Taking the axe to tax

Most of the parties want to cut tax and hike spending on ‘fiscal space’ that could quickly vanish

I’m going to reduce almost every party’s economic plan to one sentence for you, then explore the details.

Ready? For almost every party, the plan is: taxes down, current spending up, capital spending up.

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Beware of political parties bearing gifts

All parties insist their election promises are costed. That’s not quite the full story

All elections are filled with promises. Promises to tax us less, to give us more, to reward whatever interest we think is special. Promises to do the right thing for our locality.

Post-election, these promises are, by and large, forgotten. The big ones, such as promising to cut taxes, not jack up student fees, not cut social welfare payments, and so forth, typically come back to haunt the government that breaks them. You would think, then, that this time around a bit more circumspection about promises would be in order.

You would be wrong. You could possibly quality for the Professorship of Wrong at the University of Wrong. The fundamental truth of Irish politics is that parties who responsibly promise to be responsible are fated to spend their time in the next Dáil warming the back benches, if they are there at all.

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Crisis? What Crisis? This Crisis

The world is falling down...I’m really worried that no one is talking about it here

Unemployment is falling. In Ireland. Inflation is not a problem. In Ireland. Growth is resurgent. In Ireland. Debt levels for households and the government are falling. In Ireland. Trade with the rest of the world is growing. In Ireland. Migration is not a daily issue obsessing policy makers. In Ireland.

But what about the rest of the world? This will be an exercise in changing focus.

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Chaos in the Middle East means trouble for us

The fall in oil prices is good news for consumers. But the market strife behind it certainly isn’t

Imagine two children with ten pebbles each. We’ll call them Lily and Cillian. The two children have three metal buckets: one red, one green and one blue. If they get enough pebbles into the right bucket, they are given a prize.

Let’s look at Lily first. Like Cillian, the way she allocates the pebbles determines the size of the prize she gets. Lily is a portfolio manager, with a portfolio of pebbles to manage. She doesn’t care about the buckets, or the pebbles, or who owns those pebbles. She just cares about her prize. If She thinks there is something wrong with one of the buckets, she’s going to try to move her pebbles out of the bucket as quickly as she can.

Now let’s bring Cillian in again. He sees Lily moving her pebbles out of the bucket and thinks something like this: Lily knows something I don’t, or she’s making a mistake. Either way it’s a better bet for me, personally, if I get my pebbles out, too. One buckets gets quickly emptied as a result. Note that nothing has changed, except the expectations of the two prize-driven, pebble-moving children.

This is exactly what has happened to the markets in the last few days. Market participants are often worse than children. They don’t get sent to their own room in the house, in fact when they make mistakes you typically buy them the house.
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Gombeen politics and the fear of missing out

Can we heal the nation's social and infrastructural ills?

In 1997, the futurist Kevin Kelly wrote: “Wealth is not gained by perfecting the known, but by imperfectly seizing the unknown”.

The Irish economy is the fastest growing in Europe, rebounding after the 2009 to 2013 period of austerity. The year ahead promises to be a belter, with unemployment set to fall below 8 per cent for the first time since 2007, campaigns being launched to woo our migrants home, negative equity going the way of the Dodo, and parts of our nationalised banks being moved back to the private sector.

But how real is all of that? 2006 looked pretty good too, and like a marble rolling off a table top, the fall caught everyone by surprise.

How do we seize 2016? It’s looking like we might end up almost as wealthy as we thought we were in 2006. How should we think about that? Ireland is a different place in some respects, but a lot has remained the same.
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Wine Dark Seas: Visualising Economic Crises

Here's a paper I've just submitted, the code is here.

Abstract

Models in economics and finance typically use time series graphs as model outputs. In the light of the recent crisis and policy makers’ sometimes-flawed approaches to the resolution of the crisis, this paper argues simple line graphs do not contain enough information to help policy makers adequately understand the evolution of their economy. We generate new graphical representations using the example of the Irish economic crisis based on a new model of the Irish economy, built from its national accounts. These visualisations are newer, data-dense outputs of a new class of accounting models. In these accounting models the many connections between the real and financial sides of the economy are much more explicit, the impact of austerity on the Irish economy post-2009 are much more transparent, and the resulting recovery is clearly visible in dashboard form to policymakers.

