.6 Cyprus +2.2
Luxembourg -0.5 Latvia +0.8
Austria -0.5 Netherlands +0.1
Portugal -0.1 Slovenia +0.2
Finland -0.3 Malta +4.1
France -0.4 Slovakia +0.2
Half of the 18 countries experienced price falls, half saw increases. The weighted average Eurozone inflation rate over these four most recent months was -0.5%. No large country saw a significant increase but two, Spain and Italy, saw prices fall 1% and 1.6%, hence the weighted average decline.
Using twelve-month rates is well-established but it is hardly best practice. Since the Spring it is clear that the Eurozone has been experiencing a widespread and in some cases rapid fall in prices. With nominal interest rates as low as they can go, and zero real growth, the feared deflation has already commenced. It could even be too late to do too little.
By Philip LaneSeptember 1st, 2014
The economic challenges facing Germany are reported in this FT Analysis article.
Micheál Collins of the Nevin Institute is out with a new paper looking at the burden of taxation by income decile by tax-type, and the results are very interesting. From the piece:
Using data from the most recent Household Budget Survey, this paper estimates both the direct and indirect taxation contributions of households. The paper examines, individually and collectively, the direct and indirect tax paid by households across the income deciles, alongside the overall average household contributions. The data is presented at the households and equivalised adult level.
This chart summarises the findings nicely.
Update: Micheál has responded to many of the main points raised in the thread here.
Paul Krugman asks whether anyone thinks that Hollande has the faintest idea about how austerity is going to fix the French economy, in a context where France is clearly facing a huge demand-side problem.
I guess this is the latest statement of what the French are thinking. They recognise that there is a demand side problem in Europe, and hope that someone else (the ECB, and European institutions who might promote European investment) will address this. And they hope that if they do things that the Europeans like, then this will lead not only to saner European macroeconomic policy, but to investment by French companies as well:
“Je souhaite… que chacun prenne ses responsabilités”, poursuit Michel Sapin. “Le gouvernement a pris les siennes, je souhaite que l’Europe le fasse aussi. Mais il faut que les entreprises prennent les leurs.”
I sort of understand what is going on politically. One thing that strikes you about France is how partisan the politics there are. There are some — typically on the left — who think that demand is all that ever matters, and others — by no means all on the right, since VSP’s are to be found right across the spectrum — who think that supply is all that matters. So the government is trying to say that both demand and supply matter, and is describing this in terms of a bargain: if we are tough on spending and all the rest, then the French private sector and “Europe” should do their part, and invest.
But what if, as appears to be the case, the big reason that French companies are not investing is a lack of demand? And what if the Germans simply refuse to budge on macroeconomic policy, as seems likely? Is French policy simply going to consist of saying “pretty please”, or do they have a credible threat to move things along?
Threatening to leave the euro if things keep going the way they are might just do it (what would be the political point of the euro without France?), but does anyone see Hollande credibly threatening that? Does anyone see him credibly threatening anything? And what is his Plan B if Eurozone macroeconomic policy remains essentially unchanged? Does he even have one?
In the mean time, austerity in France will continue to hurt the French economy. How high in the polls does the FN have to rise before Hollande realises that what he is doing is neither prudent nor responsible, but incredibly dangerous?
And how long before the French political system is willing to acknowledge, publicly, that Montebourg’s warnings do not reflect a particularly “left wing” view of economics, but would be regarded as plain common sense by most macroeconomists?
Nick Crafts provides the latest instalment in the VoxEU series on the economics of World War 1, here.
By Philip LaneAugust 27th, 2014
The new issue of F&D is here : it features an array of articles to mark the 50th anniversary of F&D (and 70th anniversary of the Bretton Woods institutions).
By Frank BarryAugust 27th, 2014
This paper of mine just came out in a special issue of Oxford Review of Economic Policy on the question of Scottish independence. I had been asked to reflect on Irish economic performance since independence, on the exercise of fiscal and monetary sovereignty, and on migration policy, without saying anything about Scotland.
