Excellent piece, Chris/Jim. Your style of writing never fails to impress.
While it's hard to disagree with a lot of your points, I've carried out some research on my own recently on the effects of GFCF on labour productivity in Ireland. I've ran various VAR models and produced IRF graphs for the period 2000-2022, which includes modified domestic demand, consumption, labour productivity and both private and public sector GFCF expenditure as variables. Sadly, I wasn't at all surprised to find that there was little or no effect on productivity, consumption, or MDD from GFCF.
Moreover, GFCF has followed a procyclical trend meaning that the Irish government invested during the good times but slammed the breaks during bad times. This is in sharp contrast to the other wealthier nations in the EU and OECD who maintain steady investment throughout the business cycle. Germany, France Denmark and Finland, for instance, fare far better than the Irish in this regard.
I thus draw two conclusions. First, when Irish governments spend it is either misallocated in the wrong areas or badly managed, or both. Otherwise, why has productivity in the domestic economy been so unremarkable? The Irish economy is hardly immune from cost overruns. Examples of disatrous financial management are plentiful in this country. The children's hospital, the port tunnel, the Luas, the national broadband plan, not to mention poor railroad networks, inefficient public transport, incomptency at the DAA, and of course the on-going debacle in housing and healthcare. These are not new problems.
Second point. If GFCF follows boom and bust cycles what does that actually tell us about government policy? It clearly suggests that our governments are reactionary. Spend when everything is fine but panic when the going gets tough. My model shows that GFCF reacts unilaterally to changes in consumption, productivity and economic growth, but not the other way around. Consumption, productivity and economic growth couldn't give a fiddlers about GFCF. Money well spent?
For decades the Irish public have rightly bemoaned the lack of future planning from successive Irish governments. Any fool can spend money, as you suggest yourself, but It's knowing what to do with the money and when to spend it that separates genuine leaders from just run of the mill career politicians. The lack of political talent in this country is striking, and has been for god knows how many years. As someone from the UK, Chris, I'm sure you would take your hand off for a stable political system like ours. But Irish people are growing very weary of steady hand politics, particulary when its combined with ineptitude. We need radical thinking and courage in our convictions.
Fixing housing is a lot less complicated than we think. Why not attract immigrant builders in their droves to Ireland, offer them low income taxes and subsidies in exchange for temporary prefab accommodation if we have nowhere to house them? The Irish built London and New York. Indians and Pakistani's built Dubai. We now need similar bold policies ourselves to prevent the economy from grinding to a halt and properly overheating. We can't fudge around the edges and spend a billion here and another billion there hoping half measures will work. We need to allocate huge resources, which we have, over the next few years to hard-nosed decisions that push us forwards as a country. We are currently in a state of paralysis. If we don't bottle it, within 3 - 5 years we could be building as many houses as the pre financial crisis era. We have lost 30% of our construction workers since 2008 while our population in recent years has grown quite rapidly. Is it any wonder why costs have risen so high?
Final point. If we want to prevent land hoarding we should be incentivizing landowners with tax credits, not threatening them with punitive taxes! It's arse about face, especially in an emergency. Human nature says "attack and I will defend." We need to play it another way. Carrot over stick. It's guaranteed to produce much quicker and better outcomes. If only our government could see it that way.
Your points are excellent, but reveal crucial trade-offs and difficult policy choices. Given the current environment, sadly, do people realise that to build more houses requires importing workers? Why not give refugees the right to work? Yes, there should be many more ‘use it or lose it’ taxes: that requires the hard word and expensing of political capital in taking in vested interests. Yes, I would take your hand off for your political stability!
A sensible, competent government would communicate the necessity for such drastic measures. It’s an emergency response and the language around housing needs to reflect that. All highly doubtful though as you imply yourself
Indeed. I often wonder where all the keynesians have gone? You recall in the wake of the financial crash, everyone including Mary Lou McDonald became a self proclaimed believer in Keynesianism. It just so happens that this coincided with an era where that meant more government spending which is far more popular. Where have they all gone? Now that it’s time to tighten the belt and save a few quid, nobody is a Keynesian anymore!
We are probably in the midst of the biggest Keynesian era in history. It's an unbelievable change in policy since GFC, particularly in Europe but also in the US. Even in the face of inflation, governments worldwide are under huge pressure to continue spending. Were it not for restricted supply chains or oil shocks I doubt we'd even have inflation, despite the enormous Keynesian-like responses from our governments. But that's for another day!
