Stop talking down the economy (even though nobody is listening)…

The debacle surrounding Irish water, which is by no means yet resolved, has highlighted once again the importance of communications.  Indeed, much of the blame in relation to Irish water is being laid at the door of communications, from the company and from the government. Personally, I dont think any amount of communication genius could have sold the system as it was. Part of the problem is how we react to debate in this polity. 

bnksunkAt the height of the Irish financial and economic crisis a very common refrain from some was that people should “stop talking down the economy”. Indeed, this request had been going on for years. This was usually directed at those who stepped outside the consensus de jure. It reached its rancid nadir when the then prime minister made his infamous suicide remarks about people “cribbin and moanin”.  Some of those so urging were of course engaged in attempts to talk up the economy, either as politicians in denial of the stark facts or more insidiously as financial market participants where the suspicion has to be that they were talking up the value of the assets that they held.  The idea of course is that the economy is such a fragile creature that it teeters perpetually on the edge of a meltdown.  This same economy is however declared by many of the same silencers as being enormously robust if only the damned government would stop taxing them…  This meme, this economic duckspeak,  that we should stop talking down the economy and pull on the green jersey etc has now thankfully disappeared from the most part from Irish political and economic discourse.  It has however recently made an appearance at European level.  The ECB, who have done more than most to depress the European economy, recently warned of the risks of pessimism.

It is surprising that there has been relatively little research on the impact of communications on national level economic and financial assets given the vast literature on such areas as chairmans letters, corporate announcements etc.  There is some recent research, which sheds light.  A recent paper by a Swiss economist looks at the impact on sovereign bond and CDS spreads when statements are issued by National, European level, or international commentators.  This found that it was really only statements by officials from large countries or from ECB governing council members that had an immediate and lasting effect on these yields.  Statements by domestic, smaller country, politicians had no measurable effect.  Thats right. Nothing that domestic politicians said had any effect. At all. What should worry local politicians is that more hawkish statements tended to have a larger and more long-lasting impact than dovish or soft statements.

Other work on politicians statements, as opposed to others, reinforces the notion that it is only the large country political  communications that matter.  Some recent research suggests that for smaller countries it is the communications of  non-political actors, rather than political, who have any effect, and that small.

There is even some evidence that having the spotlight swing on you, in terms of more news, is not good for smaller countries. It is, it seems, better to fly under the radar.  Finally, A comprehensive examination of the drivers of sovereign bonds, a flawed if plausible proxy for a healthy economies, concludes that in the case of the European economy the regional macroeconomic effects and investors appetite for risk is what really drives.  There is no strong evidence that local sentiment type measures had much of an impact.


The consequence of this is that there is very little penalty if any evident from having a robust internal debate.  Leaving aside the issues of the undesirability of groupthink the blunt reality is that international bond and credit markets pay very little attention to anything that anybody in Ireland says.  They may pay some attention when a large country politician or market participant comments, hopefully from a position of knowledge, but not so much from when we ourselves speak. The bottom line is this – we can, and I argue we should, talk as much and as loudly as we want, about how we percieve the situation. The local bond vigilantes, who are in reality a cozy bunch of arbitrage stuffers, will scream “the markets are listening, the markets are listening”. Again the doubleduckspeak, where both comments are nonsense but opposing nonsense, is pedalled – the markets are enormously robust, the markets are easily spooked.  Whatever they are, it is small dog syndrome writ large, inflated further with being confused by government with someone who knows how the economy works, that makes these guys declaim the markets are listening. They arent. Or, to put it more accurately, theres no evidence that they are. Markets here of course mean real markets, international ones, not the locals. With little to do all day in the crisis but suck up the ECB carry trade in socereign bonds, much was emitted from the local market. These inverse Kaizer Sozes are pufferfish pretending to be sharks, and like pufferfish are really only dangerous when you swallow them.

We should thus embrace a multitude of voices.  We should ask ourselves whether or not our national broadcast media in particular, be it state or privately owned, provides us with the service for discussion.  Where are the contrarians?  There is a very robust debate, with all shades of opinion, evident in the print media, and online. On broadcast, not so much.

micah-wright-2The economy is recovering.  This recovery is fragile, and there are enormous threats in the external environment. They cycle of capitalist economies will cycle, and the most we can do is to mitigate the amplitude of the swings. To effectivly do that we need to allow voice to those who draw attention to the existence and nature of threats, if only to ensure that we do not groupthink ourselves into fooling ourselves that these do not exist.  It seems very clear from the debacle surrounding Irish water that are permanent and elected government find it difficult to hear those who speak against the policy at hand. Eastasia has always been at war with Oceania, PPS numbers were never essential for Irish Water, and a fixed standing charge was the only plan.  It was only at the point of crisis that effective steps were taken to deal with the water issue, if effective they will prove to be.  We saw in September 2008 that it was only when the crisis was breaking upon us that the government took decisive, if ultimately well-meaning but disastrous, action.  Where are the contrarian voices,  the minority opinions, the dissidents from government policy?  As a society we need to open up to debate not close it down. Some of that debate will be uncomfortable to listen to, or to participate in. Much of it will prove to be wrong (and the local silentariate will cherish each failure, secure in their armour of having never said anything so never being wrong) and some will be foolish. But the debate is the thing, not the individual content per se.  From the economic perspective nobody that matters pay that much attention to what we say, so we may as well say it openly to ourselves. Our only enemy is silence.


This is a longer version of a column in the Irish Examiner, Saturday 22 November 2014


2 thoughts on “Stop talking down the economy (even though nobody is listening)…

  1. JohnB

    Good article/post – over the last 3-4 years I’ve been trying to educate myself in the flaws with economic teaching, and of the available solutions to the economic crisis (at both a local and European level), and what I’ve found is that there’s no shortage of solutions available (the problems are largely just political) – but it is very rare to be able to generate any kind of discussion on the solutions.

    Yanis Varoufakis Modest Proposal for instance, provides a fairly robust framework towards European recovery (though likely politically impossible, with Germany’s virtual veto), and other very clever ideas like Irish economist Phil Pilkington’s Tax Backed Bonds, and an analogous (though technically very different) proposal by Rob Parenteau for Tax Anticipation Notes – both providing alternative policies for boosting our recovery locally, while remaining within the Euro.

    I have found topics like this very difficult to generate discussion on, and they are topics that tend to generate strong cognitive dissonance in people – in a way that is very similar to what discussing bank money creation was like, before the recent Bank of England report legitimized the idea.

    1. JohnB

      I don’t think the links I added, got through – here they are:
      Modest Proposal:
      Tax Backed Bonds:
      Tax Anticipation Notes:
      Bank of England report:


Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )


Connecting to %s