Today I spoke at the IIEA on the theme of Consolidating Ireland's Recovery – What Next?, with EU Commissioner Pierre Moscovici, Minister Dara Murphy and Bank of Ireland's Loretta O'Sullivan. The event was chaired by Dan O'Brien and was really informative. Slides and video will be up here in due course.
Sometimes failure really is success in progress. The headline unemployment is now 9.8%, more than 212 thousand people. On the face of it, a total policy failure, and nothing to be happy about, apart from the fact that that number is dropping from a high of over 15%, and has been dropping since mid 2011. Over 1.9 people are employed in Ireland today, getting us back to 2009 levels. There are large increases in full time employment and decreases in part-time employment. Of all the new jobs, 19,000 of them are in construction. Long-term unemployment is falling like a stone.
Is it fair to call the current unemployment rate a failure of policy? Any unemployment rate above three or four per cent is probably too high, but policies focused around building stronger labour market activation programmes, a more connected welfare system and an increase in investment by small and medium enterprises is very important. Well-designed strategy documents to the contrary, not many of these policies are in place, and there are few evaluations showing us just how good the programmes are.
David Cameron’s re-election has stunned pollsters and put the issue of the United Kingdom leaving the European Union firmly on the table. Showing how far removed the UK’s voters are from the long term interests of their nation, they have re-elected a party which promises to impose more austerity, weaken social structures, and cut them off from one of their largest markets. Democracy is a funny thing. The ‘mediamacro’ type of analysis done by the British media shows us that the tradeoff was sold in terms of benefits to migrants and costs to the taxpayer of being in the EU--as a rich nation the UK contributes more than it receives from the Union in many cases.
Michael Noonan thinks there are some people who are work shy, people who, if a job was a bed, they’d sleep on the floor, people who run from employment like upper middle class people run from foods with gluten in them because of their ‘allergies’.
This week, during a Kilkenny Chamber of Commerce lunch, The Minister said “we all know there will be people who will never work. They're allergic to work.”
Language is so important. Let’s dig a little bit into how Mr Noonan made his assertion. He started by saying ‘we all know that’. ‘We all know that’ is a very dangerous piece of language. It tells us a few things. The Minister thinks his opinion is shared by a majority of people. Maybe it is. Maybe it isn’t. The Minister thinks his opinion isn’t just an opinion but knowledge—we all ‘know’—and the finality of the rest of the sentence, ‘ who will never work’. Not ‘they might never work’ or ‘they could never work’. They will never work.
Let’s read that comment again.
“…we all know there will be people who will never work. They're allergic to work.”
Backslapping. Clarity. A break from the policies of the past. Balance. Forecasts as anchors for expectations. Prudence. Long-term thinking. These were the phrases I scribbled down while listening to Ministers Noonan and Howlin during last Tuesday’s spring statement.
First things first: Olympic-level backslapping. The government has a good news story on the economy and wants to let everyone know about it. By the standards of Irish politics they weren’t too over the top about it, and didn’t give the opposition anywhere near as much abuse as I thought I might see beforehand, but the ministers might get repetitive strain injuries and end up in back braces if it keeps up much longer.
Clarity. The government wanted to frame the next few budgets in terms of moving away from income taxes and towards taxes which put the economy on a sounder footing, as well as planning for demographic changes which will impact public spending, particularly on health and education. This was really well done in my view, and proper fiscal forward guidance. The level of analysis was excellent and the assumptions did not seem either too rosy or too conservative. The balance and prudence the government was hunting for is reflected in their numbers, particularly in the programme update documentation. An example: investment in the economy is predicted to rise by 15% in 2015, 12% in 2016, and 8.1% in 2017, and 4% in 2018. So the impulse from investment, or exports, or any other category, is much smaller than we have seen in previous periods.
Taxes are the price you pay for social services. You might think the price is too high, too low, you might think the service you’re getting is great, or rubbish, but there is no getting away from the need for someone to pay for these services. When it comes to tax, the first principle is NFMBPB--not from my back pocket, buddy.
