Ireland: for the UK, the unwelcome shape of things to come?

Whatever you do, don’t bracket Ireland with Greece – but Larry Elliot Economics Editor of the Guardian just has. The argument is hardly new to Slugger, but here, it’s also invoked to say how right Britain was to stay out of the euro and contains a warning against a particular view of public spending cuts.

Ireland is Labour’s dystopia of a Tory Britain The consensus view in the markets is that Ireland will be rewarded for its prudence …. (but) there is a considerable risk that removing spending power from the economy will lead to more companies going bust and deter the survivors from investing more..

The onset of austerity, according to some commentators, has been greeted with a certain stoicism, as if there had to be payback time after the excesses of the boom years. Even so, the fiscal retrenchment is stretching the social fabric to its limits…
Ireland’s property boom-bust during the noughties was a textbook example of what can happen if a country loses control of its own monetary policy – rates were too low early in the ­decade, leading to a colossal misallocation of resources away from exports towards construction, whose share of the economy more than doubled from 6% to 14%

  • Drumlins Rock

    And you could prob add will be too high when Ireland is till trying to recover.

  • Jaggers

    It would seem that the original PIGS (Portugal, Italy, Greece and Spain) have grown into PIIGGS (Portugal Ireland Italy GB Greece and Spain). Look at GB’s debt and the forthcoming auction by the Tories, LibDems and Labour as to who will be the most prudent and cut the most services and raise the most taxes – all is not well in GB either. Look at default swap rates and you could also include Belgium amongst Euro pigs right now.

    With respect to the euro, yes it does constrain a state from exercising monetary control through interest rates, money supply and to an extent exchange rates (the euro has appreciated by 50% in value against the pound sterling in the past 2-3 years and the UK is still Ireland’s No 1 trading partner). Some economists like David McWilliams have gone so far as to recommend a short withdrawal from the Euro (to the Punt 2.0) to allow the State rebalance the economy. However the euro has one great advantage, it is the world’s blue chip currency (overtook sterling and the yen some time ago and is arguably more respected than the US dollar). Given the government’s assertion that there are viable Irish businesses and consumers hungry for credit which would grow the economy, it is indeed a wonder that foreign banks are not queuing up to do business in Ireland (though Bank of Scotland today indicated plans to become the Third Force in Irish banking). There are arguments that the governments recapitalisation of the banks and the operation of NAMA are unfairly protecting domestic banks and stiffling competition (the NAMA competition point is currently before the EU). So yes the euro can remove options but it should also mean you have access to global finance and institutions who won’t have to fret over dealings in a marginal currency like the punt (and with respect the pound sterling isn’t an awful lot better).

    And by the way, the euro does indeed remove transfer control of state monetary policy to the group of which the state is but a small part but you still retain fiscal policy (taxation, public spending and state borrowing). If the State had taxed property or property transactions in 2002, the whole construction boom could have been regulated and monetary policy wasn’t necessary. Instead the State introduced development incentives, tax free incentives (section 23) for offsetting purchases by consumers against income, holiday home allowances and regional regeneration allowances – it was arguably the poor application of fiscal policy which fuelled the boom.

  • The BBC business correspondent, who is from the South, said last night that Britian’s economic position was similar to that of Greece and will probably lose it’s triple A rating in the coming months.

  • st etienne

    Totally agree re control of monetary policy – although even then you’re only as good as one bankers opinion. In a market the size of the Republic that probably doesn’t give good odds.

    But throwing your lot in with vastly different and larger economies in the Eurozone was still an obvious mistake. Not that realistically the Republic had any say in the matter. Always worries me that political egotism is so effective at papering over the cracks of clearly divergent interests.

  • Mack

    The current problems in the Eurozone (or Ireland) don’t stem from a mix of vastly different economies sharing a currency. The primary issue is we have a monetary union without a fiscal union. There is no mechanism or appetite for the transfer of tax revenues from the better performing states to those now struggling. In addition the ECB / EU scope in restraining fiscal policy in deliquent member states (hello Greece, Portugal) is rather limited.

    It’s beginning to look like this will get resolved one way or another (e.g. by the break up of the Euro or the creation of a debt Union).

