Sunday, January 29, 2012

It's the economy, stupid!

One of Bill Clinton's greatest contributions to language, apart from defining what sexual relations may or may not mean, was the phrase "it's the economy, stupid!". So as a stupid person, I spent last Friday in the conference centre in Croke Park being educated on all things economic and fiscal. The conference was organized by Stephen Kinsella, Liam Delaney and Colm Harmon and had in excess of 200 people attending over the course of the day. What follows is a rundown on the sessions I attended and what nuggets of information I picked up from them. I understand that videos of the day will be posted on the Irish Economy blog.

Property Market

After a very welcome cup of tea and having my name ticked off on the attendance list, I plumped for the Property Market session as I felt I might at least understand the topic compared to the meta-debate on how to make good policy that went on in the parallel session. First up was Ronan Lyons who presented his proposal for a site-valuation tax to replace the current property taxes and, perhaps eventually rates. In principle it seems like a good idea to encourage productive, high density use of land zoned for residential use. However, based on his plan I still don't see how the tax would work and provide a sustainable base of taxation for local government spending without large financial transfers from urban to rural dwellers. I tackled him on this in the Q&A session and at lunchtime and we agreed that the plan could do with some refinement.
Next up was Michelle Norris from UCD who presented a paper on the realities of mortgage arrears in Ireland. Despite the low number of repossessions, the stresses that many mortgage holders are put under by both prime and sub-prime lenders is huge. Her presentation really put a human face on the current mortgage crisis. The session finished with Rob Kitchen from NUIM outlining his thoughts on the future of the property market. A lot of his material has already been posted on his Ireland After NAMA blog but it was good to put it all in the one place. He doesn't see a recovery to peak prices for a long time to come yet.


Following a brief coffee-break, and the arrival of Minister Joan Burton with RTE in tow, I headed in to the session that she was chairing on unemployment. Not surprisingly, this was very well attended with standing room only at the back of the hall for a time during the session. First up was unemployment expert David Bell, from Scotland, who outlined the nature of our unemployment problem and compared out situation to that of other European countries. Next to speak was Aedin Doris from NUIM who gave one of the two best presentations of the day. Her mantra was that unemployment was a demand side problem and that no amount of badgering the unemployed can make them get jobs that don't exist. Finally Philip O'Connell from the ERSI examined all the data on state training and concluded that most of the budget was being targeted in the wrong areas. Just as well FAS is being restructured/closed! Due to the interest in the subject this session ran over by about half an hour, and so a much shortened lunch-break followed.

Banking and the Euro

On reading the conference programme, this session immediately jumped out as the headline acts. Brian Lucey, Karl Whelan and Frank Barry speaking with Constantin Gurdgiev chairing was just like an episode of Vincent Browne but without the haranguing and pointless government spokesperson (Coveney and Donohue I'm looking at you!). And it did not disappoint.
After a brief introduction from Constantin where he outlined the topics and the ground rules, the floor was yielded to Brian. During his half hour presentation he discussed the implications of the impending duopoly in the Irish banking system and touched on the likelyhood of co-operative or mutual banks (just like the old building societies) setting up and the possibility of a foreign bank entering the market. From what I took from the talk, we are unlikely to see much in the way of innovation in Irish banking for the foreseeable future with BOI and AIB continuing to dominated the market.
Following Brian was Karl who gave the best talk of the day. He explained in words of one syllable the funding mechanism for the rump of Anglo, why burning bondholders is now old hat, why the interest rate on the Prommissory Notes is a red herring and how the Central Bank could just write off the notes if it could convince 2/3 of the other central banks in the Eurozone that doing so is a good idea. This is a talk that should be watched by every back-bencher who comes out with the "there is no other way" mantra.
After Karl's magnum opus, Frank was always going to have a tough act to follow but he coped admirably and gave a very interesting talk on the problems with the Euro. His premise that unless there is some sort of federal funding mechanism to buffer the impact, the peripheral Euro countries will be at risk of external shock to their economy. Ireland due to it's reliance on the US and UK is particularly susceptible. Another talk that I look forward to watching again once posted online.

Fiscal Policy

I will have to admit that either due to the subject matter or my lack of mental stamina, both Philip Lane's and John McHale's papers went over my head. They seemed to be suggesting that in the new Euro deal that may or may not require a referendum there will be stricter controls over deficit spending and overall debt to GDP ratios than are currently in place. I'm not sure how the Eurozone countries will get to the target 60% in any reasonably time-frame but the plan seems like a reasonable one.
The final two talks by Seamus Coffey (UCC) and Colm McCarthy (UCD) tackled the issue of capital vs recurrent spending. The first presentation was right up my street with a relentless series of graphs outlining the collapse in capital spending through the recession. The implication was that we are now underspending on capital and that future cuts should come from the recurrent side of the budget. The pertinent question is this: Is the 94th euro spent on recurrent providing a better return on investment than a potential 7th euro spent on capital.
The master of Bord Snip then promptly stood up and demolished all of what had gone before. He suggested that we had splurged on capital during the boom, often driving up prices on ourselves, and that having built one motorway to Cork there was no need to build another. Of course this neatly sidestepped the fact that we still have schools housed in prefabs, Dickensian conditions in hospitals and even in a huge recession, gridlock in Dublin on a daily basis. However, his presentation brought the conference to an end in a lighthearted manner and was just what was required after a heavy day's thinking.

General Thoughts

Overall the day was very enjoyable and very enlightening. From an organizational perspective some of the major positives were the free entry cost, working wifi, good chat on the conference hashtag (#ieconf), roughly sticking to schedule and a large turnout. The downsides include some issues with microphones, spam overload on twitter during the afternoon, running out of sandwiches at lunchtime and the lack of attendance by politicians and senior policy makers with a few notable exceptions. If, as has been suggested, these conferences become a regular event I will certainly try to attend. Congratulations to all involved in the event as I would deem it a great success.

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