Tag Archives: economics

Call for Papers : COVID-19 and the Real-Financial Economy link : A special issue in International Review of Economics and Finance

UPDATE: We have confirmation that papers published in this Special Issue will be free to access for at least 6 months, as part of Elsevier’s response to COVID.

COVID19 has thrown a very stark harsh light on the globally interconnected economy.  When this crisis passes there will be an opportunity for reflection on the financial and economic interconnectedness we have grown, its strengths and weaknesses. Economic and Finance academics can and should address this, from a basis of evidence and analysis, hence this call for papers. 
This special issue of International Review of Economics and Finance seeks papers that address this challenge, in particular the following issues, but please also contact us as Editors-in-Chief if you have another paper or idea and wish to check its suitability. Note that papers submitted for this SI will have submission fees waived. Submit here , from 29 March, selecting the article type COVID19:  https://www.editorialmanager.com/iref/default.aspx , before 21/June 2020

We are especially interested in papers that explore

  • Contagion loops between the real and the financial economy in the pandemic
  • Government-bank relationships in the pandemic 
  • The spatial dimensions and financial geography of banking and finance in a pandemic
  • The economic and financial geography of the pandemic 
  • Emergent paradigms in monetary economics, corporate funding and international trade
  • Resilience and strength in global trade and trade financing
  • Financing along the supply chain – strengths and weaknesses and its future
  • Economic and financial lessons from history for the post-pandemic world

Please however feel free to contact us at blucey at tcd dot ie or chen at udayton dot edu should you wish to run an idea past us . Please note: in line with the aims and objectives of the journal all papers should explicitly take an international perspective

Brian Lucey and Carl Chen, Editors in Chief, International Review of Economics and Finance

How badly hurt might Ireland be by a hard Brexit?

Another week, another report on the costs of a hard Brexit. Ireland, unlike the UK, has shown a willingness to engage in open and frank debate on Brexit costs. So, how much will it hurt?

The report from Copenhagen Economics, on Brexit, was the latest in a series – the ESRI, the government, the EU- that have shown the effect that Brexit will have on Ireland. The details differ in each case but the message is the same. Even the softest Brexit will have a negative effect on Ireland. In no way can it be seen as a friendly act.

A sense of perspective is needed, however. There has been some hysterical commentary about Brexit and its impact on Ireland. Some commentators have suggested that it could even be worse than the economic crisis of the mid-noughties. The effects are being presented as Ireland losing billions, being worse off etc.

This is , almost certainly, bunkum.

First, lets see what happened back in the crisis, for perspective. Then lets compare that to the most apocalyptic Brexit scenarios. That is a reasonable benchmark as the unreasonable, unreasoned, unhinged UK government approach is careering them towards a diamond hard Brexit. There remains some hope that the imbroglio that is Northern Ireland can act as a break on that, but that imples an outbreak of common sense and longterm perspective from the DUP, so lets not hold our breath.

Lets revisit the crisis. Lets define its acute phase as 2006-2013. Most of the main aggregate economic indicators peaked in 2006 or 2007 and most had bottomed out by 2011 or so. So how bad? Personal consumption of goods and services fell by 13% ; net spending by government on current goods and services fell by 15%; spending on capital formation (which includes but is not only houses) fell by a staggering 70% ; GDP fell by 16%, GNP by 15% and Gross National income by 20%. These are real, actual, cash losses.

Measuring by GNI the economy was €30b smaller in 2011 than it had been just four years earlier. Jobs were lost also. Employment peaked at 2.237m person in Q4 2007. By Q3 2012 it had bottomed out at 1.875m, nearly 18%, some 361,000 persons less in employment than just a few years before. Half of this fall was attributable to a collapse in construction employment but all sectors were hit. Government revenue also took a battering, even with the widening of tax bands and bases. Exchequer receipts fell 40% or more from a high of 16.5b in Q4 2007 to 9.7b in Q4 2009.

This was a real, hard, battering across the economy. The collapse of the economy in 2007-9 was stupendous. And it was real.

