6/3/2014: A 'New Normal' of Ireland's economy

This is an unedited version of my Sunday Times article from February 23, 2014.


Jobs, domestic investment, exports-led recovery and sustainable long-term growth are the four meme that have captured the current Coalition, setting the early corner stones for the next election’s promises. Resembling the ages-old "Whatever you like, we’ll have it" approach to policymaking, this strategy is dictated by the PR and politics first, and economics last. For a good reason: no matter how much we all would like to have hundreds of thousands new jobs based on solid global demand for goods and services we produce, given the current structure of the Irish economy, these fine objectives are largely unattainable and mutually contradictory.

Firstly, restoring jobs lost in the crisis requires restarting the domestic economy and investment both of which call for an entirely different use of resources than the ones needed to sustain exports-led growth. Secondly, domestic and externally trading economies are currently undergoing long-term consolidation. Expansion or growth will have to wait until these processes are completed. Thirdly, replacing lost jobs with new ones will not lead to a significant decrease in our unemployment. Majority of current unemployed lack skills necessary to fill positions that can be created in a sustainable economy of the future.

Torn between these conflicting calls on our resources, Irish economy is now at a risk of slipping into a ‘new normal’. This long-term re-arrangement of the economy can be best described as splitting the society into the stagnant debt-ridden domestic core and slowly growing external sectors increasingly captured by the aggressively tax optimising multinationals. Only a major effort at reforming our policymaking and tax regimes can hold the promise of escaping such a predicament.


In simple terms, Ireland's main problem is that we lack new long-term sources for growth.

Let's face the uncomfortable truth: apart from a historically brief period of economic catching up with the rest of the advanced economies, known as the Celtic Tiger from 1992 through 1999, our modern economic history is littered with pursuits of economic fads. In the 1980s the belief was that funding elections purchases via state borrowing delivers income growth. The late 1990s were the age of dot.com ‘entrepreneurship', and property and public 'investment'. From the end of the 1990s through today, correlation between real GDP per capita growth and the growth rates in inflation-adjusted real exports of goods collapsed, compared to the levels recorded in the period from 1960 through 1989. In the early 2000s dot.coms fad faded and domestic lending bubble filled the void. Since the onset of the 2010s, the new promise of salvation came in the form of yet another fad - ICT services.

Decades of growth based on tax arbitrage and the lack of sustained indigenous comparative advantage and expertise left our economy in a vulnerable position. Ireland today has strong notional productivity and competitiveness in a handful of high value-added sectors dominated by multinationals. As past experience shows, these activities can be volatile. As the recent data attests, they are also starting to show strains.

Last week, the Central Statistics Office published the preliminary data on merchandise trade for 2013. The results were far from pretty. Year on year, total value of Irish goods exports fell to EUR86.9 billion from EUR91.7 billion in 2012, and trade surplus in goods shrunk by EUR5.25 billion. Overall, 2013 was the worst year for Irish goods exports since the crisis-peak 2009.

This poor performance is due to two core drivers: the pharmaceuticals patent cliff and stagnant growth in exports across other sectors, namely in traditional and modern manufacturing.

The data clearly shows that we are struggling to find a viable replacement for pharmaceuticals sector. If in 2012, trade balance in chemicals and related products category accounted for 105 percent of our trade surplus, in 2013 this figure rose to over 106 percent. Just as our exports in this category are falling, our trade balance becomes more dependent on them.

The strategy is to replace traditional pharma activity with biopharma and other sectors that are more research-intensive than traditional pharma. Alas, our latest data on patenting activity shows that Ireland remains stuck in the pattern of low R&D output with declining indigenous patent filings. Institutionally, we have some distance to travel before we can become a world-class competitor in R&D and innovation. The latest Global Intellectual Property Index published this week, ranks Ireland 12th in the world in Intellectual Property environment. Beyond this lies the problem that much of the innovation-linked revenues booked by the MNCs into Ireland relate to activity outside of this country and are channeled out of Ireland with little actual economic activity imprint left here.

