ECONOMICS: EVERY YEAR since 1978 Kenmare and its inhabitants have been subject to an influx of economists and policy wonks for a weekend in October. Scores of dismal scientists descend on the scenic Kerry town. They listen to a dozen or so papers presented on matters topical and not so topical. They quiz the speakers. They debate and discuss. At coffee breaks they hobnob. After each day's work, they share ideas while breaking bread and slacking their thirst, usually long into the night.
What happens at Kenmare is a good gauge of the profession’s collective thinking. This year’s gathering took place last weekend. Among the most notable aspects of the weekend was what the State’s economists are not thinking about. As noted in this column previously, there was no consideration given to the state of the labour market and the State’s unusually high rate of unemployment.
These issues were not on the programme. They did not come up in discussion, either at the sessions or in the informal chats this writer had with participants. That those who know most about the functioning of labour markets show no interest in the crisis in the Irish labour market is – to be blunt – shameful.
Economists, like everyone else, are thinking about budgetary issues. This is the most immediate economic policy challenge facing the country. As hardly a day passes without fresh speculation about the size and composition of future budgetary adjustments, it was useful that the focus of discussion was on a neglected aspect of fiscal affairs – the changes afoot at EU level.
Michael McGrath, a mandarin at the Department of Finance, spoke (in a personal capacity) about ongoing negotiations to make EU budgetary rules more stringent and more intrusive. Nobody doubts that the changes to existing arrangements will be considerable, although Mr McGrath gave nothing away, either in terms of his assessment of where the negotiations currently stand or of Ireland’s preferences.
“Ireland has been involved in the development of these new structures and supports this work,” he said. I interpret these words and the manner in which McGrath delivered them to mean that, even if the capacity existed in the Department of Finance to play an active role in the design of the new framework, this won’t happen. Having blown its public finances so spectacularly, Ireland is hardly in a position to be telling anyone else how to budget. This is but one of the many negative consequences of the Government’s appalling fiscal mismanagement.
On domestic issues, his discussion of the creation of an independent fiscal council – to be given some of the department’s powers – was balanced and informed. There was no hint that he opposed such a move, as some officials do because it would represent a considerable loss of power for them.
Elsewhere in his paper, McGrath included a table ranking the forecasting records of the department over the 1996 to 2007 period.
The records of five other forecasters were included – the Central Bank, the Economic and Social Research Institute, the European Commission, the International Monetary Fund and the Organisation for Economic Co-operation and Development.
Lo and behold, the Department of Finance found itself to be the second most accurate forecaster. The ESRI was found to be least accurate. Was this a subtle way to say that the most obvious existing entity in which an independent fiscal council might be housed is not up to the job?
The banking crisis is something that no one could accuse the economics profession of neglecting, and the weekend opener on Friday night was duly on that subject.
NUIG professor John McHale’s assessment of the Government’s handling of the banking crisis was comprehensive, fair and accessible to non-economists. It is worth reading*.
The professor was both critical of aspects of policy and alive to the challenges facing the people who have made the hard calls.
Those who choose to read the paper may raise an eyebrow that the Government’s unwillingness to clear out the senior management of the failed institutions is neither discussed nor critiqued.
A sin of omission: when asked, McHale told this column that “international best practice would have been for a faster and more thorough management clearout”.
If there is anything to quibble about, it was the professor’s statement from the platform that he was not “convinced” about guaranteeing senior bondholders.
I don’t think anyone other than the senior bondholders are “convinced” that they should be saved from their own bad judgment.
This is not a matter of conviction, but one of necessity and the choice is binary – burn or don’t burn. The consequences of either choice are, respectively, potentially catastrophic and certainly ghastly.
Fine Gael TD Leo Varadkar was one of only two politicians to speak. He replaced Minister of Finance Brian Lenihan, who had to cancel owing to a bereavement.
While the ministerial no-show caused no little disappointment, Varadkar’s talk was met with much praise. This was deserved. It was fluent, informed and authoritative. It covered the full gamut of policy issues. And his handling of the question-and-answer session suggests that the 31-year-old may have matured out of making silly gaffes.
*https://docs.google.com/fileview?id=0BzPiIoPVJ2alNDhlZGQ3ZDktNTA2NC00OTNjLWE5MjktMTdkMTQ3NzU0ZDMyhl=en
