In Irish economic circles, you tend to take much more stick from having been right than having been wrong. Those economists who got it wrong in the boom and believed the hype about the soft landing, such as the ESRI, still manage to grab front-page headlines. In contrast, those who called it right are put under constant scrutiny and are still being dismissed by the establishment as cranks, celebrities or, at best, lucky opportunists.
The “insiders” rally round each other even when they are wrong and the “outsiders” are denigrated. In the economics world, for what it’s worth, the outsiders’ crime — the crime of being right — is particularly dangerous precisely because it exposes the limitations of the insiders. This type of insider/outsider prototype is commonplace in Ireland.
Yesterday, we saw more of this type of behaviour where the establishment insiders carry on with their forecasts despite their appalling records.
I woke up yesterday to hear the ESRI on the radio telling us that things would be grand in the next three years provided we just keep ploughing the same austerity furrow. Someone very clever, not sure if it was Albert Einstein or Roy Keane, once said the definition of stupidity was doing the same thing over and over again and expecting different results. This is what is happening right now.
Unemployment and emigration are rising, mortgage arrears are up all over the country and yet we are supposed to believe that after three more years of this, all will be hunky dory.
The interesting thing about the ESRI is that it has been getting things wrong for years, with apparent impunity.
For example, back in the boom, as late as 2007, one of the chief bottle-washers at the ESRI dismissed the chances of a property crash. This was picked up by a property editor who said: “If he believed there was a crash coming then he would sell his house and rent it back. Tellingly, he is not doing this because he believes, as I do, that if (and that is a big ‘if’) the market is going to crash, it will do so in a patchy, selective way which will not impact to any great degree on many of the existing homes in Ireland.”
What drivel!
Yesterday, the ESRI published its medium-term forecast and it was taken as gospel. But why is this? Why does no one take the ESRI up on its record? Look at some of the other forecasts it has made in the past.
For example, in December 2005 — when the odd non-establishment maverick was saying the economy would crash — the ESRI produced a long-range forecast (similar to the one it produced this week), which was supposed to tell us where we would be by 2010.
According to its “worst-case scenario”, Irish GDP would be €196,876m; in fact, it is €166,345m. At worst, according to the ESRI, our debt-to-GDP ratio would be 16pc; by 2010 it was actually 66pc and rising rapidly.
It forecast that the 2010 Budget deficit would be, at worst, 0.3pc GDP; it was, in fact, 14.3pc of GDP.
So, to use the vernacular, the ESRI, writing in December 2005, hadn’t really got its eye on the ball.
Remember, I’ve used their “worst-case” scenarios here.
The “high-growth scenario” in 2005 said that GDP would be at €208,718m, the debt/GDP ratio would be 15pc and unemployment in 2010 would be 123,000. Unemployment was three times that.
Even by 2008, when fellas in pubs could feel the heat, you would expect the dozens of well-paid economists in the ESRI to be twigging that something was going pear-shaped, but no, the ESRI released a forecast for the Irish economy, predicting that for the next seven years Ireland would “grow by 3.75pc on average per annum”.
It went on to say that, after a blip in 2009, “the economy would continue to outperform its EU neighbours”. Consistently since 2005, it said that a “soft landing” in the property market was the most likely outcome, with a collapse a “possibility” . . . but just that.
The point here is not to have a go at the ESRI — we all make mistakes — but to show that trusting an institution like that, which hasn’t exactly covered itself in glory, might not be the cleverest thing to do.
If this recession has told us anything, it is that the experts know nothing. Yet some sections of the Irish media are still respectful of institutions that are not up to the job. Why is this? Why do we pay for people like this? After all, they are on the public payroll, which means your taxes pay for these guys who call themselves professors, even though they don’t have any students to profess to.
It is time for an audit of these types of outfits to see what they do, whether they should be on the public payroll and maybe ask Colm Mc Carthy to have a gander at them to see where the value is to the taxpayer. If these types of public organisations — where the salary scales are close to the top range given the amount of professors working there — are not up to the job, it undermines other public services that are.
It is easy to lump all public-sector employees into one heap, the well-paid ones and the not so well-paid ones because of the conspicuous failure of those at the top.
A similar argument goes for the retirement package of the head of the civil service, who trousered more than €700,000 yesterday as part of his golden handshake. Anyone who knows about how this country works, will know that the real power lies in the “permanent government” — the head bucks of the civil service.
Yet, in terms of economic management, the Department of Finance and Central Bank, for example, have been worse than useless in the past 10 years.