From the point of view of our indigenous workforce, it is critical that Irish indigenous exporters aggressively grow in new markets. Yet, Irish exports to BRICS economies and to Asia-Pacific have fallen in 2013. Our trade deficit with these countries has widened by 87 percent to EUR858 million last year.

So far, the short-term support for falling goods exports has been provided by relatively rapidly rising exports of services. This process, however, is also showing signs of stress. While we do not have figures for trade in services for 2013, the IMF most recent assessment of the Irish economy shows that our share of the world exports of services remains stagnant. And the IMF projects growth in Irish trade balance on services side to slow down significantly after 2015.


While exports engine is still running, albeit in a lower gear, domestic side of the economy remains comatose under the huge weight of our combined public and private debt overhang.  Total government and domestically-held private sectors debts stood at 189 percent of our GDP in 2007. At the end of 2013 it was 252 percent. This does not include debts held outside our official domestic banking system or loans extended to Irish companies abroad. The good news is the cost of funding this debt is relatively low. The bad news is – it will rise in the longer term.

And, in the long run, the wealth distribution in Ireland is skewed in favour of the older generations. This leaves more indebted working age households out in the cold when it comes to saving for future retirement and funding current investment in entrepreneurship and business development.

Irish economy is heading for a major split. Across the demographic divide the generation of current 30-45 year-olds will go on struggling to sustain debts accumulated during the period of the Celtic Tiger. They will continue facing high unemployment rates for those who used to work in the domestic economy. A stark choice for these workers will be either re-skilling for MNCs-dominated exports-focused services sectors, emigrating or facing permanently reduced incomes. Even those, likely to gain a foothold in the new ICT-led economy will have to stay alert hoping that the footloose sector does not generate significant jobs volatility.

All in, the unemployment rates in the economy are likely to remain stuck at the ‘new normal’ of around 8-8.5 percent through the beginning of the next decade, contrasting the 5 percent full employment rate of joblessness in the first decade of the century.


At this point in time, it is hard to see the sources of growth that can propel Ireland to the growth rates recorded over the two decades prior to the crisis. Back then, Irish real GDP per capita grew at an annualised rate of some 4.7 percent. The latest trends suggest that our income is likely to grow at around 1 percent per annum over 2010-2025 period - the rate of growth that has more in common with Belgium and below that expected for Germany. Aptly, the IMF puts our current output gap – the distance to full-employment level of economic activity – at around 1.2 percent of GDP, which ranks our growth potential as only thirteenth in the euro area. This clearly shows the shallow growth potential for this economy even in current conditions.

Slow recovery in employment and continued deleveraging of the households mean that Ireland will be staying just below the Euro area average in terms of income and consumption, and above the EU average in terms of unemployment. In that sense, the economic mismanagement of the naughties will be reversed by not one, but two or more lost decades.

Ireland has some serious potential in a handful of domestic sectors, namely food and drink, and agrifood, as well as in the areas where our ability to create and attract high quality human capital can offer future opportunities for growth. We have a handful of truly excellent, globally competitive enterprises, such as CRH, Ryanair and Glanbia. But beyond this, we are not a serious player in the high value-added game of modern economic production. In sectors where we allegedly have strong expertise: pharma, biotech, ICT, and finance, Ireland has no globally recognised large-scale indigenous players.

Ending the lost decades on a note of rebirth of the Celtic Tiger will take much more than setting political agendas for ‘kitchen sink’ growth agendas. It will take big-ticket reforms of the domestic economy, tax system, and political governance. Good news is that we can deliver such reforms. Bad news is that they are yet to be formulated by our leaders.