I’m struck by the confidence of those who said inflation would be transitory now saying that inflation is here to stay. A little bit of honesty would lead to them saying we haven’t a clue about inflation. If you were to take your steer from commodity prices you would say inflation is about to collapse.
I was in the transitory camp myself and probably still am. That doesn't make much sense since I'm paying much higher wages this year and business is still flying. On the other hand (excuse the pun) I'm all too aware of how a couple of mediocre months trading can suddenly make returning a profit a proper grind. Barring another energy shock, I'm naturally biased towards disinflation as a result. The good times rarely last too long. Labour markets may remain tight but when it comes to the crunch, businesses will insulate their losses. What happened in Tech is a good example. The labour/capital axis will shift again. That's my own perspective anyway. Maybe other businesses will disagree.
Great to read some really pertinent common sense laced with more than a little passion! Unfortunately, your article brings us no further than those of FO'T and UM.
Successful change leaders need to have a clear vision of where they are going and how they will get there. They need be prepared to take on the barriers to progress where they can control them and accept them where they cannot. Above all, they need to avoid exacerbating the situation by pouring fuel on a raging fire, in an dffort to convince people that they are dealing with the problem.
Ireland has, indeed achieved a great deal. The foundation of our economic success was visionary leadership as far back as the 60s which was built upon over six decades. It is not enough to say that other countries have similar problems and therefore it is OK to ignore them. We need a clear vision of how to get out of the current housing morass. The current Government appears to have the will to do something but they are hopelessly in thrall to landlords, property developers and lawyers each of whom are adept at protecting their magnificent franchises. A new vision of how to build a half a million houses in a decade is required. Today's housing initiative is an abject capitulation to Ireland's developers. It underlines my belief that this Government is far from a vision that will produce a satisfactory solution.
It would be great if you would apply your passionate interest in the subject to the 'vision thing' - what should we be trying to achieve? ...and how? Keep up the good work!
If Government was in thrall to landlords, they wouldn't be leaving the private rental market at a rate of many thousands each quarter. Government imposed rent controls and rent regulations that favour tenants are the cause, alongside landlord vilification by leftists and the thought of a Sinn Féin government after the next election I have yet to see a plan from any opposition party that will produce more new homes than the present Government's (30k new homes 2022 & highest quarter of new starts in Q1 2023). The policies are working but the narrative driven by leftist parties, lobby groups and many in the media, is unshakeable. The main housing policy of opposition is to establish a new state construction company and build more social housing estates. Can you imagine how successful that would be? We don't have to imagine; we can just look at the state's outputs from our massive health spending for comparison: Irish Fiscal Advisory Council and OECD reports show that Ireland is a top public health spender compared to all other countries in the world. Every year the Irish government dramatically increases spending on the public health system but no visible improvement appears to arise; instead the calls of "crisis, crisis" ring more loudly. The highly successful and highly tax-generative Irish economic model is funding this huge spending and it is clear that successive Irish governments are doing everything possible to provide the resources to the health system to enable a high-quality service to our citizens - to little avail. This year the state plans to spend circa €24 billion on the public health system, adding many thousands of additional full-time staff, whilst waiting lists grow longer despite the favourable demographics of a relatively young population.
A state construction company would be an inefficient, in effective, expensive mistake, in my view.
I was witness about 35 years ago to the difference in delivery of public housing as compared with private. Private gets things done cheaper and quicker because the motivation is there - it’s called self-interest.
Why has socialist state production consistently fallen behind the capitalist version? That motivating factor, from the top down.
Who are the developers of the children’s hospital? Can we not get those guys to take over more construction projects from the private sector, and have the taxpayer on the hook for more overruns? That seems like a great way to go!
I have been mulling this over for the last few years and can suggest that any visionary approach will be impossible unless either one of these two conditions are in place:- buoyant public support for a bold policy initiative (kinda has to be a populist wave really), or get consensus on what are all of the interrelated components of the problem and the appropriate policies to pursue.
Really like this article Chris, I’ve felt that way about O’ Toole for a long time & as for Mulally, well she’s just a joker. I do remember O Toole once advocated abolishing tax relief on pensions which would have been disastrous. Also, I would just say that suggesting that planning reform is easy is kind of populist too, just saying!
Also, it’s starting to look like the Taoiseach’s finger prints are all over the latest housing announcements, it’s finally getting the priority it deserves & that should be acknowledged.