Contrary to popular belief, the Irish banking and housing crisis did not start in 2008; it started in 2000 when the banks were allowed to go mad and the government used this credit windfall to fatten itself up and fuel the nonsense. All the while, the establishment bleated the “soft or softish landing” mantra while paying themselves fortunes.
The slump in the economy should lead to a clearout of those in positions of power who didn’t do their job. This is what is meant by getting value for money. The more prominent the person, the more responsibility they should take.
Politicians have been humiliated, so too have bankers — and some of them should go to jail. In Iceland, they put their politicians on trial; here we put them on TV3. But they are taking flak.
Yet, all the while, behind the scenes, secure with their bullet-proof contracts and their gold-plated pensions, the real establishment continues to draw huge salaries in the shadows.
They answer to no one, are threatened by no one and continue to operate with impunity while they tell the rest of us to tighten our belts.
There are no consequences to being wrong. These forecasts are just a way of being in with the right crowd. Absolutely no concern for accuracy. We surely do love our modern economic mythology.
The ESRI has the job of being in the consensus not being correct.
Its just human nature to feather ones own nest that is the way it works and Irish civil servants are the best in Ireland at doing this . All they do is wait until the day they can take early retirement. The way to get on in the civil service is to say nothing ever, keep your mouth shut for fear that you might stifle your chances of a promotion. The difference between a private sector worker and a public service worker are profound. Private sector => risk takers Public sector => conservatives I call public service workers ….clever idiots.… Read more »
They told us things would improve when the recession started.
Great article. The infamous ESRI, “forecast for the Irish economy, predicting that for the next seven years Ireland would “grow by 3.75pc on average per annum”.” Above figure was used to justify NAMA, it was used to justify our impailment(‘bailout’) though unbelievably they stuck us PIIGS with 5.8%, but this was no setback to PIIGS in heat chasing the feeder bowl. Sure, we need an audit. Lets have a Truth and Justice Commission to publicly examine lending practices in Anglo and AIB and then move on to other sectors. Fair dues to DmcW doing some auditing himself above. We’re not… Read more »
Back in February 2007 in IMF Working Paper No. 07/44 “External Linkages and Contagion Risk in Irish Banks” Srobona Mitra and Elena Duggar laid out the nature of the problem that exploded in September 2008. Here is their Abstract: The large and growing international linkages of big Irish banks expose them to idiosyncratic shocks arising in other countries. We analyze international interdependencies of Irish banks – during both normal times and in periods of large shocks or extreme events – using an existing methodology with distance to default (DD) data constructed from the banks’ equity prices. The data covers daily… Read more »
By 12 th February maybe 10,000 civil servants will be retiring as and from today.This will be the most generous giveaway tax free bonus lump sum for a long time to come.
And up to 66% pension pa for the rest of your life.
By the way there will be no means test and they can work elsewhere afterwards even as a paid consultant to the same department they left.
Impressive article David. The government decries wisdom as for ESRI they have forgotten that we’re educated. Does any one reading this blog believe this la la land rubbish the ESRI are peddling? This “insiders” response is part of a pre budget soft-soaping intended to create subterfuge and misdirection. The ESRI want to convince us that austerity will save Ireland and produce jobs. Regrettably the core of small Irish business won’t survive another 3 years. However, there is good news IBEC have figured it out… how to get the UN out of employment. IBEC is predicting growth at twice the European… Read more »
Excellent article David. I’m quite certain that the oligarchs themselves do take notice of what you and others like you write. I don’t think they believe their own propaganda. Do you? The people you write about here are economic services providers to the oligarchs and they get well paid for it. The oligarchs don’t want economic truth or even good economic sense. They decide their policies for reasons which have nothing to do with economic sense or even the sacred cow of the Market; and everything to do with their own inscrutable intentions. They want academics who will provide them… Read more »
David’s Wednesday articles seem to go up at a funny time on the Irish Independent site (and here) these days, not morning but evening. Or perhaps I am mistaken? Oh well, it’s here now.
David, the function of the ESRI is not to tell the truth but the tell the EU what the need (and want) to hear, to keep the EU money flowing to Ireland.
The EU will subsidize Ireland for the forseeable future. Ireland is armed with a financial nuclear bomb – the threat of a Euro 200B to Euro 400B default that could inflict very serious damage on German and French banks.