By contrast, the studies on the likely effect of even a diamond hard Brexit are cheerful reading. No study suggests a contraction of the economy. Instead what is forecast is that the economy will not be as large in the presence of Brexit than it would otherwise have been. A figure for this loss of potential output in the order of 7-9% is the norm across studies. This is also over a 10-15y horizon. even a diamond hard Brexit are cheerful reading. No study suggests a contraction of the economy. Instead what is forecast is that the economy will not be as large in the presence of Brexit than it would otherwise have been. A figure for this loss of potential output in the order of 7-9% is the norm across studies. This is also over a 10-15y horizon.

A figure for this loss of potential output in the order of 7-9% is the norm across studies. This is also over a 10-15y horizon. Let’s not even compare that to loss of actual output of 20% across a four year period.

A further wrinkle is on the sectoral impact. As the construction industry collapsed, taking with it the tax revenues it had generated, this rippled through the economy a a whole. Here , even in a hardest Brexit, the pain is spread, albeit not across all sectors. Five sectors – agrifood, pharma, electrical machinery, wholesale and retail and air transport-will account for over 90% of the effect of Brexit on the economy. The two biggest hit are agrifood and pharma with Pharma being in fact the hardest hit. A key distinction here is that Pharma is a much less labour intensive industry than agrifood. Thus the labour market impact of Brexit will be in effect concentrated in one sector –the agrifood sector.wholesale and retail and air transport-will account for over 90% of the effect of Brexit on the economy. The two biggest hit are agrifood and pharma with Pharma being in fact the hardest hit. A key distinction here is that Pharma is a much less labour intensive industry than agrifood. Thus the labour market impact of Brexit will be in effect concentrated in one sector –the agrifood sector. even here we are talking about slower growth over a long time than actual contraction over a short time. Must of this comes from reduced UK exports and most of that from non trade barriers in an hard Brexit. Anything which sees the UK remain close to a Norway or Swiss style deal reduces the effects to margin of forecast error levels.

Paradoxically this makes managing it harder in some ways. When the whole country is going to hell in a handbasket the state can make the broad changes needed. When it is only one sector that sector will need to be extremely vocal and also extremely nimble. Although the agrifood sector has been reducing its dependence on the uk over the years the reality is that this has not taken place at the same pace as the economy overall. Brexit represents a shock to the core of the irish agrifood system but as it is happening it needs to be taken as an opportunity. There are good government plans in place, in contrast to the UK continued reliance on hope and hype, but these can only go so far. At the end, the participants in the sector need to drive their products to other, more lucrative but more difficult markets.Brexit represents a shock to the core of the irish agrifood system but as it is happening it needs to be taken as an opportunity. There are good government plans in place, in contrast to the UK continued reliance on hope and hype, but these can only go so far. At the end, the participants in the sector need to drive their products to other, more lucrative but more difficult markets.

Brexit will hurt. It is pointless, and heedless. But it seems that the UK is intent on it. We are blessed with a functioning, competent political and governance system that will mitigate as much as possible the effects of this homegrown act of sociopolitical pique by our neighbors. The economywide effects will be slower growth not actual contraction. Placed in that context the notion that we would consider exiting the EU alongside the UK becomes even more delusional.

This is a longer version of an Irish Examiner column 19/02/18

Broadband Panaceas

 

The recent release of new economic growth measures has prompted once again again a debate on regional, from which we can generally read urban versus rural, development in Ireland. To listen to some commentators you would imagine that beyond the M50 ring-road or beyond Blarney there is an economic wasteland, with those few people remaining in their 90s and an infrastructure barely out of the 18th-century.

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Pipers, Tunes and Payment in the Higher Education Sector

Recent discussion on university funding has been on the basis of the Public Accounts Committee report.  This, along with the RTE Prime-time  Investigates program, has led to a perception of a state funded sector out of financial control.  Both of these are wrong.

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If you build them, they will come

Ireland has an opportunity to position itself as a leader in an emerging technology, or perhaps a reemerging one. All it takes is political vision, a willingness to face down some entrenched local vested interests and a desire to make a change. This of course means it wont happen, but we can dream!

