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Several news outlets report consumer sentiment in Ireland lifted slightly over the summer months[1, 2], mainly due, they say, to price drops because of the summer sales. Fair enough. What they don’t mention is the impact of an unchanged ECB interest rate on people’s mortgages, a fairly stable economic environment once one controls for rising oil prices (see the chart opposite for more details, just click through), and the implosion of the housing market, and the slashing of prices for goods in many areas of economic life.

(I’ll have another post tomorrow going through the wholesale price index numbers—the price of bread went up 14% this year!.)

None of the newspapers I’ve read download the report itself and take a look at the numbers, relying on copy and paste quotes from Dr Duffy and Mr Hughes from the ESRI website. The numbers, as they usually do, tell a more nuanced story.

Here’s the chart, compiled by Austin Hughes of IIB bank and David Duffy of the ESRI. It’s an index, and it shows, from left to right, a worsening of consumer sentiment over the year to date, followed by a decrease in the decrease, and then a slight uptick from 63 to 69. Click the figure to get the ESRI’s report in full.

More interesting is the figure buried in the text about consumers’ expectations about the next 12 months. What does the man in the street think? He thinks it’s going to get better. This measure, again an index, went up from 23 to 26. The dramatic decrease in consumers’ expectations over the year is shown in the figure below:

Again, what could account for the dramatic drop off in expectations, which are just opinions about the future, in the Irish economy? Well first, the slowdown in the housing market, second, rising oil prices, and third, high relative prices for almost every good in Irish commerce at the moment. The government will act to stabilise the housing market in the next budget, and perhaps before that, for political survival. The price of oil is dropping again, but won’t drop back to pre-2006 levels—the supply just is not there. The price of goods in Ireland is something only Irish consumers can effect: stop buying expensive stuff, but buy its cheaper variant. Retailers get the signal through increased inventories that people either want other stuff or cheaper stuff. They drop their prices to get rid of the stuff they have now, in a sale, which is what we saw over the summer. The prices of everyday commodities have to moderate to change people’s perceptions of the future, which is based mainly on how their incomes are coping with their consumption choices, so if people shop around more, and our retailers begin getting the point that lower prices correlates to stronger demand (ala Lidl), then we will be in pretty good shape.

The only person who can make a change like that is the Irish consumer—the government can’t make the spending choices for them.  People will adjust in a year’s time, and as long as the US economy doesn’t physically implode, which no-one wants to see happen, things should stay more or less on course for a return to moderate growth in 2009/2010, as the ESRI predicts in its recent quarterly report. 

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From pages 19 and 20 (I have the original 1980 working paper (U.Chicago 1980, WP No. 011) version rather than the book chapter):

The main lesson I draw from [economists'] experience as preachers is that we preach what the society wishes to hear. Perhaps all preachers achieve popularity by this route.

The degree of popularity of a preacher does not necessarily measure his influence as a preacher, let alone as a scholar. In fact, one could perhaps argue that unpopular sermons are more influential, —certainly if the opposite is true, and preachers simply confirm their listeners beliefs, pulpits should be at the rear of congregations.

So coming across this symposium in Singapore seems quite serendipitous. Click the picture to go through to the symposium website. Google analytics tells me there’s 100 or so readers of this blog in that part of the world, so if you’re interested, head along.

http://www.rp.sg/symposium

While I wouldn’t go as far as Simon from The Dossing Times in accusing David McWilliams of coming to “plain silly” conclusions which represent an “abuse of statistics”, I do think Simon has a much simpler (and less time and data intensive) method of discovering why the increase looked so big than mine: McWilliams just compared January 2008 with August 2008, and saw a huge increase. But there are seasonal effects here, as Simon correctly points out when you look year to year, which make this increase look more than regular.

So it’s more of a slight gaffe than a deliberate abuse of statistics, and McWilliams should know better, but he has shown us (or at least to me) data source when looking back at Irish emigration patterns. A more sophisticated analysis might be in order here. Anyone interested in helping?

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a huge increase in young men moving from Irish clubs all around the country to clubs in London and New York.

The idea behind the piece is very good, using a Freakonomics-style capturing of economic choices (in this case, whether to stay in Ireland or go somewhere else looking for work) through an unusual data set.

(If anyone wants to work with me on it, there is an important story to be told using this data, and it goes back many years, so get in touch if you like working with this type of stuff. I’ve obtained the data back to 2000.)

David is to be congratulated for looking under this particular rock for signs of our imminent economic disaster, because even though I don’t think he found much, the fact that this data exists at all is interesting enough to warrant a head nod of gratitude.

I do have some problems with his interpretation of the data. I didn’t believe his story, so I went and got the transfer data myself. They come from two GAA pages, here and here.

The data is monthly, and shows player movement from club to club. Some of the clubs are in London, and the UK more generally, the US, Australasia, and ‘Europe’. When you take the numbers leaving for foreign soil and divide them by the numbers of people actually moving in a given month, and compare the years 2007 and 2008, you get this picture below. Click on the charts to get the data I used to construct the figures.

Each bar represents a relative group in group ratio, so in January 2007, a figure of 0.09 means only 9% of the people moving moved abroad. We see a big increase in movement over the summer months, with July 2008 being a big (but not huge) increase.

Then when you look at the absolute numbers moving, the story changes again, as the figure below shows:

Now the way to read the figure is to just count up the numbers moving anywhere, not just abroad. It’s a straight summation. And do the numbers moving go up? They do not. They go down. Way down. So not an increase, but a decrease in movement over time from 2007 to 2008.

