Brendan Walsh is one of the few well-know economists in Ireland who has never been "privatised". In the late 1970s and early 1980s, several economists played an influential part in setting the political agenda (principally to do with the then alarmingly high rate of public-sector borrowing) and many have continued to influence public policy since.
But many of these left the State-owned Economic and Social Research Institute or the universities and joined stock broking firms or banks and the disinterested nature of their advice became less certain. Not so with Brendan Walsh.
He joined the ESRI in 1969 and went to University College, Dublin, as Professor of Economics in 1980,
He had taken leave of absence from the ESRI to go to Harvard for a year and two more years (1975-77) to go to Teheran, missing the Islamic revolution there by two years.
He was born in Dublin in 1940 and reared in Rathmines near where he now lives. His father was a civil servant and his mother had a clothes shop in Talbot Street for 40 years. There were four children in the family. One of his two brothers is Dermot Walsh, the Inspector of Mental Hospitals, another brother died quite young and their one sister lives in Canada.
He went to St Mary's College in Rathmines and then to Gonzaga and from there to UCD where he graduated in 1961 with a degree in economics. He did a Masters degree at the University of Tennessee in 1962 and then moved to Boston and completed a PhD there in 1966 at Boston College (back to the Jesuits).
He taught in America at the University of Massachusetts in Amherst for one year and at Tufts University outside Boston for three years and then returned to Dublin to the ESRI in 1969.
He has published a lot on economics and a variety of economic journals - his personal web site lists some of these.
The most recent essays have been on the effect of a common currency on trade. He has also co-authored an economics textbook The Macroeconomy of Ireland.
VB How deep do you think the recession is going to be?
BW Well the glib answer to that is that I don't know and I don't think anybody else does. We don't really have a good track record of being able to predict the future. We're coming out of the longest boom in history, either for Ireland or the Western Economy. It had gone on for ten years and it has ended in the United States officially actually this quarter. That uninterrupted expansion was unprecedented. But there is great uncertainty now and my fear is that it is going to be a much more severe recession than any of the previous post-war ones. There's been over capacity in various industries in America, that's going to take time to work that out. And there's no consumer confidence. There is the uncertainty about the war in Afghanistan, nobody knows how long that will last.
VB How about an upturn coming by the third or forth quarter of next year?
BW I really think that is so far ahead and there's so many imponderables that the easy thing for an academic economist to do is to duck the issue and to say we are not really paid to forecast.
There's no scientific way of forecasting in an uncertain environment. It depends on how the war goes and a return of consumer confidence in the US. How quickly the over-capacity in the technology industry works its way out of the system. How new technologies come on stream, like bio-technology. What's going to be the next leading sector, it's obviously not going to be telecommunications, technology. They're yesterday's wave of innovations and there's a lot of money out there looking for something to invest in.
VB Why should the attack on September 11th or another attack have such devastating impact on the world economy?
BW Well, I think quite honestly that the effect of that attack has been exaggerated. The Stock Market was on the slide before that, it took a sharp knock at the time and immediately afterward when the markets re-opened. But they have recovered pretty much back to where they were before September 11th. I think people have used that attack as an excuse for bringing forward redundancies that would have occurred anyway. I just read something from the IMF that looks at the impact of big disasters on economies and the Kobe earthquake in Japan was a much bigger proportionately than the attack on New York and the Japanese economy wasn't mortally wounded by the Kobe Earthquake.
VB Why then is the likelihood of another attack or the possibility of the war being protracted relevant to predictions on the economy?
BW I think that the uncertainty, again, I mean, for example, let your imagination run riot and imagine a nuclear attack, that would certainly be unprecedented and the damage there would be getting up to something comparable, more than comparable to a Kobe earthquake. So, again it's just this factor of uncertainty.
VB What will the recession do to unemployment here in Ireland?
BW Well, I think, everyone agrees that unemployment has bottomed and is beginning to rise. Last month's figures showed a quite significant increase in the live register which is in an indication of the trend in unemployment and it didn't reflect the widely publicised redundancies that we know are occurring now in north Dublin and elsewhere. I think the unemployment rate has bottomed at 3.7 per cent, which is extraordinarily low by Irish standards and it will rise. If the economy doesn't grow at about 4 per cent a year, unemployment rises and most economists feel that we are facing into a period when the growth rate will fall below what is needed to stabilise the level of unemployment. The big question is how high will it [unemployment] go.
I think then there will be a real test of how radically the Irish economy has been transformed since the 1980s. Have we thrown off all the old kind of dependency and looking to the State and to the welfare system to cope. Are people more mobile, more adaptable, more willing to accept less attractive jobs in order to tide themselves over. That's the sort of thing that will keep a lid on unemployment. And also, of course, migration is the old safety valve. I think it will come into play again because many people that will lose their jobs have not been in Ireland all that long, may not be Irish and prefer to go home if they are unemployed. I think there are grounds for definitely expecting unemployment to rise. We must really hope that it doesn't go into double digits or the awful 15 per cent /16 per cent that we had right down into the early nineties.