I really liked that piece - there are just so many people ready to throw stones - sadly the Gov seems incapable of recognising hood plans/suggestions when they arrive.
It's long past time that the 'paper of record' employed some really good data journalists of the John Murdoch Brown (of the FT) variety. Readers are done an active disservice by this form of hackneyed opinion journalism: the tired retelling of cherry-picked anecdotes as evidence of a more general national dysfunction. The plural of anecdote is not data - a surprise, no doubt, to said journalists.
Actually sticking to evidence - especially evidence in a comparative, international, context - might temper the more outlandish claims made. The tired slurs cast on the country over the years would be put to the test - and to rest.
Outrageous claims about our health service, for example, should be contextualised properly: our seemingly bewildered and hopeless health system has delivered the longest life expectancy in the EU, for example. It's not perfect, by any means: but no health system anywhere is.
In a comparative context, we are doing reasonably well compared to our peer countries, with, of course, much room for improvement. Just like our peer countries. But that conclusion doesn't lend itself to easy anecdote-driven outrage and hyperbole...
That, if I be so bold to say it, is the best thing I’ve read on this topic so far.
It’s extremely hard to pull all of the multitudinous threads of Ireland’s current economic scenario together so coherently. However, as everyone realistically wants a simple slogan-like answer to a hugely complex issue, managing to convey this to a broad spectrum of the body politic, in a manner likely to produce consensual policies, is the hurdle.
In the absence of such a formula, it’s going to come down to populist campaigning by both sides for the right to muddle through with imperfect policies.
Like the old saying: - “if you want to get there I wouldn’t start here!”
Excellent piece, Chris/Jim. Your style of writing never fails to impress.
While it's hard to disagree with a lot of your points, I've carried out some research on my own recently on the effects of GFCF on labour productivity in Ireland. I've ran various VAR models and produced IRF graphs for the period 2000-2022, which includes modified domestic demand, consumption, labour productivity and both private and public sector GFCF expenditure as variables. Sadly, I wasn't at all surprised to find that there was little or no effect on productivity, consumption, or MDD from GFCF.
Moreover, GFCF has followed a procyclical trend meaning that the Irish government invested during the good times but slammed the breaks during bad times. This is in sharp contrast to the other wealthier nations in the EU and OECD who maintain steady investment throughout the business cycle. Germany, France Denmark and Finland, for instance, fare far better than the Irish in this regard.
I thus draw two conclusions. First, when Irish governments spend it is either misallocated in the wrong areas or badly managed, or both. Otherwise, why has productivity in the domestic economy been so unremarkable? The Irish economy is hardly immune from cost overruns. Examples of disatrous financial management are plentiful in this country. The children's hospital, the port tunnel, the Luas, the national broadband plan, not to mention poor railroad networks, inefficient public transport, incomptency at the DAA, and of course the on-going debacle in housing and healthcare. These are not new problems.
Second point. If GFCF follows boom and bust cycles what does that actually tell us about government policy? It clearly suggests that our governments are reactionary. Spend when everything is fine but panic when the going gets tough. My model shows that GFCF reacts unilaterally to changes in consumption, productivity and economic growth, but not the other way around. Consumption, productivity and economic growth couldn't give a fiddlers about GFCF. Money well spent?
For decades the Irish public have rightly bemoaned the lack of future planning from successive Irish governments. Any fool can spend money, as you suggest yourself, but It's knowing what to do with the money and when to spend it that separates genuine leaders from just run of the mill career politicians. The lack of political talent in this country is striking, and has been for god knows how many years. As someone from the UK, Chris, I'm sure you would take your hand off for a stable political system like ours. But Irish people are growing very weary of steady hand politics, particulary when its combined with ineptitude. We need radical thinking and courage in our convictions.
Fixing housing is a lot less complicated than we think. Why not attract immigrant builders in their droves to Ireland, offer them low income taxes and subsidies in exchange for temporary prefab accommodation if we have nowhere to house them? The Irish built London and New York. Indians and Pakistani's built Dubai. We now need similar bold policies ourselves to prevent the economy from grinding to a halt and properly overheating. We can't fudge around the edges and spend a billion here and another billion there hoping half measures will work. We need to allocate huge resources, which we have, over the next few years to hard-nosed decisions that push us forwards as a country. We are currently in a state of paralysis. If we don't bottle it, within 3 - 5 years we could be building as many houses as the pre financial crisis era. We have lost 30% of our construction workers since 2008 while our population in recent years has grown quite rapidly. Is it any wonder why costs have risen so high?
