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ECONOMIC RECOVERY ?

Correlation is not an indicator of Causation–Common caution to students of statistics

Brendan Ryan, Former University Senator and Labour Party Member on Facebook

“I see my beloved and beleaguered Labour Party are off boasting about their “achievements” in government. Christmas bonus restoration and drop in unemployment are two that are mentioned. Who could argue? Even if (judging by earnings figures) most of the new jobs are moderately or poorly paid.
However. No one from LP addresses the basic question, posed regularly by amongst others Paul Krugman, and Larry Elliot(Guardian). That is did the current government policy cause the recovery or deepen the recession? This is central because all recessions end. What govts do will make it end quicker or slower. Did the enormous hardship inflicted by this and the previous government bring forward or delay recovery. Did the huge suffering enable people to escape more quickly from recession or in fact keep them stuck in misery for years longer than was necessary?
In other words does austerity work? Because if Labour believes that then it really has swallowed FG ideology and philosophy and no longer has a distinctive time vision.

Comments

Labour Values Even if austerity did achieve financial stabilisation, that does not mean it was right to impose cuts in public services without first making the rich carry their fair share of the burden. That was not done and that is why Labour can fairly be said to have badly let down their voters.

Seamus Boyle Sadly I have to agree Brendan , there was a time when a labour front bench wouldn’t be pushed around in government , but these last few years is certainly the first time I have seen Labour as being the mudguard of FG

Tony Pratschke This Coalition Government has turned a failed economy into a slave state of global neoliberalism, and in the process has turned a society into an economy, with citizens rebranded as consumers. Truly, the pigs are now standing on their hind legs sipping the EU cocktails with the new owners of the country. Who will be next for the knackers’ yard?

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NEW WARNING BY Prof. Colm McCarthy-BELOW

A degree of economic recovery has taken lace during the tenure of this government. This does not mean that government policies are responsible for the recovery. Some economists, even conservative ones, say it is mainly down to good luck-fortuitous external circumstances-Paddy Healy

Capitalist crises are always followed by a degree of recovery. I believe that the Government-EU nexus delayed the recovery

Prof Colm McCarthy Again Warns That the “GOOD LUCK RECOVERY” could turn sour as huge factors are outside government control—-Sunday Independent  29/11/2015

http://www.independent.ie/opinion/comment/our-economy-needs-more-than-luck-we-need-a-plan-b-34243175.html

Now David Murphy RTE questions the credit claimed by Irish government for “recovery”

 Retiring Governor Honahan (Central Bank) Questions Extent of Recovery

Irish “Recovery” based on “Run of luck”—Financial Times Editorial July 23

and Colm McCarthy in  Sunday Independent  August 2

“Prof Honohan, in a strong warning to the Government, said the interpretation of Ireland’s economic growth numbers were “seriously complicated” by the way in which the activities of multinationals were measured, noting that a significant part of the recent growth in production could be attributed to “distorting features”.”

// irishtimes.com – Central Bank governor warns Government over growth – Sat Oct 31 01:01:00 GMT 2015//

How much of the recovery is due to Government?

By David Murphy RTE on Thursday 29 October 2015 18.49

The Irish economy is growing quickly. But how much of this is as a result of actions by the Government?

Part of the answer to that question lies in examining factors that are beyond the control of ministers and civil servants.

The Central Bank reckons Gross Domestic Product, which measures national income, will expand by a remarkable 5.8% this year. One of the big reasons for that rapid turnaround is that international winds are helpfully filling the sails of the Irish economy.

Our exporters have enjoyed a boost from exchange rates, which have made their products much more competitive. The euro has fallen by 18% over the past year against the dollar and dropped 12% against sterling.

The price of a barrel of oil has fallen from an average of $100 last year to $45 today. That is an automatic benefit to large swathes of Irish industry that use fuel in manufacturing, distribution and aviation. It also has put more money into motorists’ pockets.

Let’s not forget the historically low interest rates that are acting as an economic stimulus. The European Central Bank has slashed rates from a high of 4.25% in 2008 to 0.05% now. That has been a significant benefit for home owners lucky enough to have tracker mortgages.

Then there is the European Central Bank’s initiative to introduce quantitative easing. It means that the bank is effectively printing money in an effort to stave off the threat of deflation. That also helps to stimulate the economy.

As a country that is appreciably affected by our main trading partners, Ireland has also been fortunate. The world economy, the US and UK have enjoyed economic growth this year and last, although the eurozone’s expansion has been more sluggish.

So international economic growth, exchange rates, oil prices, interest rates and quantitative easing have all acted to help the Irish recovery. As a small open economy these economic winds have been particularly supportive.

There is no doubt that very painful measures taken by ministers to sort out the banks and the public finances have been vital in securing the recovery. But when anybody suggests the Irish economy is growing solely because of actions by the Government, perhaps people should think again.