From an earlier draft I attach a comparison of population growth in Ireland and Scotland and their respective peripheries.
By Philip LaneAugust 24th, 2014
Martin Sandbu writes on the tension between “greater integration” and “less integration” among member countries here.
By Philip LaneAugust 23rd, 2014
This book by Liaquat Ahamed (with photos by Eli Reed) provides a “behind the scenes” narrative of how the IMF operates, including a substantial section on its role in the Irish crisis. It is an unusual book, with lots of photos (it is not possible to buy an e-book version) and is collaboration between Writers in Residence, Visual Editions and Magnum Photos.
One interesting passage on page 111 (as part of the book’s coverage of the role of Ashoka Mody):
“During the annual review in 2009, and again in early 2010, Mody urged Lenihan to take advantage of the IMF’s credit facilities and borrow pre-emptively. Mody saw this both as a way of shoring up Ireland’s finances and using the IMF imprimatur to bolster foreign confidence in Ireland. But both times, either Lenihan was not himself persuaded, or he was unable to convince his cabinet colleagues.”
IMF Economists Bas B. Bakker and Leslie Lipschitz propose a taxonomy of balance-sheet crises in a new IMF working paper (.pdf). The basic distinction is between ‘Conventional’ and ‘Insidious’ balance sheet crises.
A conventional balance sheet crisis happens because of external imbalances, typically large gross flows into or out of the country, causing balance sheet vulnerabilities, typically in non financial corporate sectors, which then blow up the economy. The insidious balance sheet crises have the conventional crisis features plus way off-balance expectations and really off portfolio effects.
The authors find Ireland and Japan insidious. Fair play to them.
From the paper:
Conventional and Insidious Macroeconomic Balance-Sheet Crises; by Bas B. Bakker and Leslie Lipschitz; IMF Working Paper No. 14/160; August 1, 2014
This sort of crisis would usually be preceded by a long period of excellent economic results—rapid growth led by exports, sound policies, and strong external accounts—that gives rise to an enduring positive perception of the economic prospects. The difficulties arise when a normal, equilibrating shift in relative prices—an increase in the prices of nontraded goods and assets relative to those of traded goods—gets built into investor expectations and elicits a rapid, and eventually excessive, reallocation of credit and domestic real resources.
The paper is excellent and worth reading as a narrative of a series of crises, but it’s not clear what Bertie et al would have done in 2004 in Ireland, had we had this paper to guide them, because the conventional vs. insidious distinction isn’t clean-cut. The discussion on pages 29-31 of the paper on China are fascinating. A deeper dig into financial history might help get more salient case studies to iron out the distinctions.
By Liam DelaneyAugust 22nd, 2014
GUEST POST: Darragh Flannery (UL)
In the context of the media coverage related to spatial differences in higher education participation (as outlined in this HEA report) some in this forum may be interested in on-going research conducted by myself, in conjunction with colleagues in NUIG and the ESRI. Our findings to date have been published in the Economic & Social Review (paper available here) and Applied Economics (paper available here). A brief summary of some of our findings and my thoughts on the issue are below. It is worth mentioning that the data used in our research comes from the School Leaver’s Survey (SLS) in 2007 (the SLS was unfortunately discontinued after this year). While our data is obviously dated, I would be confident that the conclusions of both papers are still relevant and possibly even more pronounced today.
The first strand of our research (ESR paper) examined the impact of travel distance to nearest higher education institute on overall higher education participation, controlling for factors such as CAO points, gender etc.. Specifically, we wanted to see how the impact of travel distance may vary according to social class. The results showed that travel distance has a significantly negative impact on participation for those from lower social classes and that this impact grows stronger as distance increases. We also found that the distance effects are most pronounced for lower ability students from these social backgrounds and make some policy recommendations.
