The subjects of the United Kingdom of Great Britain and Northern Ireland will vote yes or no on June 23 to the question: ‘Should the United Kingdom remain a member of the European Union?’ The politics of why Britain’s political classes have allowed this moment to arrive are irrelevant. What matters is what will happen in the event of a yes vote, and, being a little parochial about it, I’m concerned about the citizens of the Republic of Ireland.
Imagine you crash your car at 10 miles per hour. Now imagine you crash your car at 100 miles per hour. You’re going ten times faster, but the damage to you and your car will be far more than ten times worse. This is an example of effect-asymmetry.
Credit has an effect-asymmetry, and that’s where you get the old saying that if you owe the bank one million, they own you, but if you owe one billion, you own them.
You may not know this, but if you’ve purchased a book online, you’ve used a tax haven. Tax havens exist to allow individuals and companies pay less tax than they would otherwise pay, by arbitraging the taxation regulations of different jurisdictions. When you buy a book, the funds you pay flow through one of these tax havens.
Non-fiction; And the Weak Suffer ; What They Must?; By Yanis Varoufakis ; Bodley Head, €23
The Bundesbank is the villain. The game played is international one-upmanship to cope with the vast imbalances of money, goods, and people that modern trading nations generate. At the rotten heart of this game is nothing more than the exigencies of power and national self-interest.
The euro, a currency designed to pull Europe’s disparate nations together, has instead left them increasingly divided into ‘creditor’ and ‘debtor’ categories, with the weak in each nation suffering more than is necessary as a result.
So we have a deal. The deal commits us to an extra €3.2 billion of extra spending between now and 2021 – roughly the amount the Irish Fiscal Advisory Council argued for before the election – as well as introducing sugar taxes, tobacco taxes, and phasing out the universal service charge.
Is this enough to solve the three big problems we have – housing, health, and education? No, it’s not.
How is it possible to hold mutually exclusive beliefs publicly and not be called out for these beliefs, while at the same time moving forward as if each contradictory belief was simultaneously true?
Because we live in Ireland.
Lecture 1 is here (.pdf)
Lecture 2 is here (.pdf).
I really enjoyed giving these lectures to the Risk, Crisis, and Society Broadening module. More details on the broadening initiative are here.
The simplest way to tell the story is not always the right one. Forget the debate over lowering wages – our capital spending needs to rise.
Ireland is a small open economy that sells lots of stuff to the rest of the world. The central fact of our economy is its size and its openness to the vagaries of the world economy. A simple rule to sell lots of stuff to the rest of the world might be to produce that stuff more cheaply than elsewhere. This is the central plank of competitiveness and the sort of thing we teach undergraduates in economics. Countries should specialise to a degree that gives them an advantage, and then control costs like rent on capital and wages for labour. The argument goes that if rents or wages go too high, prices will rise, and competitiveness will be lost, harming growth and living standards in the future. But it’s usually pretty hard to control rents, so really we’re talking about wage control, unions being bad things, and so forth.
This view is simplistic and incorrect, but for some reason it has found its way into the reporting of the National Competitiveness Council’s recent report. Perhaps this has happened because of the recent sabre-rattling of the public sector unions on pay, or the change in Ireland’s position from black sheep to best boys in class in the eurozone, or simply because it’s the easiest way to tell the story, keep wages low.
It is very hard to feel sorry for central bankers. Well-paid, hyper-educated, unelected technocrats with enormous power rarely inspire public sympathy.
Nominal interest rates are as close to zero as possible. Real interest rates, which take account of inflation, are negative. eurozone inflation, at minus 0.1 per cent, is once again below the worst-case scenario in the ECB’s most recent stress tests for Europe’s banks. A tiny economy like Ireland can sell a 100-year bond and pay just north of 2 per cent on it. For 100 years! Think about what that implies.
The developed world, and particularly Europe and the US, is in dire need of large-scale infrastructural investment, at the very time that real interest rates on long-term debt are nearly zero. Yet, maddeningly, at the very moment that building lots of stuff is the right thing to do, Europe’s policy-makers are doing the opposite.
It’s not been a great week to be part of the global elite, the 10 per cent of every society who own the means of production and get paid most of the rents, the people who live from inherited wealth, and those who have attained that wealth through innovation and industry.
I’m sure there’s a tiny lake of tiny tears being cried by tiny violinists playing even tinier violins for the rich and famous who have had their attempts to avoid taxes and unwelcome scrutiny foiled by the Panama papers leak. The decision to halt Pfizer’s $160 billion merger with Allergan has also dammed the river of fees that mergers and acquisitions specialists were looking forward to.
On the face of it, almost nothing has changed, except those in the other 90 per cent get a sense, I think, of the sheer scale of these morally ambiguous corporate endeavours, the industrial quantities of shell companies created by the Panamanian law firm Mossack Fonseca — only the fourth largest in its industry — and the merger of pharmaceutical companies whose combined turnover is larger than the gross domestic product of the poorest 80 countries in the world.
Every few years the International Monetary Fund publishes a mea culpa, examining its failures to implement reforms across the globe. Each of the IMF’s “ex post evaluations” is the equivalent of the parade of apologies that Ireland’s bankers and regulators treated us to during our own banking inquiry. Perhaps the apologies were well meant, but as they carried no consequences for those apologising, they sort of fall flat.
Remember why countries call the IMF in the first place. They have had a fiscal or monetary crisis, lost access to private sovereign debt markets, are in a serious bind, and are in need of injections of cash, confidence, advice, and political cover for the implementation of very unpopular structural reforms.
It was a media circus. The year was 1966. The announcement was totally unexpected. The new Minister of Education’s announcement in September of free second level education and free school transport caught everyone by surprise.
Donogh O’Malley announced his government’s new policy at a seminar hosted by the National Union of Journalists, so he was pretty sure he’d get column inches.
Almost no one in his government had heard of this proposal before it was announced in the media. Certainly not the secretary general of the Department of Finance, Dr T K Whittaker, who wrote a stinging letter to then Taoiseach Seán Lemass warning:
“…if substantial commitments are to be announced by individual Ministers without the consent of the Department of Finance or the approval of the Government, we shall have a situation which is the negation of planning. It will become increasingly futile to be drawing up 5- or 7-year programmes, and even the financial and economic policy of the Government in the short term will be seen to bar no relation to what the country can afford”.
The phrase ‘cutting off the nose to spite the face’ supposedly comes from a period when women would disfigure themselves and their children in order to stop being carried off by marauders. The phrase has evolved to now mean harming one aspect of yourself at the expense of the rest of you.
Every time you read a piece about the likelihood of Britain voting to leave the European Union, that idiom gets tossed around. Hurting yourself to punish someone else. Injuring yourself in the act of revenge. It evokes images of pain, of needless suffering, of a desperate action forced on someone by someone else.
If you’re on a tracker mortgage, send the European Central Bank President Mario Draghi flowers. He’s made your life a little easier. If you sell your stuff abroad, send Mario a gift card or a free sample. If you work in the management of a bank, fall to your knees and pray to His image, for Mario is your salvation.