I was recently dismissed by some on this forum for pointing out that from an elite perspective this is not a crisis but an opportunity; an opportunity to implement fundamental structural and governance changes in our world. In Europe for example National bankruptcy gives the Euro elites powerful leverage to fast-track European federalisation. They will be able to implement policies which would never go over with the public under normal conditions. This is one example of the difference between our street-level perspectives and the perspective of the elites. http://www.nytimes.com/2011/09/06/business/global/reluctantly-europe-inches-closer-to-a-fiscal-union.html?_r=1 In fact I am nor personally opposed to federalisation so long… Read more »
What time is the revolution at?
Albert Einstein …. Roy Keane (??) … brilliant mathematician Nobel prize winner compared to dopey donkey soccer manager loser …. please !
This analogy is especially embarassing after the appalling shambles displayed by the other RK and his “team” (with notable exceptions) in the National Soccer Squad both in Aviva and Luzhniki over the last week. Pravda !
I commend you for this article, asks the hard questions which no doubt will go unanswered.
I know plenty of people in the public service on low wages who work dam hard with almost zero credit, there is a divide, as in the private sector, that is why they are called the elite, and I support calls for their salaries to be cut. The €700,000 for that former senior civil servant is obscene especially in times of crippling austerity, wage cuts and unemployment. Appalling time in our country’s short history.
‘Politicians have been humiliated, so too have bankers – and some of them should go to jail. In Iceland, they put their politicians on trial; here we put them on TV3. But they are taking flak. Yet, all the while, behind the scenes, secure with their bullet-proof contracts and their gold-plated pensions, the real establishment continues to draw huge salaries in the shadows. They answer to no one, are threatened by no one and continue to operate with impunity while they tell the rest of us to tighten our belts.” Carve the aforementioned paragraphs in stone-they should inspire a real… Read more »
Good Article.
I must admit that I used to dismiss those on this site who refer to RTE as Pravda etc as being a bit OTT, but not any more. Listening to the latest optimistic predictions being trotted out I found myself, for the first time, realising what it must have been like living in the old East Europe / Soviet Bloc, knowing that the official line is BS but everyone playing along. Often used to wonder what that must have been like but never thought I’d experience it first hand, at home. It’s scary!
500 more jobless families in Waterford today.
Apocalypse now.?
Gold plated pensions.
Untouchable public sector wages?
for how long more?
How come a bankrupt country does not have to default on all this.?
And a technocratic elites keep watch over rigging operations.
The pay off keeps em sweet. Its a cushy job in a cruel world.
The Irish electorate had their chance for change a few months ago but chose to elect another bunch of clowns ( who have been there for years and know little else than the Dail Eireann circus) to the same circus. The ESRI and other quangos of government that seem all equally incompetent are a reflection of the Irish electorate, an apathetic and intellectually challenged lot, making me realise there is little hope in this country for the election of visionary and radical leaders. Pity eh!
On a more optimistic note, Enda Kenny has returned from his Fine Gael Thick Tank/ Septic Tank and has rowed in behind the growth figures produced by the ESRI/ Pravda RTE/Ballina Tribune. Kenny has decided to rest all his hopes for recovery in the new……. DIESEL TRACTOR ‘TD-54.’- and its Preparation for Mass Production. Kenny surprised journalists with his indebt knowledge of this latest addition to the tractor production factory in Athlone ( which its hoped will employ 350,000 Solus Technicians when in full production) as went on to explain how………. The new caterpillar tractor, going into mass production,, is… Read more »
Latest
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Bearded Poker
I was tutored by my mentor in the middle east when doing business to always beware of bearded men because they hide more than you care to know especially if they are short .The short ones are nearest the ground and are more dangerous.
Here is an interesting clip from a senior executive in ESRI relating to the above article:
http://www.rte.ie/news/av/2011/0906/media-3043528.html#
It’s another religion. The Irish are in thrall to another religion.
The old religion puts in places the national thought processes and acquiescence that allows the economic religion to prosper.
It’s the same everywhere. There is no democracy. You just get to choose the colour of the rosette on your corporate place man.