    The Irish government made the mistake of promoting massively pro-cyclical fiscal policies in a period of ultra-loose monetary policy. The boom & bust was not caused by loose monetary policy alone, but the toxic combination of tax breaks for developers and property developers, 2% interest rates and huge amounts of readily available Euros made available to the Irish banks on the European wholesale markets. Had the government pursued more sensible counter-cycilical policies the post-2002 boom would not have been as large and this bust would have been much more manageable. Ireland still has a low-debt to GDP ratio, had our banks been more prudent there would be no need for bailouts / NAMA etc. None of this was a fait accompli it’s facile to blame the Euro..

  • Mack

    The above should read –

    “but the toxic combination of tax breaks for developers and property investors”

  • Alias

    That’s a more balanced appraisal from you, Mack – compared to your usual ‘see, hear, and blog no evil’ approach to the EU.

    However, the tax breaks for developers simply means that they were able to retain circa 20% more profit from development than would otherwise have been the case. It doesn’t mean that there would not have been as much development as if those developers only retained 600 million out of every billion instead of 800 million. 600 million retained profits per billion would still have been more than enough financial incentive to supply the consumer demand that was created and sustained by the ECB’s expansionist monetary policies. So your argument, like the ECB policies, is a bust.

    The government has a constitutional obligation under the Maastricht Treaty (which is part of the Irish constitution) to support the monetary policies of the ECB. At no point could it have acted independently of those macroeconomic and monetary policies – it certainly could not have declared the policies of the ECB as the road to boom and bust ruin. Instead, it had to keep its little mouth shut (it is illegal for the government to offer any advice to the ECB or to criticise its policies), ride the wave and hope for a soft landing. Apart from that, the government must manage the economy so that its fiscal policy and other policies do not conflict with its monetary policy. If that policy is expansionist, then the government must allow the ECB tail to wag the dog since the dog has no control over the tail.

    Unfortunately, just as the ECB’s management of Ireland’s macroeconomic and monetary policies has ruined the Irish economy that disastrous mismanagement will continue as the ECB designs its policies according to what the biggest economies in the Eurozone require – which will require higher interest rates when Ireland requires the opposite. I wouldn’t like to have paid half a million for a shoebox apartment in Dublin that is now worth a quarter of that when the ECB begins to raise its policy rate and interest rates increase – or perhaps more aptly, I won’t like being a taxpayer when that happens and the banks come back for more of my cash because folks are handing the keys back in their unemployed droves.

    In addition to allowing the Eurozone to ruin the Irish economy, we also allowed the Eurosystem to flood the banks with too much money to chase too few investment opportunities and cause bubbles in all zones of the Irish economy where property was just one such zone.

  • Alias

    By the way, it wasn’t a case of “build them and they’ll buy them” so there is no point blaming the developers for supplying market demand. It was the case that the demand was so great that the developers could not build them fast enough to meet the demand.

    Who gave the muppets the cheap credit that allowed them to speculate by buying 2 or 3 or even 15 apartments in the hope of selling them on for a profit? The ECB supplied the cheap credit and created the demand, not the banks.

    While it is fashionable to blame the banks, that ignores the reality that membership of the Eurosystem means that a consumer in Ireland can borrow from any bank in the Eurosystem. If the Irish banks refused to offer the cheap money other banks would have filled that market demand.

    The only way to stop that market demand was to increase interest rates. However, Germany and France needed lower interest rates when Ireland needed higher interest rates so instead of increasing the rate the ECB lowered it.

    But as was pointed out at the time: joining the Eurozone was a political agenda aimed at promoting federalism and was not an economic agenda. Some of the best Irish economists told the government exactly what would happen if they gave away control of the economy to a lucky dip policy system, and they were right.

  • Mack

    @Alias / Dave

    By the way, it wasn’t a case of “build them and they’ll buy them” so there is no point blaming the developers for supplying market demand

    Not the developers no, but the government (and the banks) could have applied the breaks. There were tax breaks for investors (and Owner Occupiers also) – various Section reliefs and mortgage interest rate reliefs. This could have been abolished or scaled down as part of a counter-cyclical fiscal policy to contain the boom. The abolition of such tax breaks (or even tax increases) could have raised the minimum yields required for any sememblence of affordability in property investment thus reducing the demand for money for investment (which in turn would reduce the amounts developers could borrow profitably, and in turn the amounts the banks could introduce to the Irish economy).

  • Brian Walker

    A good discussion gentlemen. Your forecasts?

