💡 New Ideas
New and notable progressive economic ideas.
1) Taxing Land. Martin Wolf at the FT argues that “The Case for Land Value Tax is Overwhelming”. This is a great read, arguing that Land Value Tax is a morally just and economically efficient way to raise revenue, but its implementation has been hindered by the political power of landowners.
It will remain a deep tragedy that in 2013, when we had the opportunity, Ireland chose to tax property instead of land.
2) Technocratic Ideas. Some interesting questions from Chris Dillow intended to promote policy discussion in the area of state capacity.
“How much state capacity is there? Can we reform the police/NHS etc for the better, or do we lack the political/management ability? Smith said there’s a great deal of ruin in a nation – but how much, & where?”
“Which errors should govts make? Should it err on the side of generous benefits/liberal migration policy/loose fiscal policy (etc) or the opposite?”
“Are our policies/institutions as resilient to human error/venality as they could be? How could such resilience be increased”
“If we want more care workers/nurses/people to decarbonize the economy, where will they come from? Is unemployment high enough, or do we need to destroy other jobs? If so, are higher taxes enough, or do we need policies to cut (eg) bullshit jobs?”
3) A welcoming Economy. Both David McWilliams and Fintan O’Toole mark the arrival of The Windsor framework (the Northern Irish Protocol 2.0) by comparing the economies of north and south. McWilliams compares the fortunes of both over the last 25 years, with the Republic overtaking a receding North. “This deal provides the chance to reframe what the North stands for. Is it an enterprising part of the global economy, focused on raising the living standards and conditions of its people or an atavistic backwater, preferring flags over fortune?” Link (€).
O’Toole, on the other hand, focuses on how we frame the vision for the Republic for the coming years. Noting, as McWilliams did, that the “single great idea” of attracting American capital and importing our export sector has been profoundly successful, he says we’re desperately in need of a social democratic vision for what the state and economy should look like for the next phase. Large state capacity, long term planning and capacity to take in workers from all over the world is not only vital, but also possibly the best strategy for making a united Ireland something our unionist cousins would want to be a part of. Link (€).
📰 Economic News
Trending Irish economic news, in summary and context.
The Numbers Don’t Feel Right
Eoin Burke-Kennedy captures well the sense that many of our economic indicators seem to be conflicting both with each other and with the broad public sentiment. “At no time in the last four years has there been more confusion, more mixed signals about the future direction of the global economy.” We’re in a cost of living crisis, but sales figures are robust. The central bank has dramatically hiked rates, but the corresponding recession has not arrived. The Minister for Finance and employers’ group Ibec predict inflation falling faster than expected, but CSO data shows it still rising.
- Irish Times: “Irish consumers get mixed signals on inflation as ECB gears up for more rate hikes” Link
- Irish Times: “Surprise increase in inflation runs counter to forecasts” Link
We Aren’t Not In a Recession
In January the CSO estimated that Irish GDP had grown by 3.5% in the previous quarter. This week it revised that number to just 0.3%. However, given the predominance of multinationals and aircraft leasing, we all use the much better “modified domestic demand” figure (or GNI*) for a more accurate measure of the real domestic economy. Modified Domestic Demand fell by 1.3 per cent in the fourth quarter, which means the Irish economy (and possibly the entire eurozone) had negative growth for the second half of 2022. This means, by one key measure, we’re technically in a recession. But employment is at an all time high, consumption is up, as are exports, so nobody really believes that we’re in a recession.
- Irish Times: “Irish economic growth revised downwards in fourth quarter” Link
- RTE: “Domestic economy in technical recession at end of 2022” Link
- RTE: “’Relatively low likelihood’ of recession this year” Link
- Irish Times: “The mysteries of measuring the Irish economy” Link
- RTE: “Leprechaun Economics 2” Link
The Plight of the Private Landlords
There is a trending narrative, and one I hear frequently through anecdotes, that despite record high rents, private landlords (who provide 94% of rental accommodation in the country) are finding the gig too difficult and costly and are starting to sell up. It’s hard to get a sense of the scale of this issue and, more importantly, if we should care.
On the scale question, a frequently cited stat from a Society of Chartered Surveyors’ survey says that 40% of residential property sales in Q4 were landlords selling their investment properties. This is just a stat about the composition of sales, it doesn’t tell us anything about whether this proportion is climbing or falling, high or low or, most importantly, if the quantity of landlords selling is on the rise or the fall. Nonetheless the Irish Times and Independent both reported it as a “Landlord exodus”.
Given that these numbers always come with a corresponding call for deregulation and tax cuts, I’ll treat them with a grain of salt until I see good stats. But even still, if we grant that the numbers are increasing by some amount, is that a big problem? The most obvious negative consequence is a reduction in the number of properties available to rent.
I think there’s a rough hierarchy of vulnerability in society that goes something like this:
Owners of multiple properties -> Property owners -> New buyers -> Renters -> Houseless
As such, in the middle of a property crisis with record homelessness, I won’t spend much time analysing the difficulties faced by folks at the top of this list. When private landlords sell rental properties at times of low supply, it benefits new buyers (by increasing supply of properties for sale) but disadvantages renters and the houseless (by decreasing rental supply and further driving up prices).
Policy moves to incentivise private landlords to retain ownership of their spare houses, like tax breaks, regulation changes etc. will just shift some burden from renters to new buyers, with significant benefit accruing to those at the top. It seems obvious that increasing the quantity of properties in the country should be the main goal, rather than shifting the ownership structures of the existing sparse supply. Building social houses, smart zoning and land value tax are all better options here.
- RTE: “Explainer: Why are private landlords selling up?” Link
- Independent: “Nine-out-of-10 Airbnb hosts would rather leave their units idle than rent it out to long-term tenants” Link
Why aren’t mortgage rates sky-rocketing?
As ECB rates surge and competition decreases, with KBC and Ulster Bank leaving the market, why haven’t the remaining banks raised mortgage rates significantly? Possibly because two (AIB & PTSB) are still majority owned by the state? Maybe their analysis shows rate hikes will push borrowers over the edge and cause a wave of defaults? We’ve gone from one of the most expensive to one of the cheapest mortgage markets in Europe. One to watch.
- Business Post: The curious case of the Irish banks and the non-rising mortgage interest rates” Link (€)
Phantom Exports. One of my favourite terms to describe our economic strategy is “Importing our Exporters”. Instead of growing exports by championing domestic firms, we incentivised foreign firms to locate here and export from here. It was a solid strategy, but the runaway success leads to some bizarre headlines. The Business Post reports that “Goods produced outside Ireland made up 38 per cent of Irish exports in 2022, as economist says numbers are ‘unusual to say the least’ considering size of the economy”. Link
Exchequer Surplus. On a twelve-month rolling basis, the Exchequer had a €1.5 billion surplus. Corporation tax is a big driver here, but numbers are up across the board. We put €4bn back into the pension reserve fund (which was drained to bail out the banks). Link
Inflation Drivers. In the US “Corporate Greed is Causing Inflation” has become the most cohesive narrative to counter the notion of a “Wage Price Spiral”. The first suggests that an imbalance of supply and demand gives companies the opportunity to hike prices to make high profits at a time of scarcity. The second suggests that the costs of inputs (including wages) are forcing companies to pass on price increases against their will.
Leaked discussions from the European Central Bank “showed that company profit margins have been increasing rather than shrinking, as might be expected when input costs rise so sharply”. The need to use interest rates to get wages and costs under control has been the dominant narrative, but the data suggest that “corporate greed” is the more accurate one. Link (Reuters)