Box-out: 

Recent research note from Kamakura Corporation provided yet more evidence of the damaging effects of the EU's knee-jerk reaction policies in the wake of the global financial crisis. Specifically, Kamakura study published last week focused on the July 2012-issued blanket ban on short selling in the European Credit Default Swaps (CDS) markets. CDS are de facto insurance contracts on sovereign bonds, actively used by professional and institutional investors for risk management and hedging. The study found that as the result of the EU ban, trading activity declined for eighteen out of 26 EU member states' CDS. Put in more simple terms, as the result of the EU decision, risk hedging in the sovereign debt markets for the majority of the EU member states' bonds was significantly undermined, leading to increased risk exposures for investors. At the same time, liquidity in the CDS markets fell, implying further shifting of risk onto investors in sovereign bonds. Kamakura analysis strongly suggests that investors holding sovereign debts of euro area ‘peripheral’ countries like Spain and Italy are currently forced to pay an excessive liquidity risk premium in CDS markets. At the same time, the EU regulators, having banned short selling can claim a Pyrrhic victory in public by asserting that they have reacted to the crisis by introducing tougher new regulations. In Europe, every political capital gain made has an associated financial, social or economic cost. This is true for economic decisions and financial markets regulations alike. Too bad that those who benefit from the former gains rarely face any of the latter costs.

22/1/2014: Tale of Two Italian Earthquakes: Long-Term Effects of Institutional Capital

A very interesting paper from Banca d'Italia on the two divergent outcomes of similar earthquakes in two Italian regions.

The paper, titled "Natural disasters, growth and institutions: a tale of two earthquakes" by by Guglielmo Barone and Sauro Mocetti (Number 949 - January 2014: http://www.bancaditalia.it/pubblicazioni/econo/temidi/td14/td949_14/en_td949/en_tema_949.pdf) is worth reading.

Here is a summary of findings:

"We examine the impact of natural disasters on GDP per capita by applying the
synthetic control approach. Our analysis encompasses two major earthquakes that occurred in two different Italian regions in 1976 and 1980."

Regions covered: Friuli (1976 quake) and Irpinia (1980 earthquake).

"We compare the observed GDP per capita after the quake (which is an exogenous and largely unanticipated shock by definition) in each area with that which would have been observed in the absence of the natural disaster. We carry out this comparative analysis using a rigorous counterfactual approach, the synthetic control method, proposed by Abadie and Gardeazabal (2003) and Abadie et al. (2010)."

"According to our findings there are no significant effects of the quake in the short term. However, this result can be largely attributed to the role of financial aid in the aftermath of the disaster. Using different assumptions regarding the magnitude of the fiscal multiplier, we estimate that the yearly GDP per capita growth rate in the five years after the quake, in the absence of financial aid, would have been approximately 0.5-0.9 percentage points lower in Friuli and between 1.3-2.2 points lower in Irpinia."

Note that the above suggests that even at lower levels of impact, fiscal transfers played less importance in Friuli than in Irpinia.

This, however, is not what happens in the long run. While financial aid was effective in reducing impact of the earthquakes in their short-term aftermath, the same aid was not sufficient to counter longer term adverse effects. "In the long term, we find two opposite results: the quakes yielded a positive effect in Friuli and a negative one in Irpinia. In the former, 20 years after the quake, the GDP per capita growth was 23 percent higher than in the synthetic control, while in the latter, the GDP
per capita experienced a 12 percent drop."

What drove these divergent effects? "After showing that in both cases, the dynamics of the GDP per capita largely mirrors that of the TFP, we provide evidence that the institutional quality shapes these patterns. In the bad-outcome case (Irpinia), in the years after the quake fraudulent behaviors flourished, the fraction of politicians involved in scandals increased, and the civic capital deteriorated. Almost entirely opposite effects were observed in Friuli. Since in Irpinia the pre-quake institutional quality was ‘low’ (with respect to the national average) while in Friuli it was ‘high’, we argue that the preexisting local economic and social milieu is likely to play a crucial role in the sign of the economic effect of a natural disaster. Consequently, our results also suggest that disasters may exacerbate differences in economic and social development."