  • BryanS

    Bring back the Escudo, the lira, the Drachma, the peseta and the punt. The only way out of the mess is to allow each country’s currency find its correct level in the Market place.

  • RobertNoonan

    The media is looking a Greece,but no one wants to tackle the core of the problem. unaccountable hedge fund betting on short term gains, George Soros and the like. Who are these other un accountable companies who give out these credit ratings.what is their agenda.Until such time as this is tackle and it won’t be we go from Ireland to greece. to Spain to UK. back to Ireland over to Sweden.

  • Your forecasts?

    Big Euro economic guns to back the wee uns and speculators to move along and give the pound a rollicking with Tories assuming power with small minority struggling to get the very cutbacks being urged on Greece through parliament with turmoil economic and social ensuing.

    Queen to abdicate and public fist fight outside Buck Palace between Charlie and Willie with Charlie winning with a sly headbut just as Willie is distracted by the cheering crowd urging him on.

    Britian then to apply to join the Euro, ignoring protest from Newry shoopkeepers and Ulster Unionists with Greece using its veto to delay membership and demanding stringent economic reform.

    Or alternatively everything will be just ok, thats the joy of economics nobody understands what the hell is going on and nobody has the fainstest clue what is going to happen.

  • Mack

    Brian –

    I’ve no idea. I doubt the Euro will be abandoned easily, I’d guess we might see the ‘no bailout’ clause fudged with some form of support with strings attached (further reductions in bailed out states economic sovereignty)..

    Robert –

    I don’t quite understand why you think investors should be accountable, and to whom? These are the people the states are going to, to ask to finance their budget deficits at home. Every lender has an interest in getting their money back, that’s the primary agenda of the bond funds. Why should anyone lending their own money be accountable to the borrowers? Why would anyone lend under those circumstances? The hedge funds try to make money where they can – making bets on potential weaknesses. It’s not at all clear that Germany and France will bailout Greece – although they might. If you think the US hedge funds are wrong, that Greek fiscal policy is perfection itself – then Greek debt is now not only as safe as houses but has a fantastic yield.

  • Jaggers

    My forecast – Greece is in sh*te and will need major austerity programs to get it back on an even keel – and Greek citizens are a fairly rambunctious lot who don’t shy away from civil disorder. In the end it will be a balance of Greek domestic reform and austerity coupled with a handout from Germany and France which rescues the good ship SS EU. The other PIGS or PIIGGS will fare better.
    Ireland will return to growth in 2011 though the extent of competitiveness reform really hasn’t hit home yet. A minimum wage of €9.32 (£8.17 per hour) in catering and mandatory time and a third on Sundays ? Just one of a thousand examples. Another €3bn needs to come off public spending in the Nov 2010 Budget so a bit more pain though the bould Brian has said this time it won’t be public sector pay to suffer. Go figure that one!
    As for the UK, there’s a phoney depression going on with asset prices and employment stabilising but given the debt, the necessary abandonment of Quantitive Easing and the tax and spending bombshells coming from all parties, I think there will be trouble ahead for the UK and sterling. Remember the EU Motto, United in Diversity? In 10 years the Euro will be clear world currency (though maybe the Chinese RY will be a competitor). The UK and sterling will continue to wither and decline in global rankings, though no doubt like Norma Desmond in Sunset Boulevard, it will insist on living in the past and remembering former glories.

  • Mack

    Jaggers –

    Another €3bn needs to come off public spending in the Nov 2010 Budget so a bit more pain though the bould Brian has said this time it won’t be public sector pay to suffer

    I get the impression they’ll be looking to do a deal on public sector reform this year, rather than drive down wages.

  • Jaggers


    If reform means providing the same service with fewer people, I agree that they will have to reform areas of the public sector but given the lack of other employment opportunties in the economy (12.7% unemployment now, an average of 13.2% this year and a peak of 13.5%) I think there will be strong resistance to this kind of reform. And ultimately unions would have to accept a little pain shared around (wage cuts) rather than a lot of individual pain for redundancies.
    If reform means “efficiency savings” a la lexicon of UK political parties then that just pie in the sky and isn’t going to happen.
    With a requirement to cut €3bn from the budget this year and €6.5bn frontloaded from 2011 – 2014, public sector pay is going to have to come down – it’s a glaring gargoyle the disparity between Irish and British public sector pay, with easily 50% differentials.