Redistribution in the Age of Austerity

Our new working paper is out in the Levy working paper series:

We examine the relationship between changes in a country’s public sector fiscal position and inequality at the top and bottom of the income distribution during the age of austerity (2006–13). We use a parametric Lorenz curve model and Gini-like indices of inequality as our measures to assess distributional changes. Based on the EU’s Statistics on Income and Living Conditions SLIC and International Monetary Fund data for 12 European countries, we find that more severe adjustments to the cyclically adjusted primary balance (i.e., more austerity) are associated with a more unequal distribution of income driven by rising inequality at the top. The data also weakly suggest a decrease in inequality at the bottom. The distributional impact of austerity measures reflects the reliance on regressive policies, and likely produces increased incentives for rent seeking while reducing incentives for workers to increase productivity.

Super nerds that send a movie into stratosphere

Nerdgasms happen when nerds become suddenly quite excited. Nerds are people with deep interests in sometimes quite abstract areas. Nerds are super fans, with deep and abiding love for their chosen niche. It turns out the world now revolves around super fans, thanks to the internet.

David Bowie nerds go mad when a new box set of him trimming his toenails comes out. Battlestar Galactica nerds queue for hours in the snow for an autograph from one of the cast. Comic book nerds get dressed up and go to conventions dressed as their favourite superpowered wonder. It’s not all about comic books and video games, either. Rugby nerds know which way Brian O’Driscoll turned in the 76th minute of the March 2000 game against France. Wine nerds know the name of the grape they are drinking – not the type of wine or its vintage: the name of the actual grape. Nigel, most likely.

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Ireland – a great little country to do business

Pharmaceutical companies are in the business of finding cures for things that ail us. Last week, Pfizer and Allergan found a surprisingly effective cure for paying taxes. Pfizer merged with fellow pharma giant Allergan to become the largest pharmaceutical company in the world, headquartered for tax reasons in Dublin, but operationally based in the US, where much of the merged company’s activity takes place.

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Agent Based-Stock Flow Consistent Macroeconomics: Towards a Benchmark Model

We've updated the paper, it can be accessed here. The abstract is below.

The global financial crisis has forced standard macroeconomics to re-examine the plausibility of its assumptions and the adequacy of the policy prescriptions flowing from those assumptions. We believe a renewal of macroeconomic thinking and macroeconomic modeling is possible by recognizing that our economies should be analyzed as complex adaptive systems. A coherent and exhaustive representation of the inter-linkages between the real and financial sides of the economy is vital as well. We propose a macroeconomic framework based on a novel combination of the Agent Based and Stock Flow Consistent approaches. This paper presents a benchmark model for this innovative approach. Our model depicts an economy with capital and credit in which different types of agents locally interact on different markets. We provide a detailed representation of individual agents’ balance sheets, ensuring the model accounting consistency at the micro, meso, and macro levels. We analyze the properties of our simulated economy under different configurations of agent heuristics, focusing in particular on the role of credit and investment. We explain in detail the logic followed to calibrate and validate the model. Results show that our benchmark model is able to reproduce many stylized facts observed in real world, thus representing a good starting point to test -- in the next works -- different economic policies and institutional setups. Finally, the relatively simple and flexible structure of the model opens up many possibilities for development of the framework along different lines, thus providing a fertile soil for new applications.

In Search of the Northern Refugees

PICTURE this. It is 3am on the 12th of July, 1972. 43 years ago. The gardens of the Benedictine Monastery of Glenstal Abbey in rural Limerick are quiet.

A bus carrying Belfast women and children arrives at the monastery, fleeing the conflict taking place on the streets where they live. They have few clothes or other possessions with them. So on they drive, through the dark, with nothing, to Glenstal Abbey, as their homes burn behind them and riots erupt on the streets their children played along. When they arrive, the locals will call them the Northern Refugees.

Imagine this. The monks get a phone call in the mid-afternoon of the 11th. The bus is in motion. They have less than a day to prepare the empty dormitories of the boy’s boarding school housed within the Abbey, order food, and figure out what to do with that many people for what might be up to a month. The monks have no idea what awaits them.