Final point. If we want to prevent land hoarding we should be incentivizing landowners with tax credits, not threatening them with punitive taxes! It's arse about face, especially in an emergency. Human nature says "attack and I will defend." We need to play it another way. Carrot over stick. It's guaranteed to produce much quicker and better outcomes. If only our government could see it that way.
Your points are excellent, but reveal crucial trade-offs and difficult policy choices. Given the current environment, sadly, do people realise that to build more houses requires importing workers? Why not give refugees the right to work? Yes, there should be many more ‘use it or lose it’ taxes: that requires the hard word and expensing of political capital in taking in vested interests. Yes, I would take your hand off for your political stability!
A sensible, competent government would communicate the necessity for such drastic measures. It’s an emergency response and the language around housing needs to reflect that. All highly doubtful though as you imply yourself
Indeed. I often wonder where all the keynesians have gone? You recall in the wake of the financial crash, everyone including Mary Lou McDonald became a self proclaimed believer in Keynesianism. It just so happens that this coincided with an era where that meant more government spending which is far more popular. Where have they all gone? Now that it’s time to tighten the belt and save a few quid, nobody is a Keynesian anymore!
We are probably in the midst of the biggest Keynesian era in history. It's an unbelievable change in policy since GFC, particularly in Europe but also in the US. Even in the face of inflation, governments worldwide are under huge pressure to continue spending. Were it not for restricted supply chains or oil shocks I doubt we'd even have inflation, despite the enormous Keynesian-like responses from our governments. But that's for another day!
I’m struck by the confidence of those who said inflation would be transitory now saying that inflation is here to stay. A little bit of honesty would lead to them saying we haven’t a clue about inflation. If you were to take your steer from commodity prices you would say inflation is about to collapse.
I was in the transitory camp myself and probably still am. That doesn't make much sense since I'm paying much higher wages this year and business is still flying. On the other hand (excuse the pun) I'm all too aware of how a couple of mediocre months trading can suddenly make returning a profit a proper grind. Barring another energy shock, I'm naturally biased towards disinflation as a result. The good times rarely last too long. Labour markets may remain tight but when it comes to the crunch, businesses will insulate their losses. What happened in Tech is a good example. The labour/capital axis will shift again. That's my own perspective anyway. Maybe other businesses will disagree.
Excellent. Throw in Louise O'Neill, PBP, Joe Brolly, Sinn Fein and a dozen more
Thanks Declan.
I can’t make up my mind which of you wrote this piece - on balance I’d say Jim, but boy, he’s got Chris’s sarcasm down Pat!
Loved it !
Good job you hedged your bets! It was me (Chris). Jim could never write in my Welsh-Irish-English accent. Thanks as always Deirdre.
Great to read some really pertinent common sense laced with more than a little passion! Unfortunately, your article brings us no further than those of FO'T and UM.
Successful change leaders need to have a clear vision of where they are going and how they will get there. They need be prepared to take on the barriers to progress where they can control them and accept them where they cannot. Above all, they need to avoid exacerbating the situation by pouring fuel on a raging fire, in an dffort to convince people that they are dealing with the problem.
Ireland has, indeed achieved a great deal. The foundation of our economic success was visionary leadership as far back as the 60s which was built upon over six decades. It is not enough to say that other countries have similar problems and therefore it is OK to ignore them. We need a clear vision of how to get out of the current housing morass. The current Government appears to have the will to do something but they are hopelessly in thrall to landlords, property developers and lawyers each of whom are adept at protecting their magnificent franchises. A new vision of how to build a half a million houses in a decade is required. Today's housing initiative is an abject capitulation to Ireland's developers. It underlines my belief that this Government is far from a vision that will produce a satisfactory solution.
It would be great if you would apply your passionate interest in the subject to the 'vision thing' - what should we be trying to achieve? ...and how? Keep up the good work!
