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LTE on the economics of complacency published

by Frank Schnittger Tue May 31st, 2011 at 09:09:25 PM EST

The Irish Times - Letters

Madam, - The article by John O'Hagan condemns "celebrity economists" such as Morgan Kelly for their octopus-like forecasting abilities and lack of calm, rational, factual, analysis, while making no verifiable statements of fact, or falsifiable predictions for the future. His thinking seems to be reducible to your headline that "Confidence and hope can trump counsel of despair", while ignoring the fact that the positive spin about "soft landings" and "the cheapest bank guarantee in the world" got us into this mess in the first place.

As the numerous comments on the online version of your paper can testify, his pious hope that we can muddle through ignores the fact that the economic meltdown he thinks can be avoided by thinking positive is already a reality for those outside the comfortable academic groves and intellectual bubble world he seems to inhabit.

"Please don't rock the boat because I'm all right Jack" seems to be the mantra being repeated by the Irish elite at the present time. Bad things happen if you allow reality to intrude.

Unfortunately, the consequences of such complacency are all too real for most people and moralising econobabble from highly paid academics can no longer cover the cracks their lack of leadership has exposed and created in Irish life. - Yours, etc,

FRANK SCHNITTGER,


Professor Morgan Kelly has written a series of articles critical of the management of the Irish economy for the Irish Times, the latest of which has provoked a firestorm of critical comment from Government Ministers, the Governor of the Central Bank (and ECB Council Member), the Taoiseach, a former Taoiseach, and more mixed reviews from a range of fellow Irish economists.

The latest to weigh in on behalf of the establishment is John O'Hagan, professor of economics at Trinity College Dublin. My letter in response to his article is published above. It is fairly representative of 48 rather vehement on-line responses his article provoked.  The old Irish deference to learned members of the academic establishment seems to be a thing of the past.

In fairness to professor O'Hagan, his article would have been deemed a fairly harmless and innocuous page filler in any other context.  Nobody ever got fired from academia for advocating calm and rational debate.  But what I think the response indicates is that people now demand more from highly paid establishment figures than mere hopeful platitudes. Instead of bewailing the complexities and taking side-swipes at those who do have a track record of making correct predictions, people are demanding solutions to their very real existential problems.  And if the establishment say they don't have any, they had better be prepared to make way for those who at least have the courage to develop some.

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ADOPTING THE stance of Prof Morgan Kelly on the abandonment of the EU-IMF bailout would constitute a "lethal injection" to the Irish economy, Taoiseach Enda Kenny has said.

He is right about the lethal injection but wrong about who it would kill. It would put an end to the current charade and kill those whose recklessness in lending brought about the bubble. Ireland has a trade surplus, it was never legally obliged to bail out even the Irish banks, and it should put back on the bank's books all that it has taken into NAMA.

The effect of this would be a collapse of the current rotten system. It would fail while Merkel dithered. In time the refusal would come to be seen as the courageous key event in taking down a monstrous world banking system. In the meanwhile, it would be the breath of life to Ireland, whose only real problem is the, at best, folly of Fiana Fail bailing out its crones. Loyalty is a virtue, but to sacrifice the future of others so your buddies won't have to face the consequences of their folly is a crime.

As the Dutch said while fighting the Spanish: "It is not necessary to have hope in order to persevere."

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Wed Jun 1st, 2011 at 02:00:22 AM EST
Yes, but it would create great uncertainty for the Irish elite, and thus can't even be contemplated...

Index of Frank's Diaries
by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Wed Jun 1st, 2011 at 07:36:43 AM EST
[ Parent ]
Oh, and congratulations on getting the LTE published. I hope that some of the LTEs present some of the specific reasons why There Are Real Alternatives.

As the Dutch said while fighting the Spanish: "It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Wed Jun 1st, 2011 at 10:24:08 AM EST
[ Parent ]
Morgan Kelly has been one of the chief protagonists of TARA, which is why the establishment has been so keen to slap him down as a celebrity economist with the forecasting skills of an octopus...

Index of Frank's Diaries
by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Wed Jun 1st, 2011 at 10:55:56 AM EST
[ Parent ]
The octopus was a whole lot more accurate than most, (all?) of Kelley's critics and, worse, he can offer coherent narratives as to why he is right. Does he have any support from other Irish or Irish based economists?

