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 ***
“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.
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
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.
Regarded as prescient in heralding the collapse of communism in 1989 as the ‘end of history’, Francis Fukuyama has since become something of an intellectual piñata.
His thesis then was that the triumph of liberal democracy, buttressed by a market economy, represented the ‘end of history’ in the Hegelian sense that other modes of organizing society had been tried, and failed, leaving the strongest standing. Eventually, he expected that it would become ubiquitous. The European Union was hailed as an aspirational model, having put an end to the continent’s centuries of internecine conflict.
So convinced was Fukuyama of the superiority of liberal democracy that, though a Democrat, he aligned himself with the neoconservative movement that provided the intellectual underpinning for George W. Bush’s disastrous invasion of Iraq.
*** A version of this book review was first published in The Irish Times on 24 October 2018 ***
His two most recent books, The Origins of Political Order and Political Order and Political Decay, were an attempt to clarify and rebut criticism of his ‘end of history’ thesis. Most notably, he dropped the pretense of the finality and inevitability, if not the desirability, of universal liberal democracy. He adapted his thesis to fit the facts on the ground.
Identity, his latest offering, was written for the age of Trump. Addressing the zeitgeist at both ends of the political spectrum for ‘identity politics’, particularly in the U.S. but also across Europe, he does a deep dive into what he sees as one possible mortal threat to liberal democratic institutions – ‘political decay’.
Sure as night follows day, and winter follows autumn, the economic cycle will ebb and flow.
Right now, the Irish economy is enjoying something of an Indian summer: strong growth, record employment, rising wages, low inflation and low interest rates. And the good times have a while to run yet.
That’s far from saying that everyone is living on the pig’s back, as anyone facing the sharp end of the health or housing crises can attest.
But, the economy is at cruising speed and unlikely to soar higher. At least not safely.
Maybe not today. Maybe not tomorrow. But winter is coming.
Yesterday, U.S. President Donald Trump made his ‘big announcement’ on tax cuts. Some Irish eyes aren’t smiling at the prospect of the headline-grabbing reduction in the corporation tax rate from 35% to 15% actually coming to pass. Essentially, though, this latest announcement amounts to little more than reheated campaign promises, washed down with Trump’s now-familiar saccharine bombast.
This was not a well-thought out exercise in policy innovation, but rather a cheap PR stunt designed to boost his flagging ratings and attract plaudits ahead of the media-constructed – but substantially meaningless – landmark of his Presidency’s first 100 days, which falls this Saturday.
*** This article was first published on thejournal.ie on 27 April, 2017 ***
OECD Corporation Tax Rates since 2000
Source: Tax Policy Reforms in the OECD 2016
First it was Brexit. Then it was Trump. Twice in recent months, we have awoken to news from across the water that shook us to our core. Something has gone ‘Br-ump’ in the night.
For Ireland, the biggest impact of Brexit and Trump’s ascendancy are likely to be economic. Even if recent decades have seen Ireland Inc. diversify its economic ties, the UK and US are still by far our most important trade and foreign direct investment partners. Directly or indirectly, hundreds of thousands of Irish jobs depend on these countries’ fortunes and policies. The temptation will be for Irish policymakers to adopt a reactive stance, but this needs to be complemented by a proactive and comprehensive approach.
As a tiny, very open economy, Ireland has surfed the wave of neoliberal globalisation more deftly than most, making the most of our geographic and cultural proximity to the US and the UK, in particular. For decades, for better or worse, we have been ‘all in’ on an economic strategy aimed at grabbing a slice of the global economic pie. As a result, there is perhaps no other country as uniquely exposed to the twin ‘Br-ump’ challenges.