Everyone wants someone else to foot the bill. The rich want tax breaks on the passive incomes their capital gains give them. The poor want to pay nothing because their disposable incomes are too low. They pay most of their taxes through VAT and other consumption-type taxes like excise duty. The middle classes grumble about everything but put up with it and, in the end, do end up footing a large part of the bill, in particular those on over about 70,000 euros. Nobody likes the corporations and their low-low tax regime, except when they provide us with well paid jobs.
The banking inquiry is starting to get expensive and soon it will start getting expansive. Clocking in at more than 2 million euros so far, the context phase of the inquiry is nearly over. While watching the inquiry daily, it often felt like the witnesses had overdosed on hindsight pills. I kept thinking ‘I know this, I know this’. Sparks rarely flew between the inquiry’s members and the witnesses, and I’m sure viewer figures online would be very low so far.
Despite this, DIT’s Harry Browne and UCD’s Dr. Julien Mercille both highlighted something new in the run up to the crisis: the role of the media as a cheerleader for it. The debate on the media’s role hasn’t really been had, and so this new ‘strand’ is already out there. Dr Elaine Byrne’s and Prof. Niamh Hardiman’s evidence on the banks’ behaviour on behalf of developers will hopefully change the debate on corruption and governance in the sector. Before Frank McDonald and Marie Hunt discussed it during the inquiry, the spatial dimension of the crisis hasn’t been looked at in much detail, though an excellent academic book on spatial justice edited by Gerry Kearns, David Meredith and John Morrissey does address the issue.
(This is an unedited version of yesterday's Sunday Business Post column).
Is there really a crisis in the Eurozone? If you look at the behaviour of the system, clearly there isn’t. Greek Finance Minister Yanis Varoufakis was in Paris this week discussing new economic thinking and he didn’t appear too stressed out about the impending bond payment to the IMF which his country didn’t seem to be able to pay—right up until it did pay. How? The European Central Bank agreed to increase the ceiling on emergency liquidity assistance to Greek banks by 1.2 billion euros to 73.2 billion euros.
Yet again, everyone got excited about the prospect of a Greek exit, the Greek banking system’s collapse and the possibility of contagion. Yet again, nothing much happened. I’m not minimising the work that goes into maintaining the status quo—when you’re running to stand still, you’re still running—but no earth-shattering, life-redefining moments have taken place since Mario Draghi spoke the magic 3 words: whatever it takes, in 2012. So is there really a crisis? European stocks are at a 15-year high, thanks to Mr. Draghi. The weaker euro is also easing the threat of deflation. Instead of a collapse and a dramatic redefining of the European project, we have seen a very gradual expansion of the institutional architecture of the Eurozone, from its initial bailout mechanisms to a full banking union and the adoption of a much larger supervisory role by the ECB in Europe’s largest banks, all the way to the roll out of quantitative easing in recent months.
The reaction to the crisis has meant we are edging towards a United States of Europe. This makes a lot of sense as the flawed design of the links between national governments and the system of central banks within the single currency is primarily responsible for the crisis. In a sense, the route out of the crisis is pretty simple: the countries with a large, or let’s be fair, giant, trade surplus like Germany need to spend more and help the deficit countries grow faster. That’s what Keynes talked about when thinking about how countries should help one another balance things out when exchange rates aren’t there.
Asking Germans to spend more is a bit like playing tennis against a curtain. It just doesn’t matter how hard you try, it just ain’t going to happen.
Nothing in this diagnosis helps Greek politicians square the circle that right now, today, their state is deeply indebted to a set of institutional creditors who are less helpful than they should be, and probably more helpful than they legally can be. Confidence among industry, retail, and services has collapsed since the newly-elected Greek government took over in January 2015, as the graph shows. The tax take there has fallen, making repayment of any debt more difficult. Investors are not investing the Greek economy. Any reforms predicated on the economy generating a surplus of taxation revenue over government expenditure is now in jeopardy.
