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Villager

by admin 16 June, 2013

14 — villageJune – July 2013Shatheadvillager likes shatter. well likes is a little strong. likes more than any other Fine Gael member of government, apart from Frances Fitzgerald, per-haps. or respects. anyone that annoys the Garda, the legal profession and judges, inspires a debate on their respective contributions to the common good and then wins it, deserves a little indulgence. It is entirely predictable that he will be replaced just as he implements the Troika-mandated Competition authority recommendations on the legal profession. That said, of course he should have resigned over leaking details of wallace’s trivial trafc incident – even Mcdowell at least complained he was saving the state when he tried it on with Frank Connolly. There was no possible justifcation or proportion to shatter’s action, which was committed in front of the Garda and which the Garda decided to overlook. we do not live in a police state and information received by Ministers, particularly the Minister for Justice, must be treated with scrupulous dis-cretion. Tellingly, shatter hasn’t helped his own case by revealing any corroboration: villager presumes someone knows if the Minister likes a drink (though he seems like a man who would, perhaps, drink on his own, if at all), and indeed if he sufers terribly from the asthma, for which no proof has been ofered. Meanwhile, villager is concerned at rumours that shatter has a class of superinjunction out against coverage of the prices charged by his former law frm. Certainly there’s been a precipitous decline in media men-tion of this once controversial issue.Bitter PILunfortunately for him, shatter was the latest member of the cabinet to come under the spot-light of non-party activist network ‘Independent resistance’, when ten members of the group held a silent vigil outside the minister’s home in the leafy suburb of Ballinteer, Co dublin on sunday 2 June. Independent resistance is a broad network of anti-austerity and community-rights-based groups, joined together by collective endorsement of a six-point economic strategy for prosperity and sovereignty put forward by Professor Terrence Mcdonagh of NuI Galway. Members see the network as an alternative to the anti-austerity campaigns covertly driven by ‘Marxism-based’ political parties in Ireland.organisers (including a number of academ-ics) claimed they were holding the vigil as a response to the Personal Insolvency legislation (PIl) and shatter’s plans to make home evictions more expedient through empowering County registrars as special judges to preside over debt cases in the courts. This is already practised infor-mally throughout the country with dundalk being an example where the County registrar, who is also the sherif, sits in her own court, handing out repossession notices, enforcing them and in doing so enriching the sherif’s ofce that receives a percentage of the value of the repos-sessed home or articles. one placard at the vigil read “You leave our homes alone and we’ll leave your home alone”.Independent resistance also held silent vigils outside the home of Minister for social Protection, Joan Burton, last month. a number of the network’s founding members held an eight-week rolling vigil outside of the house of then Minister for Justice, dermot ahern’s, in 2011. In ahern’s case he resigned and stated that the pro-testers were “the last straw” describing them in local media as “worse than the Provos”. Dishonest and corrupt people are dishonest and corruptThe editor was going to synopsise the fndings of the report Villagehas commissioned on pri-vate prosecutions against dishonest bankers and tribunal villains. But the legal advice was to keep it quiet for the moment. and all of us here in the sweat-pit that is Villagealways follow the legal advice: senior counsel chose the headline for this paragraph, for example. anyway, it’s all happening…Crash to crèche37 inspectors to monitor 4,700 crèches and pre-schools? sounds like the beef industry. or the industrial schools. or planning or building-regulation compliance? or the banks?Gonzagawhat secondary school do parents whose tod-dlers send them to a crèche called little Harvard go to?The big issues: corporation taxIrish journalism famously confuses on the big issues (does NaMa make a proft, can we renege on our debts to bondholders, is enda Villagervillager“Dead”; not “Live”. Bill O’Herlihy represents the tobacco industry 15Kenny an eejit, what colour is shatter’s hair etc). Corporation tax is no diferent. so, after a fort-night’s scintillating media debate, we know that we charge 12.5% Corporation tax, although there seems to be a problem and our grown-up friends abroad think we’ve a special deal with apple, though that’s sort-of not true. In fact, just like in France where the ofcial rate is 32% but the actual rate 8.2%, you need to look behind the headline. In 2011 Michael Noonan said our efective rate was 11%. But we do better for our IT companies. In fact there’s a special tax rate on income arising from intellectual property (IP) which can be as low as 2.5%. up to 80% of the cost of acquiring IP can be set of. You don’t need to create the IP in Ireland you just need to oper-ate in Ireland and buy the IP here, wherever it has been created (Palo alto, normally). so you just bump up the cost of acquiring the IP and bingo, you pass for a tax genius, and feece the ordinary man across invisible borders. who cares if it’s a ‘special deal’: it’s globalism, and Ireland majors in it.Hari Namasimilarly, news that NaMa claims to have made a proft of €224m boggled the brains of the nation for a few days recently. what it means is that some of the loans that NaMa bought at dis-counted prices (remember haircuts) were sold at a proft over the last year. of course NaMa has carefully chosen to sell the best of its port-folio – 80% of its asset sales since inception have been in Britain. Clever, but meaningless for the prospect of the agency getting this country back the €32bn it has invested. a shocking augury is that the likes of Harry Crosbie have indicated that NaMa, before it pulled the plug on him,