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Dark forces and Brexit.

With each day that passes and the ramifications of Brexit  become evermore entwined.  leaving aside the damage that is being done to the UK’s economic and political reputation, we now see the stirrings, deliberate and calculated, of a pot of debate on a putative Irexit, an Irish exit from the European union. Like it or not this debate will continue, and to ignore it is neither politic nor possible. That it is ridiculous and risible is obvious to even a casual analysis, but we have seen with Trump and Brexit that mere foolishness does not deter a polity from a course of action.

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Irexit… Whats not to like, asks Melanie

So the Bauld Melanie, she who believes Ireland has only a tenuous claim to nationhood has waded in again.  With the ludicrous suggestion from Ray Basset yesterday that we should leave the EU and cleave to Mother England, she now suggests Irexit as a way forward.  It is indeed as she states a no-brainer.

Below the fold, a fisking, her words in Italics…

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2016 – Goodbye to all that…but 2017 may be worse

m-t-ciceroLooking back at 2016 it is hard not to think that there were tectonic shifts in the western economic and political system, even allowing for the tendency of us all to overweight recent events.  Ever since Cicero politicians have been complaining “o tempora, o mores”  and we should have a healthy suspicion of those words “this time is different” but maybe, this time is in fact different.

We have seen, in Brexit and in Trump, the rise of populism. This is populism of a particular kind however.  It is populism driven not by poverty, not by loss of a war, not by anything specific. It is populism grounded in an inchoate sense that things used to be, and could be better, populism in the rear view mirror, populism for a simpler and, in the populists memory, better time. It is populism whipped up in the most cynical terms by the most inner of elites portraying themselves as outsiders, modern Clodius’s who lead those at whom they laugh.  It’s a curious populism, for the most part a phenomenon of the west. While in the west the lower middle classes remember fondly the days of their fathers (even if theu were not alive) and their salad days of the 70s,  in the rest of the world the reality is that the majority of people have never had it so good.  The old, and the late middle aged, vote and in doing so have driven the UK off the Brexit cliff and the USA into the hands of the nomenklatura, in both cases wilfully and cheerfully.

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At the root of the discontent is the differential pace of gains from globalisation. There is a fantastic graph, from the World Bank in 2012, which to a great extent explains the last 30y of the world economy. What it shows in essence is the relative winners and losers, globally,  Since the early 90s the world has undergone a dramatic change.  Concurrent with globalization relative wealth has shifted. The global middle class now is dominated not by (relative) wealthy south americans and those in the west but by them plus the enormous Chinese and to a lesser extent Afro-indian middle classes.  Crucially, this doesn’t imply, necessarily, that the 1990 middle classes have gotten poorer. They may have in some countries but in other countries they may not have. What they have become is just one part of the global middle class. At the bottom  changes have been modest but in the middle – the global earners earning  in the 30-60% of  global income distribution, these have seen enormous rises in real income, as global poverty is reduced and globalization acts as an enormous “relative to the global income distribution” redistributive mechanism.  The brexiteers and trumpeteers are mourning, at least in part, a loss of exclusivism, a loss of the world being their oyster, a loss of the ability to be the lords of economic creation.

A key element that should be of concern to us here in the liberal still wealthy democratic west is this – there is no evident linkage between global wealth and democracy.  Liberal, western representative democracy in the long perspective is probably best seen as a mechanisim for the middle classes to ensure that the peasants stayed in their place, more or less, and that the upper crust didn’t loot the place bare.  Doing so, with the concomitant superstructure of rules of law and procedure, enabled and enhanced entrepreneurship  and economic growth. But other mechanisms exist.  China is one such experiment – hyper capitalistic at one level and at another deeply dirigiste to a level that would make the graduates of ENA weep in envy, it is by no means democratic.  Putin’s Russia is another – both more and less absolutist than China but a Potemkin democracy, yet (more or less) succeeding.  While I and others might like to think that in the long term these will come round, due to the same pressures as led enlightenment Europe, towards democracy,  that is not a given. Universal suffrage is a historical rarity in large states.  The self perceived squeezed middle classes of the west have tried universal suffrage democracy and plainly find it lacking.  But their woes are only starting, and with them the disillusionment will perhaps reach greater depths, opening the door for the right to rise again, if it has not already done so.