Remember this. The burnings of the North and the battle of the Bogside in 1968 and 1969 had taught a generation of Catholics and Protestants to leave their homes as tensions ran high between Catholic nationalists, Protestant loyalists and the RUC in the run up to the celebrations of the 12th.

The annual marches on the 12th of July by the loyalist Orange Order, celebrate 1688’s Glorious Revolution and the victory by William of Orange over the Catholic King James II at the Battle of the Boyne. The celebrations had become touch points in a cycle of violence which would come to be known – much later – as the Troubles, an anodyne name for a turbulent and volatile period in sectarian relations.

Like many great movements of history, the Troubles began with civil disobedience in the late 1960s, and would end after protracted negotiations with the Good Friday Agreement. In the meantime ordinary people have to try and cope as best they could.

Escape was the most logical option. Escaping to a monastery in rural Limerick, not so much.

Think of this. The monks of Glenstal are, to put it mildly, not equipped to cope with the long term residence of several hundred women and children, the youngest of whom was only two weeks old at the time. Some of the children are sick.

A local nurse takes one child to her own home to give her mother a break and bring her back to health. The monks rise to the challenge of accommodating and entertaining them.

The Civil Defence unit in Doon drafted in help from the surrounding towns and packages of food, toys, clothes, even prams begin to rain down on the monastery from towns and districts including Murroe, Boher, Doon, Newport, Cappamore, Killaloe, Limerick, and Castleconnell.

The parents and children are stunned by the local generosity, later writing letters of thanks to the monks now recorded in the Annals of Glenstal.

Consider this. On the 8th of August 1972, the last of the refugees returned to their homes, some of which had been burnt during their time away. Perhaps the stay at Glenstal saved some of their lives. According to Bew and Gillespie’s Chronology of the Troubles 1968—1993, 1972 was the bloodiest year in the conflict.

In one day, July 21, 1972, as the children of the Northern Refugees played in the fields around Glenstal Abbey, within the space of 75 minutes, 22 bombs exploded in Belfast. The bombs of 21 July were planted by the Provisional IRA. The Shankill Butchers are believed to have killed their first victim, a Catholic, that same day. Ten days later the British army began one their biggest operations of the Troubles, Operation Motorman, when they cleared ‘no-go’ areas in Belfast and Derry. The period during, and either side, of the refugees stay in Limerick is a microcosm of the whole conflict.

It has been 43 years since the Northern Refugees went home. They have grown up through the period we now call the Troubles, and are most likely in their fifties and sixties now.

I’d like to tell their story for an RTE documentary I’m making. I want to understand what happened when they arrived here in Limerick a little better, and I want to hear their stories.

If you remember those times, or happen to know these people, please drop me an email at stephen.kinsella@ul.ie
Published on: http://www.limerickleader.ie/news/business/business-news/rte-to-tell-story-of-glenstal-s-succour-to-refugees-in-1972-1-7077778#ixzz3sJnFkhB7

Terrorism comes with more than one cost

Let’s call terrorism what it really is: political violence. Terrorism as a concept only became widespread in the 1960s – after the advent of mass media. Before then, acts of politically inspired violence were routinely described as bombings, assassinations, hijackings and so forth. It is impossible to find a recognised definition of what terrorism is. In the US, international terrorism is “any act intended to intimidate or coerce a civilian population; to influence the policy of a government by intimidation or coercion; or to affect the conduct of a government by mass destruction, assassination, or kidnapping”. The US has a separate definition of domestic terrorism. In Saudi Arabia, terrorism is defined as “calling for atheist thought in any form, or calling into question the fundamentals of the Islamic religion on which this country is based”.

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Brexit Stage Left

If Britain does vote to leave the European Union, the biggest losers will be the 4.68 million Paddies living a few hundred miles due west of them.

The risks are enormous. The ESRI’s recent report is probably the best work done so far on just how hard of a whack we’ll get if the denizens of perfidious Albion give the EU – an organisation so bureaucratic it once standardised how bendy a banana can be – the flick.

The ESRI’s report is largely speculative. It begins with the impact of a full Brexit on trade, on foreign direct investment, on energy, and on migration.

The report analyses the strength of the economic links between the two countries and asks what might happen to these links should Britain leave the common trade area. Ultimately, we’ll lose on all fronts. The depth of our intertwining with Britain’s economy is profound – far more than I had realised before reading the report.

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