In mid-February, I wrote here that inflation was widely expected to peak in the early months of the year “before falling back over the following 18 months or so towards the levels around 2% that we had become accustomed to.” Highlighting geopolitical threats, I did note that “risks appear to be skewed towards inflation staying higher for longer than is currently anticipated.”
The game changed when Vladimir Putin invaded Ukraine on 24th February. Oil prices initially surged by about 50% while gas prices nearly tripled. Although both have come off their March highs, they remain much higher than pre-war prices. Ominously, there is a growing consensus the war is Ukraine will be prolonged, and growing speculation that Putin could shut off European gas this winter. Meanwhile, international food prices have hit historic highs, even before the impact of Russia’s Black Sea blockade fully feeds through to grain markets. High prices and scarce supply of food and energy will likely get worse before they get better.
Irish consumer prices kept accelerating through May, annual inflation reaching 7.8%. A combination of momentum in prices and the subdued monthly inflation seen in June and July 2021 suggest the annual rate hasn’t peaked yet. Surging inflation is a global phenomenon, and it has everywhere come to dominate political debate around domestic issues. Whether inadvertently or more cynically, this debate has been characterized by much pedaling of myths. So, let’s knock some of those on the head:
*** This article was first published at thejournal.ie on 3rd July 2022 ***
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In normal times, January sales for things like clothing and air fares are enough to bring down the price of an average consumer’s monthly shopping basket. January 2021 was very far from normal, of course, and prices ticked up slightly that month.
With the Omicron wave of the pandemic beginning to ebb, this year we are seeing a return to normality. Consumer prices fell -0.4% last month. This brought the annual inflation rate down to 5.0%, from the 5.5% registered in December. The last time inflation was that high, in April 2001, we were still using old money, punts and pence.
So, are we past the worst?
The good news is that, so far, rising inflation in Ireland has not been broad-based. Although supply issues have impacted on home rentals, and on some goods like cars and furniture, price rises have been largely confined to oil, gas and the sectors that depend on these energy inputs (transport, electricity).
*** This article was first published at thejournal.ie on 18 February 2022 ***
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Who had heard of GameStop a month ago other than committed gamers and punters on the stock market? The bricks-and-mortar computer game retailer burst to prominence in recent weeks as a pawn in a supposed David-and-Goliath story, a battle of wits between plucky nerds and the wolves of Wall Street.
Spotting a chink in a hedge fund´s armour, small investors organized themselves through a small corner of social media, a reddit bearing the fitting moniker #WallStreetBets. Basically, the hedge fund had reached the not-unreasonable conclusion that computer game shops were going the way of Xtra-Vision. They borrowed shares in GameStop and sold them, hoping to buy them back at a lower price before returning them to their original owner and pocketing the difference.
*** This article was first published at thejournal.ie on 7 February 2021 *** Continue reading →
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 →
“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 ***
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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.
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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 →
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 →