The second strand of our research (Applied Economics paper) took a slightly different angle and looked at the impact of travel distance and social class on the type of higher education a young person in Ireland may pursue. So instead of looking at the potential impact that spatial factors might have on whether a young person goes to higher education or not, we wanted to look at how these factors may influence whether students go to a university/non-university, pursue a level 8 degree or not, and the field of study they choose. We found some evidence that spatial factors played a role, but social class was found to be a more powerful determinant. For example, even with the same CAO points and similar geographical accessibility to a university, those from a ‘low’ social class had virtually zero chance of pursing a medical degree compared to someone from a ‘high’ social class. Again we discussed some potential policy options, such as a more flexible higher education grant system and consideration of more affirmative action policies such as social class quotas.
Given the fact that it did not feature at all in the previous National Plan for Equity of Access to Higher Education 2008-2013, it is good to see spatial accessibility and its relationship with social class being mentioned by the latest HEA report as a possible driver of variation in higher education participation. However, I do think it is important that the debate does not stop at the rather broad view of the impact this may have on going to higher education or not. Instead, I would think it is important that we delve deeper and investigate more specific outcomes such as the impact social class/spatial factors may have on more specific outcomes such as field of study and longer term labour market outcomes. This is especially relevant in the context of income inequality and social mobility issues.
By Liam DelaneyAugust 20th, 2014
I have posted here on a number of occasions about the relevance of the growing literature on behavioural economics and public policy for the Irish context. This post updates this with some new material and I hope people don’t mind if I draw on some from previous posts.
Increasingly, behavioural science is being used as a term to encapsulate the integration of psychological factors into understanding economic decision-making. This is basically an attempt to preserve the phrase “behavioural economics” to refer to explanations with explicit utility-theoretic foundations and also to avoid a lot of work from psychology simply being repackaged as “behavioural economics”. It is not a wholly satisfactory compromise as the phrase “behavioural science” means different things to different people but it is certainly helping to form a shared set of ideas and methodologies and looks likely to continue as the main way of describing this work.
There are a number of reasons for the explosion of interest in this area including the award of the Nobel prize to Daniel Kahneman in 2002 and the adoption of the book “Nudge” by the Obama and Cameron administrations. I think also the sense of purely neo-classical microeconomics being bound up with the regulatory failures surrounding the financial crisis is also fueling an appetite for more realistic accounts of decision-making. It is likely that a lot of what is now called economics will increasingly move towards a disciplinary more blurry field in particular in areas like financial regulation.
Some recent very useful overviews of this area include: Shafir’s Behavioural Foundations of Public Policy is excellent; Sunstein’s lengthy “Empirically-Informed Regulation” provides a strong overview; Nudge is obviously important; a recent paper by Brigitte Madrian outlines the behavioural approach to policy; this excellent short paper by Beshears et al makes the case for the limitation of revealed preferences and the need for other mechanisms; one of the researchers in our group has put together a data-base of studies employing what can loosely be called “Nudges” in various areas of policy; Publications of the Behavioural Insights Team in the Cabinet Office are available here; I have also put together a fairly detailed reading list on behavioural economics and public policy, including legal and ethical issues; The Brookings Institute publication “Policy and Choice: Public Finance through the lense of behavioural economics” is one of the best available introductions to this area.
In terms of why Irish policy-makers should care about this area, below is not intended to be exhaustive but is an attempt to summarise the main areas.
1. The use of “nudges” to encourage saving is the most developed behavioural policy literature. This has reached national policy significance in the roll-out of pension auto-enrolment in the UK. The Irish pension framework was to see the entire private sector begin to be auto-enrolled in 2014 but subject to an economic recovery that has not yet materialised sufficiently. The psychology behind how people react to default settings in pensions is very interesting with a lot of opportunities and threats, among the latter the possibility that people will anchor too much to the default contribution and under-save as well as the possibility that naive consumers will simply be ripped off by providers who can charge higher fees with this less savvy group.