See these the map highlighting the quality of institutions differences:

Or in more succinct terms: "Consistently with these findings, we offer further evidence suggesting that an earthquake and related financial aid can increase technical efficiency via a disruptive creation mechanism or else reduce it by stimulating corruption, distorting the markets and deteriorating social capital. Finally, we show that the bad outcome is more likely to occur in areas with lower pre-quake institutional quality. As a result, our evidence suggests that natural disasters are likely to exacerbate differences in economic and social development."

11/1/2014: Individualism v Collectivism: Dynamic Effects of Culture on Innovation & Growth

A few years old, but very good paper: "Culture, Institutions and the Wealth of Nations" by Gorodnichenko, Yuriy and Roland, Gérard (September 2010, NBER Working Paper No. w16368: http://ssrn.com/abstract=1678911)

Based on an endogenous growth model with cultural variable the paper "predicts that more individualism leads to more innovation because of the social rewards associated with innovation in an individualist culture. This cultural effect may offset the negative effects of bad institutions on growth. Collectivism leads to efficiency gains relative to individualism, but these gains are static, unlike the dynamic effect of individualism on growth through innovation."

Empirical findings: "Using genetic data as instruments for culture we provide strong evidence of a causal effect of individualism on income per worker and total factor productivity as well as on innovation. The baseline genetic markers we use are interpreted as proxies for cultural transmission but others have a direct effect on individualism and collectivism, in line with recent advances in biology and neuro-science."

And robustness checks: "The effect of culture on long-run growth remains very robust even after controlling for the effect of institutions and other factors. We also provide evidence of a two-way causal effect between culture and institutions."

28/8/2012: Challenging 'perpetual growth' hypothesis

Once in a while, there is a fascinating piece of thinking that focuses on the long-term economic trends that is worth reading. Robert J. Gordon's "Is the US Economic Growth Over? Faltering Innovation Confronts the Six Headwinds" (NBER working paper 18315 published last week - link here) is exactly that.

The study looks at an exceptionally complex issue of long-term (centuries-long) trends in growth from the point of questioning the basic premise of economics - the premise that future growth is a 'continuous process that will persist forever'.

Quoting from the paper, the author establishes the following basic points concerning the prospects for future growth (up to 50 years out from 2007 and abstracting from the fallout from the ongoing crisis):

1. "Since Solow’s seminal work in the 1950s, economic growth has been regarded as a continuous process that will persist forever.  But there was virtually no economic growth before 1750, suggesting that the rapid progress made over the past 250 years could well be a unique episode in human history rather than a guarantee of endless future advance at the same rate."
2. "The frontier established by the U.S. for output per capita, and the U. K. before it, gradually began to grow more rapidly after 1750, reached its fastest growth rate in the middle of the 20th century, and has slowed down since.  It is in the process of slowing down further."
3. "A useful organizing principle to understand the pace of growth since 1750 is the sequence of three industrial revolutions. The first (IR #1) with its main inventions between 1750 and 1830 created steam engines, cotton spinning, and railroads. The second (IR #2) was the most important, with its three central inventions of electricity, the internal combustion engine, and running water with indoor plumbing, in the relatively short interval of 1870 to 1900.  Both the first two revolutions required about 100 years for their full effects to percolate through the economy. During the two decades 1950-70 the benefits of the IR #2 were still transforming the economy, including air conditioning, home appliances, and the interstate highway system. After 1970 productivity growth slowed markedly, most plausibly because the main ideas of IR #2 had by and large been implemented by then."
4. "The computer and Internet revolution (IR #3) began around 1960 and reached its climax in the dot.com era of the late 1990s, but its main impact on productivity has withered away in the past eight years.  Many of the inventions that replaced tedious and repetitive clerical labor by computers happened a long time ago, in the 1970s and 1980s.  Invention since 2000 has centered on entertainment and communication devices that are smaller, smarter, and more capable, but do not fundamentally change labor productivity or the standard of living in the way that electric light, motor cars, or indoor plumbing changed it."
5. "... It is useful to think of the innovative process as a series of discrete inventions followed by incremental improvements which ultimately tap the full potential of the initial invention. For the first two industrial revolutions, the incremental follow-up process lasted at least 100 years. For the more recent IR #3, the follow-up process was much faster. Taking the inventions and their follow-up improvements together, many of these processes could happen only once. Notable examples are speed of travel, temperature of interior space, and urbanization itself."
6. "The benefits of ongoing innovation on the standard of living will not stop and will continue, albeit at a slower pace than in the past. But future growth will be held back from the potential fruits of innovation by six “headwinds” buffeting the U.S. economy, some of which are shared in common with other countries and others are uniquely American.  Future growth in real GDP per capita will be slower than in any extended period since the late 19th century, and growth in real consumption per capita for the bottom 99 percent of the income distribution will be even slower than that." 
7. "The headwinds [to growth] include the end of the “demographic dividend;” rising inequality; factor price equalization stemming from the interplay between globalization and the Internet; the twin educational problems of cost inflation in higher education and poor secondary student performance; the consequences of environmental regulations and taxes that will make growth harder to achieve than a century ago; and the overhang of consumer and government debt.  All of these problems were already evident in 2007, and it simplifies our thinking about long-run growth to pretend that the post-2007 crisis did not happen."

