Milton Friedman once noted that ´when [a] crisis occurs, the actions that are taken depend on the ideas that are lying around´. Indeed, it was many of his own ideas that became bedrocks of neoliberalism and using monetary policy to manage the business cycle following the stagflation of the 1970s.
As the initial shock and awe of Covid-19 ebbs to reveal economic wreckage that could ultimately dwarf that of the global financial crisis of a decade ago, Finance Ministers and fiscal pundits are flagging a future retreat to the orthodoxy of fiscal hawkishness. Austerity by any other name would smell so foul.
But, what if one idea lying around was that the budget deficit didn´t matter – that fixation on debt sustainability was unhelpful myth-making? What if you could pay for the Covid-19 crisis, permanently improve the health system and end the housing crisis just by printing money?
*** A version of this book review was first published in The Irish Times on 18 June 2020 ***
Everything has changed, changed utterly.
Our new normal would have been unthinkable just a few short weeks ago. Social distancing measures are absolutely necessary to slow the spread of Covid-19. They help us buy time and avoid our creaking health service becoming more swamped than would otherwise be the case. Still, medical practitioners face difficult decisions, between life and death, who to treat first, to whom should scarce ventilators be assigned. These are unenviable choices to have to make.
It should go without saying that our frontline medical staff deserve our unquestioning support and cooperation in the weeks and months ahead. Right now, money should be no object to ensuring they have all the resources they need to avoid unnecessary deaths. To be fair, the caretaker government is taking resolute action. Of course, our health system should not be left short of resources at the best of times, but that is an important debate for another day. Even the best, most egalitarian health services in the world are now bracing for the worst.
A global recession is likely inevitable. As a trade-dependent economy, Ireland will be hit hard. But, the first to be affected are those service sectors that depend on social interaction: bars, restaurants, cinemas, airlines and the like. More than 100,000 jobs have already been lost, with up to half a million potentially at risk in the coming months. This crisis is different to 2008, but in some ways the economic effects could feel somewhat similar. And recessions and poverty are killers too. Continue reading
Making virtue of necessity is a tried and trusted political tactic. With neither Fine Gael nor Fianna Fáil able to command a sustainable majority after the 2016 election, and unwilling to give up the narcissism of small differences by forming a grand coalition, we were left with a ‘confidence and supply’ arrangement that pleased nobody. Independents were brought into the government fold while the soldiers of destiny reserved the right to play hurlers on the ditch without pulling the plug.
The necessity of this ‘temporary little arrangement’ was wrapped up in the virtuous rhetoric of so-called ‘new politics’. Political reforms were to open up the legislative process, making it more deliberative and less confrontational. Due consideration would be given to opposition proposals and private members’ bills. The Committee system was to be streamlined and treated more seriously.
‘New politics’ was treated in some quarters as a breath of fresh air in 2016. Some thought it might last until 2017 or 2018 at a push. One thing that wasn’t expected was that the UK would vote to leave the European Union later in 2016. The political psychodrama across the Irish Sea has since kept audiences agog, and kept the Dáil in suspended animation. The Taoiseach dare not face the electorate with Brexit unresolved. The ‘temporary little arrangement’ has lasted longer than many would have expected, providing stability in uncertain times.
But, is this a good thing? Continue reading
At the time of writing, just as the UK Supreme Court unanimously ruled that Prime Minister Johnson’s prorogation of parliament was unlawful, the range of potential Brexit outcomes remains shockingly wide. More than three years have passed since the UK people voted narrowly to exit the European Union, yet it is still possible that there will be a no-deal Brexit at Halloween, that there will be no Brexit at all, or that sooner or later they will leave with a deal.
Yogi Berra is known not only for his baseball exploits for the New York Yankees around the middle of the 20th century, but also for his way with words. He famously asserted that “it’s tough to make predictions, especially about the future.” At the best of times, economists often convey a false sense of certainty about their own forecasts. What economists do is make certain assumptions, such as how they expect a “shock” will impact on variables like trade, investment and consumer behavior. At times like these, facing an unprecedented event such as Brexit, even making accurate short-term forecasts becomes next to impossible. Continue reading
At a time of heightened global trade tensions and faltering multilateralism, the accord sends a powerful message that mutually beneficial economic openness is still worth striving for. The 2015 election of market-oriented Mauricio Macri as President of Argentina in 2015 gave some impetus to the discussions from 2016 onwards, while the rightward shift in Brazil, with the 2018 election of Jair Bolsonaro to the Presidency, further catalysed the conclusion of an agreement.
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Reductionists have characterized the agreement as a ‘cows for cars’ deal, with European auto exporters gaining access to previously high-tariff Mercosur markets while the agriculture sectors of Brazil and Argentina, in particular, gaining limited tariff-free access to the similarly-protected and subsidized European market for farm produce.
“The rich world is enjoying an unprecedented jobs boom”, proffered a recent headline in The Economist. Unemployment rates in the US, UK, Germany and Japan are plumbing depths unseen in decades. Robust job growth in the early months of 2019 sent the Irish unemployment rate below 5% for the first time since 2007, leading some economists to suggest we are nearing ‘full employment’.
David G. Blanchflower’s new tome, Not Working, may then appear to cut against the grain of the data. On the contrary, record low unemployment rates are the jumping off point for this encyclopedic survey of what ails our labour markets. His central argument is that the unemployment rate is no longer the best indicator of how much slack there is in an economy because it ignores the extent to which people have given up the job search altogether (labour force participation) and part-timers want more hours (underemployment). This, he argues, is why wages are not growing as fast as would have been the case when unemployment rates were last so low.
*** A version of this book review was first published in The Irish Times on 29 June 2019 ***
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