VB Do you think that's in anyway likely?
BW I don't think so. That's getting into predictions which I am loathe to do, but I think you'd have to take a very pessimistic view of a whole lot of unfortunate things coming together: the recession being very deep, the response of the labour force being very rigid, the possibility of emigration being sealed off by recession in other countries. We should bear in mind that in this context the UK economy is doing very well by international standards and the worst, from the point of view of emigration, if we go into slump, there definitely will be emigration. That kind of coincidence of a slump here and the boom there, will undoubtedly draw people out of Ireland very quickly.
VB Is there anything we can do policy wise now to mitigate the impact of the recession?
BW Well, as you know, we're constrained. We have no exchange rate [flexibility], we have no monetary policy [flexibility] and budgetary policy was widely dismissed until recently as being ineffective and inappropriate. It's amazing how in a recession we seem to all be Keynesians [those who believe that the state can revive economic growth through pumping money into the economy] again. There are no atheists in a foxhole and there are no non-Keynesians in a recession, it seems. I think that it's appropriate that we continue to spend on capital projects and don't panic. The real danger, I think, on the budgetary side is that current expenditure has been rising at an unsustainable rate just as tax revenues have begun to flatten. They haven't collapsed but the growth rate has collapsed and that's an unfortunate combination. We don't want to try and spend our way out of this recession by just increasing public sector pay but certainly there are a lot of demands in the pipeline and we need to be realistic with regard to what the economy can now afford.
VB What might such capital spending be?
BW Well obviously we have a development plan in place that was prioritised carefully in consultation with Brussels and by and large the projects in that plan are sensible and will yield a return over time. I'm not so sure about sports stadiums but I'll leave that to others.
VB We seem to be in a strong position to recover fairly quickly once there is an upturn in the world economy. Do you agree?
BW I agree but there are some caveats. There is the fact that the competitive position won't continue to improve, we had this depreciation of the Euro for the first three years and that is and it's not going to be repeated. We have to worry about our competitiveness against Britain going forward. The productivity gains that we have enjoyed that also fuelled our competitiveness were highly dependent on the rate of foreign investment in high tech sectors. Those are factors that contributed a lot to our competitiveness but won't be recurring. Yes, what you say, I would generally agree (that we are poised to come out of the recession quickly) but with some reservations.
VB Do you think that our membership of the Euro is a danger to us now?
BW Well, I think the jury is out on that one. We have come through the first three years well but that was largely because of the weakness of sterling but we still have an exposure with sterling being outside the euro-zone. I think there are benefits [being part of the euro] in terms of stability and reducing transactions cost but unfortunately, it is locking us into to the slow growing European economies and the argument that it was better to get away from Britain and orient ourselves towards Europe looks a bit lame, given that the British economy is now growing faster than the European economies. Though, there are plusses and minuses, the jury is very much out on whether it was a good thing or not to join the Euro. I suppose 50 years from now economists after me will be saying the same thing. I would say to date it [being part of the euro] is mildly positive, if I had to say, so far so good.
VB Do you think the budgetary policy over the last few years has been appropriate given the inevitability of a down-turn at some stage?
BW Well, after the last budget, I actually commented in The Irish Times to the effect that maybe Mr McCreevy's stance would be more appropriate as the recession gathered pace. That proved prophetic enough and the criticisms of him have melted away because he is pumping money into the economy now through tax reductions that are kicking in as the rest of aggregate demand slackens. So, with hindsight, his budget was more appropriate than he himself realised or that most of his critics would have accepted a year ago. But by and large budgetary policy has been going in the wrong direction. It has tended to tighten up during a recession and add petrol to the fire as the economy is booming. That's why I think we must avoid that in this downturn. We must maintain a high level of spending and go forward.
VB Are there likely to be a number of high profile casualties in this recession such as, of course, Aer Lingus?
BW Well, I've no doubt that there are things in the pipeline that we don't know of and that are impossible to predict. Again, we've done remarkably well so far and it's almost inevitable that there will be further high profile closures. I think that people are reading the signals out there and looking at what's happened to Sabena, for example, it must be very salutary all round. The situation in north County Dublin is quite grim on a regional basis, though I think there is great realism here and desire to go forward with a slimmed-down airline, for example and I hope that that is successful.
VB In conclusion, have we reasons to be reasonably optimistic or should we be getting out the sack cloth and ashes?
BW No. I think we should be qualifiedly optimistic. It will feel bad compared to a year ago when we were going at an unsustainable pace but for the reasons we've discussed, I think if circumstances outside Ireland are other than drastic, then I think we could pull through relatively unscathed and we have a sound economy on which to build for the future.