David, good article. You’re spot on about these spoofers and chancers carrying on spoofing and chancing their arms, seemingly oblivious to the trail of spoof and bull they leave behind. They got away with it forever, only having to face some consequences if somebody somewhere happened to remember a previous spoof or piece of bull and bring it to everyone’s attention. Today, however, it’s different. Just like the facebook generation are being warned that stuff they say and do might come back to haunt them forever, commentators and politicians will gradually begin to see the problem for them when their… Read more »
Guys I was pissing myself laughing this morning when I heard the CEO of the IDA discussing the job losses in Waterford.Obviously not laughing at the poor unfortunates who lost their jobs but listening to the CEO’s diatribe defending himself to the last man.And the name of the company he was discussing TALK TALK TALK.WEll folks that said it all.They should relaunch this operation and base it in Dail Eireann where no doubt it will be flat out busy into the next century. The ESRI are about as effective as Met Eireann with their long range forecasts.I imagine they had… Read more »
28,000 punters on the scratcher in Waterford, 60,000 out of work in the 6 counties ! The former has a population one tenth of the latter ! Richard Bruton is hapless, sounds like the class swat.Career govt employee.Worse than the eighties.
Here’s a polyanna speech Danny McCoy of IBEC made in 2010 http://bit.ly/pldtmU Love the disengenuous ‘numbers are complicated’ : “The numbers are complicated as a result of the openness of the Irish economy and the nature of the investment that flows through Ireland. The IFSC, our International Financial Services Centre in particular, accounts for a significant throughput of this activity. Ahemmm, ‘numbers are complicated’ lets not say too much about the Dutch Sandwich, Double Irish capital flows through the IFSC, shall we? “My view is that the labour market is simply correcting itself after an incredible inward surge. I do… Read more »
heres the view from todays sydney morning herald
talking about gerry Harvey and his irish business…
http://www.smh.com.au/business/ireland-crushes-norman-conquest-20110907-1jxml.html
Excellent series on global banking from the FT to read over coming weeks:
http://on.ft.com/oOEnK9
Read the sign in the photo that accompanies this article, speaks of the Orwellian nature of the world around us. http://www.irishtimes.com/newspaper/breaking/2011/0908/breaking18.html
Prof Feldstein of Harvard who forecast the EMU was unworkable here gives a view I share that peripherals should seek to leave the EMU even on a temporary basis.
http://on.ft.com/oOKAPl
The video that follows on from the above notes the drop in the Swiss Franc against the euro.
That must have burned many of those reported a while back packing cars with Italian euros and heading for Switzerland…
Experts on the whole, including Economists, have a very poor record when it comes to making accurate predictions. In fact, many studies that have examined the accuracy of so called experts have shown them to be no accurate than dart throwing monkeys! Even The great noble prize winning Economist,Paul Krugman got it wrong in 1997 in relation to the Asian Crisis when he advocated for currency controls. And so did Peter Schiff whom, like DMcW, also predicted the housing bubble and sub prime crisis in the US. He got a lot more wrong than right. He just happened to get… Read more »
With jobs leaving Waterford, and going to the UK, we badly need to do something about the national cost base. Alright, part of the problem, is inflation in the UK. But expensive elecrticity, and many other costs need to be addressed.
Privatise the ESRI.
Let the market decide if it wants to pay for it’s forecasts. Seriously. The ESRI is abusing it’s position as a taxpayer funded organization. The state gets stuck with the bill, and the forecasts are of no value to the state, the taxpayer or anybody.
Excellent article.
IIRC Brian Lucey (one of David’s so called Mavericks) wrote a paper in Dec 2005 arguing that not only was there going to be a soft landing but in point of fact the banks needed to get more into the sub-prime lending market. Interestingly Alan Ahearne – once the darling of the mavericks who then was dumped for actually daring to try and help – was repeatedly writing in 2005 that there was little chance of a soft landing and in fact that when the crash came it would be much more substantial than anyone seemed to think. Was it… Read more »
I came across the following paragraphs yesterday from towards the end of Crotty’s Ireland in Crisis, written around 1985. It seems to be relevant to this thread: propertied vs unpropertied, insiders vs outsiders. Some might find it an interesting alternative perspective. Apologies for length (I don’t think there’s anywhere online for it to be linked to) and any repetition from earlier threads. ” Incorrect Factor Pricing Undevelopment… is a failure of production relative to needs, so that more are worse off and/or fewer are as well off as formerly. It has also been suggested that capitalist colonialism, in all cases,… Read more »
“Pseudo-science wielded on behalf of special interests turns mathematical abstraction into a vehicle to strip away what used to be the major concern of classical political economy, and indeed economic reform, over the past two centuries. The aim of classical value and price theory was to isolate land rent, monopoly rent, and financial interest and fees (and “capital” gains) as a free lunch accruing to privilege.”