Central Bank governor warns Government over growth

Eoin Burke-Kennedy   Irish Times Saturday, October 31, 2015, 01:01

The rate of economic growth is being exaggerated and may be leading to overconfidence in planning for the future, the outgoing Central Bank governor Patrick Honahan has warned the Government.

The business activities of multinational companies were affecting the figures, he said, creating a risk that Government policy would not be based on a realistic view of future prospects.

In a letter sent to Minister for Finance Michael Noonan before the budget, Prof Honohan said the economy was still some way off its pre-crisis peak. This was a reason for caution in framing budgetary policy, he said.

He warned Mr Noonan it was imperative to avoid a return to the type of pro-cyclical fiscal policies observed in the past, and in particular not to base spending plans on windfall tax gains that could quickly disappear.

Separately, UCC economist Seamus Coffey has warned the Government against making long-term budgetary commitments on the back of temporary non-cyclical tax revenues.

Speaking at a conference in Dublin, Mr Coffey said several headline expenditure increases in the budget were predicated on a recent surge in corporation tax receipts, which remains unexplained and might well be temporary.

Cautious

In his pre-budget letter to Mr Noonan, released under a Freedom of Information request, Prof Honohan repeated warnings from outside agencies such as the EU Commission and the IMF that the budget must be cautious and should aim to eliminate borrowing as quickly as possible.

The EU Commission is now examining Ireland’s budget and is expected to give a preliminary opinion by December on whether it is within fiscal rules.

Meanwhile, the Irish Fiscal Advisory Council head John McHale has expressed concern about the budgetary stance. The council will issue its formal view on the budget shortly.

Prof Honohan, in a strong warning to the Government, said the interpretation of Ireland’s economic growth numbers were “seriously complicated” by the way in which the activities of multinationals were measured, noting that a significant part of the recent growth in production could be attributed to “distorting features”.

“Neglecting these measurement issues has led some commentators to think that the economy is back to pre-crisis performance,” the governor said. Prof Honohan warned that total employment was still more than 10 per cent below the previous peak with the result that the unemployment rate has only just fallen below 10 per cent despite emigration.

Windfall gains

“All things considered, you will be alert to the danger of using windfall fiscal gains to justify long-lasting spending commitments,” he said in the letter dated August 16th.

“Distinguishing between revenue sources that can be considered as stable – such as taxes on personal income – and those which have a one-off or transitory characteristic is a challenge of which I am sure that your department is cognisant, especially given the speed at which transitory revenue sources associated with the housing bubble evaporated in 2009 and 2010,” Prof Honohan wrote.

At a seminar on the impact of austerity hosted by the Royal Irish Academy in Dublin, Mr Coffey also warned of the dangers of basing budgetary measures on temporary tax dividends.

The Government’s levy on company profits is expected to generate about €6 billion in 2015, a 50 per cent increase on last year. A jump of this magnitude in any tax stream is “very strange”, Mr Coffey said.

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From Paddy Healy

There has been real growth in the total production of goods and services (GDP)

in Ireland particularly in 2014. This is continuing in 2015. Government is, of course,

claiming credit for this and is being supported in this by most media commentators.

Government implements economic measures and economic growth takes place. Therefore

the government measures have created the economic growth. So the assumption goes. But

this  is  never fully true in a global market economy. But now the Financial Times and

pro-capitalist  economics professor, Colm McCarthy, in the Sunday Independent are admitting

that the recent Irish economic growth is mainly down to luck.

It is significant that this has been first highlighted by a British publication rather than by the Irish

media

Financial Times      London Jul 23, 2015

Dublin should not celebrate too soon

Ireland is enjoying a run of luck. It would be well advised to bank it

Colm McCarthy   Sunday Independent PUBLISHED02/08/2015  

Recovery-“ But this is largely down to good luck, rather than good management.”

“If the voters do not thank the Government for the recent turnaround, they may have a point. The Irish economy is now performing better than almost any other in

the 19-member eurozone. But this is largely down to good luck, rather than good management. Ireland’s main trading partners are not in the sluggish common

currency area and the recent weakness of the euro has been a real blessing. The exchange rate against the dollar is now around 1.10, versus 1.35 or so early last year.

The sterling rate is about 0.70 versus 0.83 in early 2014.

Against these key trading partners, Ireland has enjoyed a really large exchange rate devaluation which has restored the competitiveness of the economy in

dramatic fashion. This has been a huge boon for exporters, including the tourism industry, which is seeing visitor numbers back close to peak levels. If the public

think that the Government deserves no credit for this, they are of course perfectly correct: Ireland has had no control over exchange rate movements since the

abolition of the currency back in 1999.”

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