As the Dutch said while fighting the Spanish: "It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Wed Jun 1st, 2011 at 11:54:12 AM EST
[ Parent ]
For Kelly, O'Hagen, or the Octopus?
See link below for other economists reactions to Kelly - the big problem with his thesis is how do we avoid draconian cutbacks if we can't borrow from anywhere - I don't think even swingeing tax increases can pug the current Government deficit in the short-term. In a few years, yes, but where do we borrow in the meantime?  The guarantee moneys have all been paid off - over €70 Billion - and left a hole so big we are prisoners of the ECB/international sovereign debt markets.

European Tribune - LTE on the economics of complacency published

and more mixed reviews from a range of fellow Irish economists.


Index of Frank's Diaries
by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Wed Jun 1st, 2011 at 12:24:35 PM EST
[ Parent ]
Nothing wrong with not being able to access ECB liquidity that issuing scrip won't solve.

Yeah, the BuBa is gonna sue. But by the time the courts are done chewing on the legality of a €-zone country issuing scrip, the scrip will have been retired anyway.

- Jake

Austerity can only be implemented in the shadow of a concentration camp.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Wed Jun 1st, 2011 at 12:46:38 PM EST
[ Parent ]
I see that several of the "mixed reviews" suggested exiting the Euro and at least one hit on the interdependence of the debt, with the implication that Ireland could get a much better deal by threatening to blow up the whole euro system. Among the comments to the O'Hagen piece I was amused by the one that noted that octopi have a high level of cognitive functioning and have demonstrated the ability to learn from experience, which distinguishes them from most academic economists.

As the Dutch said while fighting the Spanish: "It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Wed Jun 1st, 2011 at 04:47:40 PM EST
[ Parent ]
For Kelly, O'Hagen, or the Octopus?

I was referring to Kelly, but your link answered the question. Kelly makes the point that the original bond holders have been paid off. This whole process needs to be investigated and, probably, prosecuted. It was just TOO DAMN CONVENIENT! Clawbacks would be in order from a process that was found to be based on collusive fraud. And there is still a lot to be explained about the urgency with which the ECB wanted Ireland to accept a bailout, given the time they had until the next payment was due. But maybe I have missed something.

I suspect that one of the reasons for the Irish elite's reluctance to consider any real alternatives is that amongst those alternatives there might be investigation and prosecution of many of them for their roles in the whole debacle and many might be ruined and even do time in prison. This all smells like the reluctance in the USA to look at the past, etc. ever since Watergate, but, especially, since Clinton. Just ignore past potential infractions and move forward. In both cases I strongly suspect that a proper investigation of events in previous administrations would open 55 gallon barrels, not of worms, but of vipers. (Imported vipers, to be sure.)

As the Dutch said while fighting the Spanish: "It is not necessary to have hope in order to persevere."

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Wed Jun 1st, 2011 at 11:33:50 PM EST
[ Parent ]
Kelly makes the point that the original bond holders have been paid off.

shrug

That was a Troika decision. I can see no downside to sticking the Troika with the cost of that decision by defaulting on the bonds they bought to enable it.

- Jake

Austerity can only be implemented in the shadow of a concentration camp.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Thu Jun 2nd, 2011 at 12:14:27 AM EST
[ Parent ]
Good. I didn't have the specifics of the deal. If they are as you state I completely agree. F#*k 'em. I recalled that most of the money would have gone to foreign bond holders.

As the Dutch said while fighting the Spanish: "It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Thu Jun 2nd, 2011 at 12:43:03 AM EST
[ Parent ]
What you are referring to as criminal behaviour passes for normal around here.  It works like this:

Our banks were massively insolvent but because everyone in the elite "believed" the drop in the property market was a blip and thought there would be a "soft landing", they were able to claim they were merely illiquid, not insolvent.

The ECB provides up to €150 Billion (or thereabouts - what's a few Billion between friends) in "emergency" liquidity - allegedly secured on the Banks assets (you must be joking) in return for the Government committing to recapitalising the banks.

The Government cannot envisage a situation where the economy can continue to function without the banks functioning and paints a nightmare scenario of "the ATM's will stop working" to establish a TINA narrative.

The cost of recapitalising the banks goes up and up with each succeeding "stress test" as reality gradually intrudes and the ECB/IMF have to come in to "generously" bail out the Irish Government to bail out the Irish banks to bail out their German Bondholders - all at an exorbitant interest rate.

The Irish Government has little choice to accept the ECB generosity because the Global sovereign debt markets won't lend to the Irish Government any more  - correctly judging that the cost of the Bank bail-out, plus the cost of a ballooning public sector deficit (largely caused by the collapse of the asset bubble caused by German banks excessive lending to Irish banks etc. ) is too much for the Irish economy to service.  