http://michael-hudson.com/2009/12/the-lost-science-of-classical-political-economy/
Are people surprised?????????? Serious commentators and documentary makers who are not in it for the money and have some sense of the public interest have been pointing out the appalling role of ‘economists’ and academia in not only not warning but playing an active role in bringing about this crisis (The film ‘Inside Job’ did a pretty good examination of that). Those highly paid talkers in the public sector weren’t hit too hard (despite their inability to see the greatest financial crisis since the Great Depression coming down the line) while those in the private sector are paid to put… Read more »
David says : ‘In Irish economic circles, you tend to take much more stick from having been right than having been wrong’ This reminds me of the Priest/ Vicar on sunday preaching about sin and the congregation is not listening.Strangely they do not talk about ‘The Truth’ .Maybe its fear that it might draw the penitants up a bar and they might ‘think’. And we know what happens when everyone begins to think .Then the Priest / Vicar would then become the congregation and he definately does not want to listen .It then follows why David says the above quotation… Read more »
David says:
‘The “insiders” rally round each other even when they are wrong and the “outsiders” are denigrated.’
This happens in most families .The kids always seem to be on the inside track and blame the parents when they are accused of not understanding the nuances of their new lingo . This gives causes for languages to change constantly.It also shows us why the language of teenagers in the 1930s would not be understood by their counterparts in 2011 .Thus we can understand why sub-culture is born.
David says :
‘So, to use the vernacular, the ESRI, writing in December 2005, hadn’t really got its eye on the ball’.
Can you imagine Grafetti in Dalkey and in Sherriff Street .Could the corresponding residents in each location understand either ?
And the Government proclaim ESRI to The Nation !
Hi David, very nice article of course showing the usefulness of GDP, growth and such terms. Growth is the term coming from the biology where it is a good thing. In economy we all decide do we want to grow (save/invest) or not to (consume). It is action of all humans that is not calculable by any mathematics. Even only maybe 50% is left to us to decide what to do, to consume or invest, as 50% is taken by the government (where the growth is none or very limited). I think we should not spent time on terms that… Read more »
The Valley of The Squinting Windows
David says : ‘Yet, all the while, behind the scenes, secure with their bullet-proof contracts and their gold-plated pensions, the real establishment continues to draw huge salaries in the shadows’.
So much for ‘behind the curtins’ and ‘corridors of Power’ .I might include Irish Trade Unions in that pack and the ‘Soft Power’ in the ESB .
Just to reiterate Realist & dwalsh’s comments, do any of us really believe that the people concerned are so stupid that they don’t know what they are doing? Make no mistake, these people are smart. They are smart, and they know that the media will simply, unquestioningly, trot out all this nonsense. Privatisation would be no good either, as the results we’d get would suit the organisation that paid for them – look at the US ratings agencies. The system is broken, in my view because everything has become politicised. This is also true in the US & UK where… Read more »
David, I don’t think our job is to believe the ESRI and its arguable that the ESRI’s job is to tell the absolute truth. They are in large part aiming this kind of stuff at an external audience that doesn’t have boots on the ground so knows no different. If the WSJ and others like to punt stories about how Ireland is in recovery (which in theory it is) then why shouldn’t they roll with that? I agree of course that “we all make mistakes”, but this is more than just getting things a bit wrong. I would say that… Read more »
Presse a la Punto
Can you smell the aroma .Its like a strong old pungent rustic stale coffee .Well I can see the army of skilled tradesmen of papercraft turning their old ‘ presse mechano ‘ in the long dark burrows of the government buildings .And boy is the going getting tough .
I hope they dont have to resort to counterfeiting old prisoners rags as what happened in the Auswitz Camps.Will there be enough paper ?
I might soon be starting again to collect the next collection of rare over printed stamps .My favourite will be £5,000,000 punts .
Trichet continues his disastrous bond buying spree , Stark resigns, Weber resigned last Feb. Once again markets plunge.
Meanwhile with NAMA, the banks, austerity program, more austerity to come, we’re doing great, according to Enda The Mistake. The gulf between fantasy and reality in Ireland widens.
Last time we were doing this well the Troika came to town to celebrate:)
http://bloom.bg/ntFoWk
http://bloom.bg/enQjRH
Deco wrote: “Concentration of the resources in the hands of an unaccountable few is always a problem.” Good point. I believe the great weakness and danger in capitalism as we have it in the West is the inevitable concentration of power into fewer and fewer hands and the inevitable use of that power to usurp democracy and government. The explosion of financial capitalism in recent decades has amplified that danger geometrically. The beauty of the system for the financial and corporate oligarchs is that most people will blame their political protégées (the governement) for the policies implemented and believe that… Read more »