ESRI In Denial-Opinion Slot for Director in IRISH TIMES
ESRI in Denial
The Irish Times (Jan 12) has given free rein to the ESRI to cover up its past. Above all, ESRI failed to give adequate warning of the danger to the Irish economy from the combination of excessive bank borrowing abroad and excessive lending both at home and abroad.
The level of denial by the ESRI itself and the extent of the protection from criticism it has enjoyed in the media has particular dangers for citizens. The dangers in the current austerity policy are sure to be understated by ESRI if radical change in the governance of the Institute does not take place.
ESRI director is given the facility of a personal opinion piece in the newspaper, to-day Jan 12. In addition, under the heading “Director says ESRI economy warnings ignored“ Paul Cullen of the Irish Times political staff wrote an article which contained no quotations from anybody other than the ESRI director. I had been interviewed for half an hour on telephone by Paul Cullen in advance of the publication of the article. The article begins: “SUCCESSIVE GOVERNMENTS deliberately ignored warnings from the Economic and Social Research Institute about the dangers of an overheating economy, according to its director, Prof Frances Ruane. Prof Ruane yesterday defended the independence of the ESRI and the accuracy of its forecasting in the face of trenchant criticism last week by departing staff member Richard Tol.” In a third article, also by Paul Cullen, some criticism is carried including a criticism of the governance of the Institute by myself. This article says that the Institute circulated Morgan Kelly’s article (July 1997) predicting the “bust” without saying that the Institute had dissociated itself from it! As I explain below, the Institute was saying the opposite at the time.
What are the facts? The Irish economy was in mortal danger in Summer 2007. “Members of the Media should note that Professor Morgan Kelly is not a staff member of The ESRI. Whilst this Article has been accepted for publication by The ESRI, the views expressed are not the views of The ESRI”. This is the legend that accompanied the circulation by ESRI of the article by Morgan Kelly in July 2007 predicting the bursting of the property bubble and its consequences. There is no record in the article of the director being asked to explain this disclaimer.(The journalist had discussed this contention in my letter to all media with me)
But what was the ESRI itself saying at the same time in Summer 2007? In Spring 2006 the Institute had predicted a soft landing saying: “We add our voice to those expressing concern about the possibility of a bubble bursting. However, this does not imply that a sharp fall will occur. A soft landing is still the more likely outcome.” In its Quarterly Economic Commentary, Summer 2007, a “smooth transition” was predicted. “As the housing boom comes to an end, the economy must move resources to other areas of economic activity, such that the transition is as smooth as possible in terms of output and employment. We are optimistic that a smooth transition will occur and this is reflected in our forecasts for services and industry growth. However, if the current high rate of CPI inflation feeds into excessive wage demands, this could endanger a smooth transition. (Preamble to QEC, Summer 2007). And in its General Assessment, the same publication states : “With employment growth slowing, tax revenues growing more slowly than last year and early indicators of activity in house building pointing towards a slowdown, our task in producing forecasts has been to estimate whether the slowdown will be moderate or otherwise.For now, our belief is that the slowdown will indeed be moderate.”
The same publication pointed to dangers to their optimistic outcome. Was there any mention of excessive bank borrowing and lending? Not a word. The main danger was wage inflation according to ESRI. Government and employers cannot have been unhappy with that!
The contention in my letter to the media that the warnings were so understated as to be totally ineffective is more than justified. This is particularly so as the warnings were addenda to optimistic predictions at a time when the country was hurtling towards receivership.