If Government was in thrall to landlords, they wouldn't be leaving the private rental market at a rate of many thousands each quarter. Government imposed rent controls and rent regulations that favour tenants are the cause, alongside landlord vilification by leftists and the thought of a Sinn Féin government after the next election I have yet to see a plan from any opposition party that will produce more new homes than the present Government's (30k new homes 2022 & highest quarter of new starts in Q1 2023). The policies are working but the narrative driven by leftist parties, lobby groups and many in the media, is unshakeable. The main housing policy of opposition is to establish a new state construction company and build more social housing estates. Can you imagine how successful that would be? We don't have to imagine; we can just look at the state's outputs from our massive health spending for comparison: Irish Fiscal Advisory Council and OECD reports show that Ireland is a top public health spender compared to all other countries in the world. Every year the Irish government dramatically increases spending on the public health system but no visible improvement appears to arise; instead the calls of "crisis, crisis" ring more loudly. The highly successful and highly tax-generative Irish economic model is funding this huge spending and it is clear that successive Irish governments are doing everything possible to provide the resources to the health system to enable a high-quality service to our citizens - to little avail. This year the state plans to spend circa €24 billion on the public health system, adding many thousands of additional full-time staff, whilst waiting lists grow longer despite the favourable demographics of a relatively young population.
A state construction company would be an inefficient, in effective, expensive mistake, in my view.
I was witness about 35 years ago to the difference in delivery of public housing as compared with private. Private gets things done cheaper and quicker because the motivation is there - it’s called self-interest.
Why has socialist state production consistently fallen behind the capitalist version? That motivating factor, from the top down.
Who are the developers of the children’s hospital? Can we not get those guys to take over more construction projects from the private sector, and have the taxpayer on the hook for more overruns? That seems like a great way to go!
Exactly! State capacity is an issue totally ignored. Thanks Mark.
I have been mulling this over for the last few years and can suggest that any visionary approach will be impossible unless either one of these two conditions are in place:- buoyant public support for a bold policy initiative (kinda has to be a populist wave really), or get consensus on what are all of the interrelated components of the problem and the appropriate policies to pursue.
I know which I’d be betting on.
Unfortunately
Thanks Brendan. I’ll use future podcasts to list the things we should be doing.
I love this piece, it totally hits the nail on the head....
Agree wholeheartedly with your comments.
Brilliant piece - I agree with every single word and sentiment within.
Keep up the good work.
Mark
Thanks Mark.
Brilliant Mark. I couldn't possibly be in more agreement. The notion that if the State does something it is bound to be good needs to be tackled. Jim
Really like this article Chris, I’ve felt that way about O’ Toole for a long time & as for Mulally, well she’s just a joker. I do remember O Toole once advocated abolishing tax relief on pensions which would have been disastrous. Also, I would just say that suggesting that planning reform is easy is kind of populist too, just saying!
Also, it’s starting to look like the Taoiseach’s finger prints are all over the latest housing announcements, it’s finally getting the priority it deserves & that should be acknowledged.
Keep up the good work, great podcasts.
Thanks Ciaran
I really liked that piece - there are just so many people ready to throw stones - sadly the Gov seems incapable of recognising hood plans/suggestions when they arrive.
They need training in decision-making 😂
I enjoyed every word
As always, thanks Deirdre
It's long past time that the 'paper of record' employed some really good data journalists of the John Murdoch Brown (of the FT) variety. Readers are done an active disservice by this form of hackneyed opinion journalism: the tired retelling of cherry-picked anecdotes as evidence of a more general national dysfunction. The plural of anecdote is not data - a surprise, no doubt, to said journalists.
Actually sticking to evidence - especially evidence in a comparative, international, context - might temper the more outlandish claims made. The tired slurs cast on the country over the years would be put to the test - and to rest.
Outrageous claims about our health service, for example, should be contextualised properly: our seemingly bewildered and hopeless health system has delivered the longest life expectancy in the EU, for example. It's not perfect, by any means: but no health system anywhere is.
In a comparative context, we are doing reasonably well compared to our peer countries, with, of course, much room for improvement. Just like our peer countries. But that conclusion doesn't lend itself to easy anecdote-driven outrage and hyperbole...
That john B-M idea is a good one. Thanks for your very balanced, as always, points. Much appreciated.
Amping the bad stuff to 11 is a business strategy (until it eats itself):
https://substack.com/profile/934835-shane-omara/note/c-15095633
That, if I be so bold to say it, is the best thing I’ve read on this topic so far.
It’s extremely hard to pull all of the multitudinous threads of Ireland’s current economic scenario together so coherently. However, as everyone realistically wants a simple slogan-like answer to a hugely complex issue, managing to convey this to a broad spectrum of the body politic, in a manner likely to produce consensual policies, is the hurdle.
In the absence of such a formula, it’s going to come down to populist campaigning by both sides for the right to muddle through with imperfect policies.
Like the old saying: - “if you want to get there I wouldn’t start here!”
Thanks Steven, much appreciated.