  • Greenflag

    mack ,

    Your post 5 above sums up the situation accurately . We should NOT however forget the ‘other’ elephant in the room i.e the export of those financial weapons of mass economic destruction which had been exported from ‘Wall St’ and the USA financial sector.

    As of now interest rates in the USA are the lowest they’ve ever been . Are businesses borrowing to invest ? are consumers borrowing to buy houses ? The buying power of a large part of the USA consumer economy has been gouged out via the stock market collapse and negative equity . Some 50% of USA home owners are expected to be in negative equity by the end of 2010 . It’s unclear if pumping the economy via ramped up public spending (future borrowing ) will be enough to stave off another retreat in overall economic activity .

    This as well as the prospects of financial turmoil in Greece , Spain, Portugal and Italy is what’s unsettling the market .

    The above countries unlike Britain and Ireland did not make the structural adjustments to their economies in the 1980’s that Britain and Ireland did .

    So looking forward Ireland as long as it remains in the eurozone can hope to benefit from the monetary stability that the euro will continue to provide .

    I think Jaggers is calling it right on Greece and on the need for further cutbacks in the Irish public sector .

    The UK is facing a similar choice between the financial rocks and hard places with the added possibility of ‘currency’ mayhem proferred by those who forecast a ‘hung’ parliament .

    One would hope that the Irish political and financial establishments have learnt from this at least partly self imposed crisis .

    But then I never knew a politician who cried out in the midst of growing perceptions of ever increasing prosperity –Stop .

    Not the way democracy works .

  • Greenflag

    Good interview with Joseph Stiglitz in today’s Independent (British). Stiglitz’s views on the banks are on the mark. He has a good word for Gordon Brown while he remains somewhat disappointed by Obama’s failure to confront those who are holding the world economy ‘hostage ‘ and who threaten elected governments with even worse economic mayhem.

  • Mack

    It’s a good article – this is probably fair comment –

    If there is a speculative attack against you it is not an issue of appeasement but a judgement about whether they can break your back.

    The speculators bet against weaknesses, and can force changes that may not otherwise occur (or cause them to happen earlier). But they can also be wrong, and lose a lot of money. If you think the ECB will prevent a default Greek bonds look like a great investment at the moment.

    He might be right about fiscal ‘fetishism’, but then it’s the lenders perogative to choose who they lend to and why. His viewpoint doesn’t seem to be universally accepted by bond purchasers.

    The ratings agencies are private companies, investors can ignore them if they want to -in many cases that would be a more sensible approach, I imagine the likes of Bill Gross does his own due dilligence. But, the fact that they don’t ignore them wrt sovereign debt, I think means something. If you force the ratings agencies to behave in a certain way, they may well be ignored. So you’d achieve nothing.

    On his points about Usury laws, that sounds interesting, but what happens if the bond price falls (due to a simple supply-demand imbalance – a lack of buyers at the current yield) – and you cap the yield. That imbalance will get worse not better and the state would be forced to default?

    This is surely too general

    that while financial markets started the crisis and governments got themselves into huge debts to bail them out and pay for the downturn, now the financial markets are punishing those same governments. You can imagine people feeling this irony, and it’s not healthy.

    Financial markets consist of millions of buyers and sellers – they’re not neccessarily the same people. The hedge funds weren’t bailed out, and bond buyers presumably also still have money (to purchase bonds), so…

  • lamhdearg

    George to be even worse at sums that bungle sorry brown.

  • David Crookes

    The big point is well made in #5: monetary union without fiscal union. But how many referendums would you need for fiscal union, and how many incumbent governments would campaign for a YES vote?

    The discipline of economics is languishing at present for want of clear and credible doctrines. Are we all supposed to be Keynesians again? If not, what are we supposed to be? What would Keynes have prescribed for a world in which it is legal for one person to have several different credit cards? Can the whole science of economics in any generation be turned into mush by a few ‘events’? Do we need an EU minister of economics, are there any suitable candidates for that job, and if so what do they believe?

    The new economic world needs a new John Maynard Keynes. Otherwise the Walrus and the Carpenter of weak-minded greed are going to eat us all for breakfast. (What is the strong-minded way to deal with the PMS? Let it go bust. Life is tough. Those who play football need to know that losing is part of the game. Same goes for those how make investments.)