An interesting and highly illustrative chart plotting growth evolution:

And the conclusion? "A provocative “exercise in subtraction” suggests that future growth in consumption per capita for the bottom 99 percent of the income distribution could fall below 0.5 percent per year for an extended period of decades." Illustrated here:

2/8/2012: A bit of an Olympic bubble?

Hosting Olympics is considered to be a great boost to the economy and yield long term benefits from infrastructure investments, branding of the host city etc. Right?

Here's a study (link):

"Summer Olympics bring hundreds of thousands of visitors and generate upward of $10 billion in spending for the host city. This large influx of tourism dollars is only part of the overall impact of hosting the Olympic Games. In order to host the visitors and sporting events, cities must make sizable investments in infrastructure such as airports, arenas, and highways. 


Additionally, the publicity and international exposure of a host city may benefit international trade and capital flows. 


Proponents argue that this investment will pay off through increased economic growth, but research confirming these claims is lacking. 


This paper examines whether hosting an Olympiad improves a city's long‐term growth. 


In order to control for the self‐selection of cities that host Olympic Games, this paper matches Olympic host cities with cities that were finalists for the Olympic Games, but were not selected by the International Olympic Committee. A difference‐in‐difference estimator examines post‐Olympic impacts for host cities between 1950 and 2005. 


Regression results provide no long‐term impacts of hosting an Olympics on two measures of population, real Gross Domestic Product per capita and trade openness."

21/7/2012: Sunday Times July 1, 2012 - Not a 'stimulus' again...

An unedited version of my Sunday Times article from July 1.

One of the points of contention in modern economics is the role of fiscal spending shocks on economic growth. Various empirical estimates suggest Irish fiscal multiplier at 0.3-0.4, implying that for every euro of additional Government spending we should get a €1.30-€1.40 in GDP uplift. However, these are based on models that do not take into the account our current conditions. Despite this fact, Irish policymakers continue talking about the need for Government to stimulate the economy, while various think tanks continue to argue that Ireland should abandon fiscal stabilization or more aggressively tax private incomes to deliver a boost to our spending.

International research on this matter is more advanced, although it too leaves much room for a debate.

June 2012 IMF working paper titled “What Determines Government Spending Multipliers?” by Giancarlo Corsetti, Andre Meier and Gernot Muller (June 2012) studied the effects of government spending on the economy under the variety of macroeconomic conditions.

What IMF researchers did find is that the initial conditions for stimulus do matter in determining its effectiveness – an issue generally ignored in the domestic debates about the topic.