Here is the same figure as the one above, but this time just for people traveling abroad.

Again, the way to read the figure is just to add up the columns, so 101 people transfered to a club outside Ireland in April 2007. The only huge increase is in May 2007, well before the subprime crisis hit in August 2007, and not repeated through the economic doldrums we are in now.

Even looking at the raw numbers—total foreign departures in 2007 to August (to make the data ranges the same in both years) are 723 out of 2062 people transferring, so a ratio of 35%. In 2008, total foreign departures to August are 588 out of 1346, a ratio of 0.44, but still a decrease in the absolute amounts of people moving abroad to date.

So based on this simple exercise, I’d have to say David’s conclusions are incorrect about rising levels of Emigration. The data just don’t tell that story so clearly.

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Yesterday I wrote a small piece about using Nudge-inspired policies to improve the experience of first time parenting. Today, Martin from the Geary blog tells us

“A London council is to pilot policies based on a new theory of behavioural economics in a bid to tackle litter, reduce carbon emissions and increase recycling rates, it has emerged. The London Borough of Barnet has been given a reported £100,000 by the Department of Communities and Local Government to try out new nudge economics policies.”

link, via Martin @ Geary

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The report makes two strong claims, backed up by Ireland’s largest rental database.

First, rental rates will, on average, fall across the country due to a drift in the supply of rental homes, as we can see from the chart above from page 8 of the report. Click to enlarge it.

Second, and most important for UL students, the oversupply of rental properties in this area makes it much more likely rents will stay static (meaning that, due to inflation, your bedroom is cheaper this year than last) or may actually fall. Because the rental sector, according to daft.ie, is now a ‘buyers’ market, students can afford to shop around a bit, and perhaps demand better accommodation standards than they could in the past.

The report goes on to claim rents themselves have fallen, year on year, by 8.6% for a single room in Limerick city, though suburban areas have seen a slight bump of 4.7%, and rents have stayed almost static overall.

So, the bottom line:

• students can shop around for better accommodation, expecting rental prices to drop or stay static, and
• landlords interested in filling their rental properties should advertise widely, early, and offer quality accommodation at a fair price to secure revenues over the coming academic year.

Students with more money will spend it all on books, right?

In a previous post, I set up the status quo for our two class, household society, motivated by the most recent Household Budget Survey data, to formalise my thinking spelled out in this post. The last post was coming to a point where we could feel comfortable talking about aggregate household welfare (as measured by their disposable income) in the context of a simple tax and transfer government.

The way we modeled the status quo was to say each household had a certain amount of taxation revenue, , which went to the government, removed from it, and then had a direct transfer of some revenue from the government, , added to their wealth in the form of educational services, so the `budget profile’ in any period for any household, , can be given by the expression . The social welfare function of this list of households and their wealth is now given by

.

Now let’s change the status quo. Let’s make the substitution of a one-fits all free education transfer to a sliding scale income contingent loan facility for those households in the list which the government deems wealthy enough to support their own educational financing.

Begin with the following observation: some households in this list have more income than other households. Now the government as policy-setter can choose a filter which, for every household, assigns it to one group or another, rich , or poor, . Those who are poor perceive no change in the status quo, because they continue to be fully funded by the government in a direct transfer as before.

Those households whom the government deems rich continue to pay their taxes as before, but this time they only recieve part of the educational transfer from the government, in a sliding scale going down as the income of each individual household $i$ goes up as we move up the list. The rest of the educational fees they must pay our of their disposable income net of taxes.

Now each household which belongs to the `rich’ group, , has a `budget profile’ like this:

,

where denotes the fees set by the university (of which more in a later post), and is a sliding scale parameter dependent on the household’s position in the income list within the `rich’ group.

The social welfare function for this group is

I’ll provide a numerical example in the next post.

Now we need to show that this social welfare function, .

Proof

Proof strategy. It is sufficient to show `Lorenz’ dominates , which implies we need to show . The way to prove this is to sum the elements of the list and compute an inequality index like Gini. If as measured by gini, then using the properties of the Atkinson index, the social welfare function will dominate another.

Due to a deadline on a paper, I’ll have to do this in part three tomorrow.

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Here’s a paper I’m presenting at a Mathematica symposium at Trinity College, Dublin on September 15. The notes are 43 pages long, and cover aspects of modern growth theory, the mathematical tools behind some canonical models, and show how to implement these growth models in Mathematica.

The paper covers Solow, Romer, Mankiw-Romer-Weil, as well as Ramsey-Cass-Koopmans growth models. They also contain pedagogical notes on linear and dynamic programming, differential equations, and numerical analysis.

Right click the link below to download the paper. The Source file which produced the paper is quite large (18mb), so if you’d like a copy, please email me.

growththeorymacronotes_v3_reduced

Really, these notes represent a fairly good attempt at writing in the old Mathematica style. The new Mathematica style is built around usable pedagogical instruments called Demonstrations, which show the user the idea you’re trying to convey graphically and numerically, while the user never sees a line of Mathematica code. So far I’ve not learned how to build demonstrations, but I will over the next term for my two classes.

The next steps in enlarging the notes is to connect the growth models to real world data series like the Penn World Tables, and econometrics. From there one can use Mathematica for sensible policy exercises in growth and development economics.

I’m looking forward to the symposium, and hope to learn a lot from the other presenters.