    Real monetary union will involve fiscal union, and fiscal union will have to be sold to the citizens of the EU by such a politician as we have never yet seen. Even the slow-minded ‘Stimmvieh’ is getting fed up with sleaze and lies and bribes and sure-we’ll-push-it-through-on-a-second-referendum.

  • Alias

    “Real monetary union will involve fiscal union, and fiscal union will have to be sold to the citizens of the EU by such a politician as we have never yet seen.”

    We’ve seen plenty of such politicians. One even gave his name to the English language: Quisling.

    You, of course, are not talking about economic union but about political union – a single EU state. Ireland is a textbook example of what can happen when a government derogates sovereignty to third parties who do not operate those powers in their national interest. The policies are not devised thereafter for the needs of Ireland but for the needs of the Eurozone. It is true that economic union cannot work without political union but that how the EU promotes integration – step by step. The Europhiles in the Irish government were warned exactly what would occur in the halfway stage to EU integration but they ignored those warnings because their loyalty is not to Ireland but to the emergent state of the EU that they as Europhiles are engineering, and if that meant sacrificing the Irish economy then that is not what the new state requires.

    It is not that we end up with bad policies per se but that we end up with Lucky Dip policies. Expansionist monetary policy was a good policy for economies that needed to stimulate consumer spending such as Germany and France but they had the effect to strapping a turbocharger onto the backs of those economies that were already booming, causing the economy to overheat to boiling point and causing too much money to chase too few investment opportunities thereby causing bubbles. Property accounts for a small amount of the total of 1.67 trillion borrowed in Ireland during the period of this expansionist monetary policy, with bubbles occurring in every sector of the Irish economy – from share prices to wages, et al.

    To give you an example of how utterly moronic Lucky Dip one-size-fits-all monetary policies are: 16 patients are examined by a doctor who duly diagnoses a peptic ulcer, and proffers a prescription. The patient that has a peptic ulcer is cured, but the patients that have cancer, colic, kidney infections, jaundice and an assortment of other afflictions gain no benefit from the one-size-fits-all prescription, seeing there symptoms worsen as a result of the moronic medical practice they have agreed to be bound by.

  • Alias Dave,

    Of course ECB monetary policy is devised for the Eurozone as a whole rather than a given state (e.g. Ireland). But then, monetary policy set in London is set for the UK as a whole rather than, say, Scotland. Monetary policy is a blunt instrument, and it was not monetary policy alone that fuelled the Irish property boom – fiscal policy had a much larger role.

  • Greenflag

    mack ,

    ‘that while financial markets started the crisis and governments got themselves into huge debts to bail them out and pay for the downturn, now the financial markets are punishing those same governments.’

    Not too general at all Mack – The big banks and financial players in the USA have spent hundreds of millions trying to prevent/slow down/hinder any financial reforms currently being considered by the US Administration that might give some more rights or offer some protection to the American consumer . They want to hold on to all the money making add ons they’ve been able to accumulate over the past two decades everything from outrageous overdraft and other fees to usurious credit card interest rates .

    And this at the same time as the banks want to pay their top level executives billions in bonuses for helping them presumably to destroy and gouge out the american middle class and drive the lower income people into more foreclosures and destitution .

    No mack it’s not too general at all . It’s only too true .

  • Mack

    It’s not the same people though. And anyway, it doesn’t make logical sense, are you & he saying that because governments bailed out banks and took on the liabilities of banks (thereby worsening there own balance sheets) that those who invest in bonds should reward this deliquent risk taking (in the first instance by the banks, but now transfered to the state) by reducing they yield / risk premium they require to invest? Come now, what rational investor would do that?

  • Greenflag

    david crookes ,

    ‘ Let it go bust. Life is tough. Those who play football need to know that losing is part of the game. Same goes for those who make investments’

    In retro former USA President Bush and the US Senate and Congress took the decision to bail out the banks -not because they were enthusiastic about it but because they feared a world wide economic meltdown which could have been worse than the 1930’s . With 50 million weapons in private hands in the USA we can only imagine the carnage which would have ensued with 100 million unemployed . The USA in contrast to the EU countries has virtually no social safety net for those not up to the Darwinian struggle for economic or physical existence .

    As for the need for another Keynes -as of now Keynesianism is on it’s way back as economies try to prise themselves out from under the massive debt that the financial system engendered with the collusion of the politicians of all parties over the past several decades .