2. The role of behavioural science in financial regulation is a key question. The Financial Conduct Authority has been exploring this area actively. This excellent FCA occasional paper examines the potential implications of behavioural economics for financial regulation. In the US context, this very interesting report by Barr, Mullainathan and Shafir from 2008 outlines a new approach to consumer regulation based partly on the notion of “sticky defaults” whereby firms would be required to default people into the most desirable option based on their characteristics and only move them if they make choices following being provided with clear information. Such models are discussed in relation to two markets fraught with behavioural bias and consumer exploitation, namely credit cards and mortgages. The document also sets out proposals for changing the incentives of brokers.
As noted in another post, this literature is leading to a lot of very interesting questions for financial regulation that are hard to ask in a neo-classical setting. Below are some examples but obviously a small subset.
Should credit card variable and teaser rates be banned or at least taken out of the regular offers made to consumers?
Should mortgage providers be forced to disclose better deals available to their customers?
Should pay-day lenders be granted full access to the Irish market? If so, how do you regulate them?
Should auto-enrolment proceed in Ireland, what provisions should be put in place so that companies do not exploit naïve consumers by charging fees well in excess of regular rates?
Do behavioural biases prevent annuities markets from functioning optimally?
3. The implications of behavioural science for the design of welfare and taxation policies is another active area with applications across the Irish policy sphere in everything from structuring environmental taxes to design of incentive systems to encourage employment. Cass Sunstein, who is one of the main figures in this area, recently released a new book called “Simpler: The Future of Government“. It outlines an approach to government that emphasises making regulations, laws and taxes less confusing and more robust.
4. The search for alternative measures of welfare and social progress is a big concern of the emerging literature (see summary and readings from recent conference on this). The Stiglitz-Sen commission is becoming a standard reference on this topic and it is pretty comprehensive. Understanding how we go from the empirical literature in this area into meaningful indicators is an important direction for this literature. As well as interest in measuring well-being, there is growing interest in the bidirectionality of well-being and economic activity with a lot of recent work looking at impact of mental health in particular on economic functioning. (See Layard: Mental Health: The Frontier of Labour Economics). Related to this, an increasing literature has been examining the economic importance of ensuring good child mental health. This literature is helping us to understand better the interplay between poor child mental health and later economic outcomes. A recent PNAS paperby Goodman, Joyce and Smith gives a good indication of the type of research being conducted in this area. This is an extremely important area of research at the interface of psychology and economics.
5. A lot of recent research has begun to examine more closely the mechanics of what happens during job search from a more psychological perspective. Some of this research is explained in accessible form in this Brookings Institute publication. There is no question that traditional labour supply models are not a complete guide for understanding the behaviour of people who have been laid off and the literature on job activation needs badly more cross-disciplinary work to understand what is shaping behaviour and what environmental changes people might respond to.
6. James Heckman and colleagues have been working on a large programme to integrate personality psychology and a theory of human development into economics. This is extremely important in terms of providing a theoretical and empirical basis for allocation of spending in health and education. Many of these papers are available on Heckman’s IDEAS webpage. Colleagues in Geary are involved in a collaboration looking at early childhood development. Some of these ideas are presented in accessible form on this website.
7. Prompted by Frank Barry in the comments, this paper by Peter Lunn at ESRI is a good overview of potential behavioural factors in the banking crisis. He has also published a number of other papers relevant to the above points (available here).
There are clearly several empirical, ethical and legal issues with the development of this agenda across all of these areas. The enthusiasm for randomised controlled trials in this area clearly has to be tempered with an awareness of their limitations (e.g. here). Furthermore, the extent to which interest-groups constrain the types of policies that emerge will be interesting to observe.
Along with colleagues, I have organised an annual workshop on economics/psychology in Ireland and it will take place again on October 31st in the Geary Institute (sign-up page here). Anyone interested in this area is welcome to attend.