First up, some research:

• Economists almost always decline to involve themselves with the specifics of particular industries and goods, preferring instead to talk about widgets and other abstractions. However, that’s not very realistic when you look at economic history or think of, for example, the central nature of the construction and automobile industries in the ongoing economic downturn. In that vein, the OECD has just released a study called “The automobile industry in and beyond the crisis“. After setting out the importance of the industry, it examines the collapse in car sales during the crisis and looks ahead to the future of the industry, country by country. In particular, Western European manufacturers – and those in Japan and Korea – have capacity significantly above domestic demand, meaning that their export performance will be critical in determining the health of these industries. China – and to a lesser extent India – are not unpredictably growth markets for the industry.
• Secondly, some interesting academic research in the Journal of International Economics on the long-term effects of colonialism. The paper, called “The erosion of colonial trade linkages after independence”, is available in its gated (official) form on ScienceDirect, but a just-as-good version is available to all from Sciences-Po. The authors use the fact that most countries today were part of empires as late as 1945 to examine bilateral trade since then. They find little short-run effect on trade, except in the case of “hostile separation”, but thirty years after independence, trade with the colonizer shrinks by more than 60%. It seems to be more the unwinding of trade diversion rather than economic revenge, as the effect extends to “Commonwealth partners”, fellow colonised countries.
• Edgar Morgenroth presented a paper at the ESRI a couple of years ago on how immigration into Ireland has boosted imports of consumer goods from the home countries – think Polish food taking up Spar’s shelf real-estate. Giovanni Peri and Francisco Requena-Silvente consider the alternative: an increase in exports to home countries. They present evidence from Spain suggesting that doubling the number of immigrants leads to a 10% increase in exports to their country of origin, an effect that is larger when the countries are “culturally different”.
• Lastly, the OECD welcomes Chile into its club of high-income members with an inaugural review, highlighting two priorities for its policymakers: solidifying its economic growth base and tackling inequality.

To close, a few things we didn’t know last week:

• According to Eurostat’s latest review of IT and business, e-commerce accounted for 12% of enterprises’ turnover in the EU27 in 2008. Also, by January 2009, four out of five enterprises had a broadband internet connection.
• Speaking of differences across industries, the euro area is currently seeing its industrial sector expand – by 1.6% between October and November 2009 – while its construction output fell by 1.1%.
• Closer to home, 2009 saw a big hit in tourism, with almost 900,000 fewer trips to Ireland in year to November 2009.

1. From the excellent VoxEU, an important step in understanding some of the massive implications of urbanisation and economic growth in emerging markets comes in a paper called ‘How Green is China?‘. Per capita emissions in China’s most polluted city are still just a fraction of what they are in the typical US city.
2. Patrick Love, over on the OECD Insights Blog, gives some perspective on the development of Haiti, formerly the Jewel of the Antilles.
3. Some mildly good news – recessions won’t drive up violent deaths that much, according to researched cited on the Irish Economy blog.
4. Over at Reuters, Felix Sammon discusses the economics of the New York Times’ generally much-discussed introduction of a paywall. It leads him to discuss the concept of bundling, itself closely related to price discrimination, for example in the digital TV market, as per the commentator a couple of days ago.
5. Today, an Englishman, an Irishman and a South African had an exchange of views about which major currency has the best/worst long-term prospects, largely on the back of developments in relation to the Greek economy. None of us, however, thoguht to mention the Canadian and Australian dollars!
6. Mark Perry is always good for a provocative post – he doesn’t disappoint on the EU-vs-US debate that seems to have risen, unprompted, in the past couple of weeks, as the successor to the Sachs-Easterly-Collier debate that raged among economists last summer. I have a whole host of reasons I disagree with him, but that’s the subject for a full blog-post in itself (makes note on to-do list).
7. On a completely unrelated topic, Tim Harford, the Undercover Economist has a nice short explanation of heavy traffic on Mondays and rainy days.
8. The Conference Board is one of the world’s premier sources for data on productivity. Their latest report on productivity shows the strong gains in emerging markets, some the WSJ views as an economic threat.
9. All this talk of emerging markets and China – what with its booming economy at the moment, is China headed for a crash?
10. And all this talk of productivity and competitiveness… I talked a couple of weeks ago about the 2010 Lisbon Strategy adopted by the EU almost 10 years ago, designed to make the EU the most competitive economy in the world by now. Charles Wyplosz argues it’s time for a new model of competitiveness for the EU.

