You can’t eat Gross Domestic Product (GDP), yet it is the indicator that economists pay closest attention to.
GDP gained currency during WWII as a way of keeping track of war production, and has since remained the dominant measure of economic output. More than that, it has become a byword for living standards.
Looking across countries, economic output per person, or per capita, adjusted for price differences is still a reasonable proxy for average material living standards. At least up to a point. It is not necessarily a good indicator of individual happiness, or of societal wellbeing, however.
The main problem isn’t with measuring GDP per se, but that maximizing it has become the over-riding target for economic policymakers. They have lost sight of the fact that increasing economic output should be a means to an end, not an end in itself. The over-riding priority should be to maximize the welfare and happiness of the greatest number or people while ensuring everyone has a basic, decent standard of living. Unfortunately, there is no consensus around how these should be measured.
Together with the state and markets, community is the sometimes-overlooked ‘third pillar’ on which our society rests. Just as we need a strong state and can benefit from efficient markets, these imperatives must be balanced with the interests of the geographic communities that bind us. This is the premise of an important new book by Raghuram Rajan, former IMF Chief Economist.
In Ireland, public policy in recent decades has tended towards letting the market rip. To reduce the resulting stark income inequalities, the state has to do more heavy lifting in terms of redistribution than in any other OECD country. Even then, we only rank towards the middle of the equality league table.
Ironically, perhaps, for a country with such a strong traditional sense of community, local government is an area where we are weak. Ireland has one of the most centralized systems of governance, our local representatives lacking much in the way of real power. Whether it is rural heartlands losing pubs, post offices and people, or pockets of urban disadvantage ravaged by unemployment and drug barons’ turf wars, our communities suffer the consequences, fraying the very fabric of our society. Continue reading
For all the often-justified criticism it attracts, globalization has undeniably lifted hundreds of millions out of poverty over the last four decades. International trade and investment have been central to the rise of China and many more emerging economies. Immigration, meanwhile, has allowed tens of millions more to escape oppression or abject poverty. Among advanced economies, Ireland has been unarguably one of the big winners.
At the same time, globalization has been blamed for premature de-industrialization, rising inequality, stagnant wages, financial crises and, at least in part, the emergence of populist politics at both ends of the political spectrum. A cottage industry of worthy tomes has emerged to explain this phenomenon, epitomized by Brexit and the election of President Donald J. Trump. Such a political backlash has yet to land on Irish shores, but as one of the most open economies in the world, we stand in the cross-hairs for the actions of others.
Aimed squarely at self-declared ‘progressives’ in the U.S., Kimberly Clausing’s new book is an apparent attempt to influence debate within that country’s Democratic Party as it selects its standard bearer to take on President Trump in the 2020 Presidential election. While acknowledging the need to improve trade, investment and immigration policies, and to introduce a range of other policies to mitigate any negative impact of globalization, she warns against the temptations of rejecting economic openness.
*** A version of this book review was first published in The Irish Times on 20 April 2019 ***
Jean-Baptiste Colbert, French Finance Minister under Louis XIV, colorfully explained “that the act of taxation consists in so plucking the goose as to procure the largest quantity of feathers with the least possible amount of squealing.”
Those on the left have long advocated squeezing the rich until the pips squeak. What almost everyone can agree on, however, is that a tax system should be progressive so that those with the broadest shoulders bear the greatest burden.
There are those that would wish to tax the rich simply as a blunt instrument to reduce income and wealth inequalities. A better approach is to establish what public goods and services, and what sort of welfare state, government should provide and then set about financing it in the most efficient and equitable way possible. Before deciding how many feathers to pluck, you should see how many pillows need to be filled. Continue reading
How you see Ireland’s economic prospects may depend on whether your glass is half full or half empty in the post-Paddy’s day haze. There’s plenty to be bullish about, but warning signs have begun to flash in recent months as we brace for Brexit and a global slowdown.
First, the good news:
In many ways, the Irish economy looks to be in ‘goldilocks’ territory: not too cold, but still not too hot. Moreover, the number of people outside the labour force that could look for work again in the right conditions is still over 100,000, suggesting it still has room to run if factors beyond our control don’t get in the way.
*** This article was first published on thejournal.ie on 24 March 2019 *** Continue reading
As human beings, we are designed to be able to process vast amounts of complex information to inform the countless decisions we make every day. Some are split-second decisions of little import – such as where to sit in as we enter a room. Others are potentially life-changing and warrant a period of reflection – such as what to do after secondary school, or who to marry. But, we tend not to sweat the small stuff. We take mental short cuts so that we don’t waste precious brain power calculating the most advantageous seat to sit in. Often, we’ll simply sit in the same seat as last time!
But, not all mental shortcuts are good for us. For example, when we are young we tend to save less than we should for retirement because it seems so far in the future. We tend to value the here and now more than the future. This is a problem for us as individuals, but potentially disastrous for society. Our grandkids, our children and our future selves will pay the price.
Climate change is another catastrophe in the making. Other than those few members of the flat-earth society, we all know that man-made global warming is well underway. The science in uncontestable. The proof is in the increased frequency of extreme weather events, the melting polar ice caps, and the slow but inexorable rise in sea levels. Continue reading
Writing this time last year, I expected our economic fortunes to get better before they got worse. I saw clouds gathering on the distant horizon, but no major storms forecast for 2018.
*** This article was first published on thejournal.ie on 28 December 2018 ***
Ireland isn’t quite partying like it’s 2006, but the stats don’t lie – 2018 has been a bumper year by most measures.
The economy generated nearly 1,300 extra jobs per week in the 12 monthsto end-September, up from less than 950 per week the previous year. Even if the pace of job growth slowed after the middle of 2018, this is still impressive progress by any measure, and enough to see the unemployment rate fall to 5.3% in November, down from 6.4% the previous year.
Although this is close to what economists call ‘full employment’, it should be remembered that the share of the working age population making themselves available for work is still (62.6%) significantly lower than its 2007 peak (67.4%). This flatters the unemployment rate and suggests there are still some 300,000 people that could be enticed back to the workforce.
Growth in average hourly earningshas picked up, from 2.1% a year ago to 3.2% now, more than double the growth rate from two years ago. The minimum wage will increase by 2.6% from New Year’s Day, from €9.55 an hour to €9.80.
Only part of the increase in people’s pay packets is being eaten up by higher prices. Consumer prices are basically flat, edging up only slightly from 0.5% in November 2017, to 0.6% in the same month this year. This average hides important differences: the cost of housing, water, gas and electricity increased more than 5% on the year while the price of furniture and household equipment fell by more than -4%.
This means real hourly wages are increasing in every sector with the exception of public administration, which clocked up only a 0.8% gain in the year to end-September.
With more people at work earning higher wages, it is hardly surprising that we are spending more. Ireland’s GDP figures are heavily distorted by multinational activity, but the most unpolluted – and least volatile – component is private consumption which grew by 2.9% in the third quarter of the year compared to a year earlier.