Just to make sure TINA to the ECB "bail-out", Merkel and other EU heavies makes lots of comments about taxpayers not bailing out future bank losses which freaks out the markets during the IMF/ECB "bail-out" negotiations and makes it absolutely impossible for the Irish Government to borrow anywhere but from the ECB.

So, despite otherwise having been funded for most of this year, even the new Irish Government is well into the clutches of the ECB and makes only token changes to the ECB/IMF bailout deal on the grounds that:

  1. If the ECB withdraws liquidity from the Irish banks they go under straight away

  2. They can't borrow anywhere else

  3. As one of the most open economies in the world heavily dependent on exports, we need access to EU markets and the "stable" currency regime the Euro provides.

It's all about school yard economic.  Big boys bully the little boys and there is no teacher willing or able to stop it anyway.

Oh, and did I mention that not a single civil servant in the Irish Department of finance is an economist, and the only economist hired by the public service in recent years made his name slagging off Morgan Kelly?

For any Irish Government to have done otherwise, they would have needed an independent political vision and some serious economic expertise at their disposal, but we're all Europeans now and the markets and their ringmasters have to be obeyed.


Index of Frank's Diaries

by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Thu Jun 2nd, 2011 at 06:53:53 AM EST
[ Parent ]

largely caused by the collapse of the asset bubble caused by German banks excessive lending to Irish banks etc.

The German banks participated to the bubble but did not cause it - and the lack of intervention/policies by domestic authorities certainly did not help.

Sure, Germany is refusing to acknowledge their part in the crisis - but it does not mean that they were the only ones to blame.

Wind power

by Jerome a Paris (etg@eurotrib.com) on Thu Jun 2nd, 2011 at 07:58:27 AM EST
[ Parent ]
Please allow me some rhetorical latitude in a somewhat tongue in cheek response to ARG.  My point was that under our present systems there is no need to hypothesise criminality in order to explain what happened.  Ideological capture, yes.  Incompetence on a grand scale yes. Some criminality on the margins, also yes.  But the basic problems were systemic.

Index of Frank's Diaries
by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Thu Jun 2nd, 2011 at 09:44:32 AM EST
[ Parent ]
no need to hypothesise criminality in order to explain what happened.

True, the need is to discourage continuation of the behavior and to force a cleanup of the systemic problems. The need to go after criminality "at the margins" is to demonstrate that, if your incompetence and cronyism weak sufficient damage on the entire society you are vulnerable to a thorough investigation and to prosecution for ANYTHING that turns up. If there are no consequences for the perpetrators, there will be no change.

As the Dutch said while fighting the Spanish: "It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Thu Jun 2nd, 2011 at 10:05:19 AM EST
[ Parent ]
Same problem as in the USA: it is called regulatory and prosecutorial forbearance; it is not really a crime until someone has been investigated, prosecuted, convicted and sentenced; and the forbearance is insured through governmental capture by interested parties. Given the attitudes of impunity prevalent, there will be crimes if there is investigation. The sunlight that would be thrown on the whole corrupt process MIGHT give social democracy a chance. You never know until you try.

As the Dutch said while fighting the Spanish: "It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Thu Jun 2nd, 2011 at 09:54:13 AM EST
[ Parent ]
Eurointelligence: Moody's downgrades Greece to junk - default is now a couple of ticks away
Irish foreign minister urges diplomats to talk Ireland out of the crisis

While the European Commission has approved an extension of Ireland's bankin guarantee until the end of the year, foreign minister Eamon Gilmore has ordere Irish diplomats across the globe to get the message out that Ireland has drawn  line under its banking crisis, the Irish Independent reports. He described their mission as "a major diplomatic initiative to restore, in the words of Robert Emmet, Ireland's place among the nations of the earth".  Gilmore said the country's small but effective foreign service had played a key role in asserting and protecting Irish sovereignty since the foundation of the State, and now it was being called on to rescue its economic sovereignty.



Economics is politics by other means
by Migeru (migeru at eurotrib dot com) on Thu Jun 2nd, 2011 at 04:12:50 AM EST
It's a bit like my tennis.  I'm playing absolute crap, but I can talk the best game in the club...

Index of Frank's Diaries
by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Thu Jun 2nd, 2011 at 06:24:14 AM EST
[ Parent ]


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