2016 also saw the arrival of a large number of automated processes and products that have the potential to eradicate swathes of previously humanised middle and lower middle class jobs.  Take some examples. In finance we see the rise of robo-advisors, to counterpart the growth of algorithmic trading. Robo advisors are programs,  virtual robots as it were, which suggest, with little human intervention, what and where to place any funds one might have.  This has the potential to wipe out a large tranche of the investment advisor and fund advisor market. In motoring we have seen astonishing growth in the penetration and acceptance of self driving autos.   Initially confined to cars this is now beginning to penetrate into the trucking business.  That has the potential to disrupt a huge employer- in the USA for instance there are 3.5m truckers, mostly independent operators.  In large stores we are now grindingly accepting of the robotic checkout. Banking is increasingly roboticised.  A 2012 paper noted a potential immiseration cycle from robotics – as they penetrate the workforce they make it harder for the younger workers to get jobs and make it less feasible and rewarding for them to invest in human capital, depressing wages for several generations.  The marginal productivity of lower skilled workers declines while that of higher skilled rises, exacerbating the income gap and social tensions.  The older and richer get richer the younger and poorer get stagnation. We are seeing this happening now through the overhang of debt and the unwillingness of the boomer generation to countenance any reduction in their welfare through the events of the GFC

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A final issue is the growth of extreme income inequality. As noted globalisation has brought about huge welfare increases in the lower reaches of the income distribution. But the biggest gains are in the 1%, the 0.1% and the 0.01%. The world has seen the rise of a plutocratic class unseen perhaps since the Tang or Roman empires.  Although not yet complete the cabinet of curiosities that Donald Trump has proposed are already wealthier than the lowest earning 50m US households. Think of that for a second. A dozen vs 100m.  50% of the global wealth is in the hands of the 1%. The top 0.01% in the USA are as wealthy as the remaining 0.99% that make up the famed 1%.  There is something wrong with this.  As my wife’s aunt said when she first saw Versailles “no wonder they riz up”.

What of Ireland? Well, we have the most unequal pre-tax pre-welfare society of the entire OECD. This includes the USA.  Perhaps for shame, or perhaps because we have a fairly vibrant democracy, we have a tax and welfare system that makes us middle ranking post distributions. But that is a function of a politics that is under strain.  We have, mercifully, been spared the extremes of the right. But the virus is there.  Left to our own devices we show all the instincts of the farther reaches of the right. We don’t, really, give much of a toss about homelessness. If we did, we would not tolerate 7000 people spending Xmas and New year in emergency accommodation (small, dingy hotel rooms). We think that there is no tax rate too low in the attraction of  any number of brass plated jobs, and be damned to the begrudugers who class us as part of the global tax scandal that is the MNC taxation mess. We don’t really give a hoot about the undocumented , unless they are Irish in the states when we mutter “shure didn’t they BUILD America” while confining our domestic undocumented to direct provision for decades. We don’t much like paying tax, but love a good service. We have no meas on higher education, really, wanting a world class system  but one that produces Lawyers and Doctors for the upper middle classes, accountants and teachers for the middle, and sure isn’t the RTC grand and cant they do computers and the like there for the rest.  We don’t want to pay for it.  We want cheap electricity but don’t want pylons, and so on. We have a system that left to its own devices produces inequality on a globally scandalous scale.

Presiding over this we have “new politics” which looks much like the old politics with a coat of paint. Painting over a damp rotten edifice makes it look good for a but, but the paint peels and reveals the reality.  Right now we have the paint beginning to peel. In a world where President Donald Trump is not a simpsons episode, where the UK has decided to go back to 1957, where a populist right wing political party is showing spectacular growth in Germany through blaming the national woes on a small but visible minority (what could possibly go wrong..), who knows what will 2017 bring.

Merry Christmas

 

 

Column in the Irish Examiner, 24 December 2016