    In the run up to the last USA Presidential election candidate McCain (yes he of the not too strong on economic matters) called a meeting in Washington in the midst of the unfolding economic crisis . Having called the meeting and having listened to the Volckers and Paulson’s and the top politicians add there views to the rapidly growing pile -McCain had ‘NOTHING’ to say . When asked by Obama to make his view known given that he McCain had called the ‘fix the economy’ meeting -McCain waffled a few generalisations and that was an end to any chance he might have had .

    In a world with several nuclear powers and seven billion people NO government can allow the laissez faire policies of the 18th and 19th century or late 20th century eras to destroy the lives of hundreds of millions of people .

  • Greenflag

    ‘Come now, what rational investor would do that?’

    Your presumption that investors are rational is not always true . Many investors in the run up to the current crisis were anything but rational. It was also assumed by none other than the great economic guru himself Alan Greenspan that ‘rational’ bankers would never invest in anything which would endanger the bank’s financial standing and/or future existence .

    If bankers are allowed to be irrational by virtue of an absence of sufficient regulatory control why would investors be any different ?

  • Many investors in the run up to the current crisis were anything but rational.

    No, they were behaving perfectly rationally under the circumstances. If you work for fund A, and your colleague at fund B is making a killing on betting the market will keep rising, it is perfectly rational to try to keep up with him, especially if your job is on the line. Even if you know the market will have to peak, you cannot blink first. This is classic economics theory.

  • Jaggers

    It seems that some fudge will emerge from the EU tomorrow to stop Greece creating a domino effect in destroying the euro.

    Interesting to see Greek strikers with placards saying “We’re not Ireland – we will resist”. Of course Ireland took a €4bn hit from its Budget compared with the €800m in Greece, and people are more or less getting on with it in the State. I guess our reward is keeping our AA rating and probably getting back our AAA rating by the end of this year as the recovery slowly kicks in.

    The UK is in for some turbulence though with rising inflation (3-3.5%), lower than expected growth and a stonking big deficit and national debt. It says something about sterling that the euro has weakened by 10% against the dollar since last Oct yet has stayed about the same with sterling. The risk to the euro would account for its weakness. Why is sterling taking a battering?

    Also of note is our new President, actually he’s the President for most on here, Mr Van Rompuy, has produced a paper which calls for and argues for more fiscal policy union between states – I can see the UK Euroskeptics choking over that one.

  • Greenflag

    Andrew Gallagher ,

    I would call it classic personal survival strategy no different from anybody else in any line of work except in the fact that it’s other people’s money that the banks were investing in the great gambling casino that was the world of derivatives , CDO’s etc. In a narrow individual sense I can agree . At what point say in Bernie Madoff’s theft of 60 billion dollars did he move from the rational to the irrational ? Was it when he was caught ?

    You could use the same argument btw to ‘rationalise’ the behaviour of camp guards at Auschwitz or Trblinka .

    You could also use the same argument to ‘forgive ‘ Trevelyan for adhering to ‘laissez faire’ policies in mid 19th century Ireland.

    Classic economics theory iirc is laissez faire writ large . I’m not suggesting the theory has no relevance or use in today’s world -it has . But it’s a mistake to assume that the ‘market’ knows best and will eventually reach a new equilibrium .

    The market will of course reach a new equilibrium but it may be an equilibrium that requires hundreds of millions to die of famine , war and disease and for people in developed countries to enjoy working for a dollar a day without any benefits or public health service etc .

    Unconscionable ? Not at all . Left untrammeled the market would do exactly as the banks have done prior to this ‘meltdown’

  • Greenflag:

    At what point did you start confusing rationality with morality?

  • Greenflag

    ‘Why is sterling taking a battering?’

    Political and economic uncertainty -the UK budget deficit which the markets would like to see being tackled more vigorously . Gordon Brown chooses not to-whereas the Tories are ‘uncertain’ at least in respect of where they will cut .

    The pound is also an easier currency target for speculators than the Euro -and it has a history of providing rich pickings for the jackals of the ‘currency traders’ world . And if you doubt me ask George Soros 😉

  • Greenflag

    Andrew Gallagher ,

    Morality? I don’t recall mentioning the word . The ‘market’ does’nt do morality .The lion devours the lamb not because of moral failings but because it is it’s nature and it’s dinnertime .