Under a pegged exchange rate regime, similar to Ireland’s but still allowing for some exchange rate and interest rates adjustments, trade balance is likely to worsen in response to a fiscal stimulus, while output can be expected to rise. Domestic investment and consumption will decline in response to the positive stimulus shock. These factors are likely to be even more pronounced in the case of Ireland’s currency ‘peg’ that permits no adjustment in real exchange rate except via domestic inflation.

The role of weak public finances in determining the effectiveness of fiscal spending stimulus is also revealing. The study defines fiscally constrained conditions as the gross government debt exceeding 100 percent of GDP and/or government deficit in excess of 6 percent of GDP. Both of these are present in the case of Ireland. On average, the study shows that consumption response to fiscal stimulus is negative-to-zero following the stimulus, but becomes positive in the medium term. Impact on output and investment is negative. The core reasons for the adverse effects of fiscal expenditure on economic performance are losses from stimulus through increased imports of goods and services by the State, internal re-inflation of the economy through inputs prices, plus the expectation from the private sector consumers and producers of higher future taxes required to cover public spending increases.

In the case when financial crisis is present, increase in Government spending results in a positive and strong output expansion, rise in consumption and, with some delay, rise in investment. However, net exports still fall sharply and the stimulus leads to the inflationary loss of external competitiveness in the economy.

The problem with the above results is that the IMF study still does not consider what happens to a fiscal stimulus in a country like Ireland, combining a strict currency peg, exclusive reliance on trade surplus for growth generation and characterized by historically high levels of fiscal imbalances and financial system collapse. In other words, even the IMF research as imprecise as it is, is far from conclusive.

These are non-trivial problems in the case of Ireland. Official estimates for fiscal policy multiplier in this country range between 0.38 (European Commission) and 0.4 (Department of Finance).  These are based on relatively simplistic models and are, therefore, likely to be challenged by the reality of our current conditions. A more recent study from the Deutsche Bank cites Irish fiscal multiplier of 0.3 without specifying the methodology used in deriving it. Either way, no credible estimate known to me puts the fiscal multiplier above 0.4 for Ireland.

In short, Government stimulus is not exactly an effective means for raising output, even at the times when the economy can take such stimulus without demolishing the Exchequer balancesheet. And lacking precision in estimating the fiscal multiplier, the entire argument in favor of fiscal stimulus is an item of faith, not of scientific analysis.

In my opinion, Ireland does not need a Government expenditure boost. Instead we need a policy shift toward stimulating domestic and international investment, plus the public expenditure rebalancing away from current spending toward some additional capital investment.

Quarterly National Accounts clearly show that the problem with the Irish economy is not the fall off in private or public consumption, but a dramatic collapse in private investment. While private consumption expenditure in Ireland has declined 13.6% relative to the economy’s peak in 2007, net expenditure by Government is down 12.0% (including a decline in public investment). However, overall private investment in the economy is down 67%. 2011 full year capital investment was, unadjusted for inflation, at the level last seen in 1997, while consumption is down ‘only’ to 2005-2006 levels and Government spending is running at around 2006 levels. With nominal GDP falling €33.5 billion between 2007 and 2011, our investment declined €32.6 billion over the same period, personal consumption dropped €12.8 billion, while net Government expenditure on goods and services is down a mere €3.4 billion. Between 2007 and 2011, total voted current expenditure by the Government rose 12%, while total net voted capital expenditure fell 44%.

Adding a Government investment stimulus of €2 billion would have an impact of raising net capital expenditure by the Exchequer in 2012-2014 to the levels 22.4% below those in 2007 and will lift our GDP by under 1.8% according to the EU measure of fiscal multiplier. However, factoring in deterioration in the current account as estimated by the IMF, the net effect might be closer to zero. Based on IMF model re-parameterized to our current conditions, the net result can be as low as 0.1% increase in GDP.