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Opinion

Austerity abú

by admin 16 June, 2013

12 — villageJune – July 2013sINCe publication of the working paper by Thomas Herndon, Michael ash and robert Pollin (HaP), ostensibly subverting the 2010 paper by Carmen reinhart and Kenneth rogof (rr), the Irish left has, like a small boy who has been told that glucose is good for him, been sugar-high with renewed anti-austerity zeal. according to the Neo-Keynesianistas, the article by reinhart and rogof ‘Growth in a Time of debt’ published in the American Economic Reviewin May 2010, provided the intellectual foundation for the argument that austerity is necessary for countries with public debt in excess of, or near, 90% of GdP. and, they implore, the article has now been demolished by the HaP critique. In the immediate aftermath of the HaP publication, both new and tradi-tional media were saturated with ‘austerity is dead’ missives from indignant leftists of all shades. The HaP paper’s student co-author became an over-night celebrity.alas, the HaP critique of the reinhart and rogof study grossly exagger-ated the extent of the errors perpetrated by reinhart and rogof. The tidal wave of anti-austerity rhetoric unleashed since the HaP publication has vastly distorted the nature of the original study and ignored the large body of academic research on the relationship between public expenditure, eco-nomic growth and public debt.It is alleged, frst, that the authors identifed a glaring and undeniable error in the spreadsheet calculation for one of the six main rr fndings. This error, unfortunate as it might be, is insignifcant to the core conclu-sions. Correcting for this error changes the impact of debt on growth by just three tenths of a percent – within the statistical margins of error. In other words, economically, the error was barely signifcant, even to the particu-lar conclusion. a 0.3% swing in growth for an ‘austerity-hit’ economy like, say Ireland or spain, is negligible. Between 1980 and 2012, the standard deviation in real growth in the peripheral euro area states averaged more than nine times the magnitude of the excel error discovered by HaP.second, the authors have claimed that the methodology used in the rr paper in computing three of the six core reported results was fawed. In fact, the major discrepancy between the HaP and rr papers is as to which aver-ages matter when it comes to summarising countries’ experiences across periods of crises.The signifcance of this error can be best understood in terms of a prac-tical example, provided by James Hamilton of the university of California, san diego. Between 1945 and 2009 – the period covered by both papers – the us experienced debt-to-GdP ratio in excess of 90% in only four years. In con-trast, Greece was in a similar predicament for 19 years. To compare the two countries’ experiences, one has to deal with the averages across time (four years versus19 years) and across countries (the us is structurally robust and much larger; Greece is weaker and smaller). The periods matter: if the us experienced four years of high debt when the global economy was growing slowly, some of the us slowdown would be attributable to global conditions and not to debt overhang. In contrast, if Greece experienced 19 years of debt overhang amidst, say, a robust global expansion, then more of the impact of excessive debt levels can be attributed to internal condi-tions in Greece. and so on: variations in exchange rates, interest rates, and infation all matter.HaP assume that the correct way to deal with all these diferences is to ignore them completely. Thus, under HaP, the expected growth rate for Greece under debt overhang (in excess of 90% of GdP) conditions is exactly the same as it would be in the us. More than that, HaP assumptions also The need for austerity in economies with debt overhangs like Ireland’s has not been disproved by the recent studyGURDGIEVCONSTANTINAusterity abúShouldn’t go awaydespite all the hoopla about the Hap study, it confrms the main argument set out in the rr paper, namely that breaching 90% debt/GDP is associated with signifcantly slower rates of growth. predictably, the Neo-Keynesianistas ignore this“ 13imply that growth volatility around the mean is identical in the us and Greece, despite the fact that smaller economies tend to be much more vol-atile than larger ones, and that volatility in growth changes over time and across countries. The upshot of the HaP assumption is that the Greek debt overhang is weighted as if it was almost fve times more signifcant than the us’.In contrast, rr assume that diferences across economies and time do matter, and therefore that we should consider separately the average growth rates in the us from those in Greece. The table opposite summarises the diferences.Note that unlike rr, HaP fails to report median results, which are (a) not as diferent from the HaP mean-based results as rr’s own mean-based results, and (b) were always clearly stated by rr to be the preferred results. The omission of the median fndings by HaP is a major one. The diference between the median and average growth rates reported by rr is indeed very sizeable in the case of the countries with debt overhang. This statistically skews the data and suggests that in addition to being associated with lower growth rates, high debt/GdP ratios are also associated with greater risk or volatility in growth. despite all the hoopla about the HaP study, it confrms the main argu-ment set out in the rr paper, namely that breaching 90% debt/GdP is associated with signifcantly slower rates of growth. Predictably the Neo-Keynesianistas ignore this. uncomfortably for them, the analysis by rr is broadly and even numerically close to other studies by the two authors which were based on diferent data and models, as well as to papers from BIs (Cecchetti, Mohanty and Zampolli paper from 2011), eCB (Checherita and rother, 2010 paper), the IMF (the World Economic Outlook, 2012), and a number of other studies. all of these papers have clearly confrmed that higher debt levels in post-war advanced economies are associated with lower levels of economic growth.The