  • Greenflag:

    At what point say in Bernie Madoff’s theft of 60 billion dollars did he move from the rational to the irrational ? Was it when he was caught ?

    You could use the same argument btw to ‘rationalise’ the behaviour of camp guards at Auschwitz or Trblinka .

    You could also use the same argument to ‘forgive ’ Trevelyan for adhering to ‘laissez faire’ policies in mid 19th century Ireland.

    Each of these is a moral question, not one of rationality.

  • Greenflag

    Andrew Gallagher ,

    ‘Each of these is a moral question, not one of rationality.’

    To quote your own remark above in no 4.

    ‘If you work for fund A, and your colleague at fund B is making a killing on betting the market will keep rising, it is perfectly rational to try to keep up with him, especially if your job is on the line.’

    Indeed but if you know also so many did did that monies you were investing on behalf of clients was going to disappear when the sub prime fiasco went belly up would that have been immoral or would it have been just the pursuit of rational self interest ?

    As I said above the ‘market’ doesn’t do morality . In so far as it does it is purely as a result of intervention and legislation enacted by the State /elected Government . Americans were still eating from food from tin cans soldered with lead twenty years after it had been established that lead was a neurotoxin . Despite tobacco being a known cause of premature death -tobacco companies continue to sell early death in many developing and developed countries . Is that rational ? Ask the shareholders . Is it immoral ? The tobacco companies don’t do morality in case you haven’t noticed .

  • Jaggers

    For Brian if he’s still watching …

    With the upheaval in Greece today many media outlets have had Q&As; – the attached from the BBC is fairly standard though it does include a table on deficits and debt.

    You’ll see that the UK had an estimated deficit in 2009 of 13% of GDP and its debt is 68.6% of GDP. Ireland by comparison has a deficit of 10.75% amd debt of 65.8%. Similar ranges of figures though the UK’s are worse.

    Ireland is cutting €4bn out of public spending in 2010 and will have gotten its deficit back to 3% by 2014. Ireland is also tackling lack of competitiveness in the economy – the property collapse is such that Dublin now has amongst the cheapest office rents in Europe. Wages are still high in the State though the Govt is bringing forward the Inability to Pay legislation to stop minimum wages in specific sectors being uneconomic (the basic minimum wage of €8.65 still applies for the time being). With our low corporation tax rate, a flexible and educated workforce and our can-do-business attitude that wins favour from Boston to Beijing, I think we will recover.

    Fallout from our Budget two months ago was minimal – look however at Greece who are taking €800m from annual government spending and the whole place shuts down.

    I predict we will get our AAA rating back by the end of the year and although we probably won’t return to the growth rates of the last decade, we will do above average. It will be interesting to observe when and how the UK *starts* to tackle its deficit and debt.

  • Greenflag,

    You are still confusing “amoral” and “immoral”.

    As I said above the ‘market’ doesn’t do morality .

    Correct. The market is a tool, like electricity or cars.

    Indeed but if you know also so many did did that monies you were investing on behalf of clients was going to disappear when the sub prime fiasco went belly up would that have been immoral or would it have been just the pursuit of rational self interest ?

    It would be the pursuit of rational self-interest. The personal morality of one employee refusing to take part in a speculative bubble would serve only to get him fired. It was the system that was failing, not the individuals in it. It was our politicians who refused to properly oversee and regulate that system. The market was a car, and the politicians were driving. You don’t call the car immoral when it runs a pedestrian down.

  • Mack

    Jaggers you’re not JohnTheOptimist who comments on by any chance?

  • Jaggers

    Mack, Christ no that’s not me. And although I might express overall optimism at the macro picture, I know that things will be rough in the short term as property continues to find its level and a generation copes with negative equity, wages fall, unemployment and emigration rises, regaining competitiveness is going to be painful and indeed on the macro picture I worry about NAMA (transparency, competition fixing, taxpayer risk) and what we’re doing for competition in the banking sector (fixing the domestics and deterring new entrants – why Sberbank and ICICI aren’t knocking on the door to sell 1-2% cost euros to nice Irish businesses and consumers at 3-6% is beyond me) and I worry that our pisspoor Opposition can’t hold the govt to account. But I think we are swift-footed enough to recover and do so faster than our sluggard neighbours across the water (not having a pop at citizens but the reluctance of the UK government to confront the deficit and debt is astounding).