Again, the problem here is the effect of capital spending on our imports. As a highly open economy, Ireland imports most of what it consumes. This includes Government and private capital investment goods – machinery, materials and know-how relating to construction, assembly, installation and operation of modern transport systems, energy and ICT, etc. Some of these imports will continue well beyond the period of actual investment. In other words, using fiscal stimulus to finance public capital investment risks providing some short-term supports for lower skilled Irish labour and few professionals with the lion’s share of expenditure going to the multinational companies supplying capital goods and services into Ireland from abroad.

The fiscal cost of such a stimulus, however, would be exceptionally high. Between 2008 and 2011, Irish Government has managed to cut €4.3 billion off the annual capital spending bill while increasing current spending by €662 million. This resulted in total voted spending reduction of only €3.6 billion. A stimulus of €2 billion on capital investment side will throw the state back to 2009 levels of expenditure, erasing two years worth of consolidation, unless it is financed out of cutting current spending and transferring funds to capital programmes. The extra capital spending will lead to further retrenchment in private consumption and investment, as households and businesses will anticipate relatively rapid uplift in tax burdens to recover the momentum to the fiscal consolidation. This, coupled with already committed €8.6 billion in further fiscal adjustments in the next three years, will further reduce growth effects of the stimulus and shorten its positive effects duration.

Overall, the right course of policies to pursue today requires restructuring of the debt burden carried by the real economy, starting with household debts and stimulating, simultaneously domestic and foreign investment into small and medium enterprises and start-ups. Instead of focusing on the less labor-intensive MNCs’ investments, we need to put in place tax and institutional incentives to increase inflow of equity capital, not new debt, to Irish businesses. Such incentives must target two areas of investment: investment into activities associated with new jobs creation by the SMEs, plus investment into strategic repositioning and restructuring of Irish SMEs to put them onto exporting path.

Lastly, if we really do want to have a stimulus debate, the discussion should not be focusing on creating a net increase in the public expenditure, but on the potential for reallocating some of the funds from the current expenditure side of the Exchequer balancesheet to capital investment.

  

Box-out:

The latest Index of Failed States published this week ranks Ireland the 8^th best state in the world. Our overall score in the league table was helped by extremely high performance in some specific indicators. Surprisingly, according to the Index authors, we are having a jolly good time throughout the crisis. Allegedly, Ireland’s problem in terms of emigration is relatively comparable to that found in New Zealand and Germany. Our economy, heavily dominated by MNCs exports in pharma, medical devices and ICT sectors ranks higher in terms of the balance of economic development than majority of the advanced economies that have more diversified and domestically anchored sources of growth. Our ‘balanced development’ model, having led us into the current crisis, is allegedly more sustainable, according to the Index, than that of Canada – a country that escaped the Great Recession. In terms of poverty and economic decline we are better off than France, Japan and New Zealand, which had a much less severe recession than Ireland over the last 5 years. In quality of public services, we are better than Belgium and the UK, and are ranked as highly as Canada. And our elites are less factionalized than those in the vast majority of the states of the Euro area. In short, according to the Foreign Policy, index publisher, Ireland is a veritable safe haven within a tumultuous euro zone, comparable to New Zealand, Luxembourg, Norway and Switzerland. We rank well ahead of Canada, Australia, the UK and the US, as well as all other states that currently receive tens of thousands of Irish emigrants.

2/7/2012: One brutal Monday

Brutal beginning to the week in terms of economics data:

(via ZeroHedge) and

(via Reuters)

20/1/2012: A Question for Keynesianistas

Keynes remarked that:


"The theory of economics does not furnish a body of settled conclusions immediately applicable to policy. It is a method rather than a doctrine, an apparatus of the mind, a technique for thinking, which helps the possessor to draw correct conclusions."


Sounds plausible. 


A question to Keinesianistas, then: Why on earth would you argue that for every recession in every country, there is only one solution that is fully anchored in one Aggregate Demand identity? And that - irrespective of the nature of the path an economy takes into a recession or its underlying causes, irrespective of the economic conditions at the onset of the recession?