Concretely, the Greek economy needs short term financing combined with deep structural reforms to unlock yet more funding. Let’s parse that. It’s really important that we understand what the short term liquidity is desgined to achieve. It keeps the banks’ doors open. Nothing more. So in Paris, Minister Varoufakis admitted:
“in order to create the liquidity which is necessary to see these negotiations through hopefully to a sustainable solution, I have to make the same request that we are allowed to issue T-bills over and above a certain limit to create the liquidity necessary to see us through to the end of the month or the next month or June, so as to be able to redeem payments to the former troika -- to the IMF in this case.”
That’s nuts. The ECB has allowed more than 73 billion euros of emergency funding to keep the doors of the banks open, and not much else. It hasn’t much chance of seeing it back.
Beyond the short term financing, we should know that ‘Structural Reforms’, whatever form they might take, is French (or German) for pain. The word ‘reform’ in Greece is a dirty word. It means a Greek pensioner will lose their purchasing power, Greek unemployment will increase, and a generation’s potential will be lost. The Greek state is certainly to blame for these debts being run up, but its people will bear most of the brunt of the adjustment.
So is there really a crisis? The debts the Greeks owe to the IMF, ECB and other official funders are only being paid back with money created by the Greek central bank that the ECB allows. The circularity of this transaction is obvious. So don’t worry about it. Worry about exhaustion. First, the exhaustion that will come from the impact of structural reforms on the Greek people, and the exhaustion of the authorities in Europe, tired of dealing with a country it sees as recalcitrant and unwilling to change. The crisis might turn out to be a crisis of patience.
(This is an unedited version of my Sunday Business Post column from yesterday)
Why do you pay your taxes? One school of thought says you pay through gritted teeth because if you don’t, you’re in trouble with the Revenue Commissioners, and you really don’t want to annoy them. Another school of thought suggests you understand you need the services the government provides, you get at some level that these services don’t come for nothing, and so you pay taxes, probably while grinding your teeth, as the price of social services and a cohesive society.
Imagine this. You don’t pay your taxes and the government suspends its role in protecting your private property. So Stephen Kinsella defaults on his obligation to the state and the police force simply say sorry, we are not enforcing this guy’s property rights. Someone can now walk into my house and take, by force, whatever they want, up to and including the house itself, if they have enough force. It’s obvious society wouldn’t work too well if the fundamental rules like the provision of property rights went out the window if we didn’t pay our water charge bill.
(Here's the text of a piece I wrote for the booklet for the BSTAI event I mentioned in the last post. Fun times.)
What choices will you make to live the best life you can? The next few years for you will revolve around answering this question. Beware: People might dress it up in fancy phrases like ‘maximising your potential’ or something like that. Ignore them. You’re smart enough to know you’re probably being sold something.
There’s no doubt you have to make a series of choices, and these choices will help determine the course of your life. So those choices are important.
(This is the text of my speech to the KBS/BSTAI Awards a few weeks ago. It was a lot of fun and thanks to the organisers for inviting me to speak).
A contradiction happens when opposing ideas are combined.
In 1519 Hernán Cortés journeyed to what is now Mexico. He caused the fall of the Aztec empire, using guns, germs, and steel. Cortés did that for gold. The Aztecs could not understand why Cortés wanted this useless soft metal. He told them he had “a disease of the heart that could only be cured with gold”.
(This is an unedited version of my Sunday Business Post column from yesterday)
Today’s Red C/Sunday Business Post Poll shows us one uncomfortable truth: when you’re the incumbent, you can buy an election. Look closely. The results are stark. Fine Gael and Labour are experiencing a bounce in their fortunes as more and more people feel a bounce in their pay packets. Despite the Taoiseach’s approval ratings falling faster than the price of a pint of crude oil since he took office, 42% of respondents trust the government to stabilise the public’s finances, up from 37% in 2011. Almost half-47%-of respondents are worried a change in government would actually stall a recovery.
And this is before the real giveaway begins.