And a non-economics link to boot: it turns out “status updates” are at least a hundred years old!

For example, the paper could easily have been publicised as a measure of the effect of class size but – tell this one to teachers and indeed parents out there – the literature is generally agreed that class size, for most age groups, has no distinguishable impact, hence the authors chose to focus on teacher quality, which after all is much harder to measure, instead.

There’s also a good discussion of what percentages count as not important. For example, even if the bulk of performance is determined by the child, not the teacher or the classroom, an 8% boost to performance is still better than none.

The importance - or not - of class size

The ‘everything comes back to Bord Snip Nua’ digression: if indeed class size is not the be-all-and-end-all when it comes to our children’s future, perhaps it could take a slightly lower priority on the pecking order of What Must Not Be Touched in our public expenditure.

That was the Environmental Pillar, part of Ireland’s Social Partnership framework which comprises about 30 organisations in the environmental space in Ireland. They held a workshop on NAMA, the Irish property market and economic sustainability in Dublin. There were four speakers including myself. The other three were NAMA tag team Brian Lucey and Constantin Gurdgiev as well as Feasta founder and environmental economist Richard Douthwaite.

There was a good attendance and a great degree of interaction. Fortunately for those who couldn’t make it, including many prominent member of the Pillar who were meeting Cabinet members at the time, the whole thing is recorded.

The talk I gave is available on these three videos:

Blog readers may be a bit tired of my thoughts on these matters, though, in which case I’d recommend watching the other talks. The full list is available on the Environmental Pillar’s channel on Youtube. Some of Brian and Constantin’s thoughts in relation to how the government could have reacted to criticisms of the original NAMA proposal are very interesting, while the panel discussion at the end covers a whole range of topics from ‘What can I do?’ to  ‘Does it matter if environmental armageddon is just around the corner anyway?’!

Some of the key things I took away from the talk:

• It does seem bizarre that journalists, financial services executives and foreign politicians are all prepared to listen to the anti-NAMA side, while the only way those opposed to NAMA can get to speak to government is through the media.
• “Long-term economic value” could actually mean larger falls than current market value, because it means using yields/net present value as opposed to the catch-the-falling-knife which could still give totally unrealistic yields by the time rents have stopped falling.
• The idea of a public trust that owns NAMA and that can decide on what to do with NAMA land tracts, for example, is worth exploring, regardless of whether or not we own the banks.
• Our current crisis presents a huge opportunity to reorder things the way we want them. To a lesser extent NAMA, but to a much greater extent the lack of a broad strategy for the next five years and the oddly between-two-stools Commission on Taxation report suggest to me that we are wasting this opportunity.

We started out with a chat about property tax, before discussing taxes generally and how best to raise funds and allocate public resources such as water, carbon and roads. We then broadened our discussion to the economy generally and the likely political acceptability of the changes we felt we needed, before I decided we might as well hang ourselves by making predictions about population, unemployment and output per head for Ireland for 2020! (I even strayed into predicting the typical year for IDA Ireland in 2020: 500 projects averaging 50 jobs each.) Just so you know, here were our predictions for population, unemployment and output per capita:

• Karl: a population of 6 million, unemployment of about 5% and output per capita of $60,000
• Ronan: a population of 4.4 million, unemployment of 7.5% and output per capita of $47,500

After that, we went out on to the streets and, a la Total Exposure, tried our hand at doing a Vox Pop on popular opinion about the economy and where the country is going. Our interviewees include a student just completed her Leaving Cert, a man whose sons have left for Australia and who’s considered upping sticks to Tenerife himself, and “Mr. Rude”, a very pleasant soon-to-be-emigrated fashion graduate.

0O0

For those who’d prefer a quick read instead of a video, you can check out my article in last Sunday’s Independent, based on research posted here on my blog, about Irish openness and exports being our saviour rather than our curse, in the global recession.

In Ireland the policy response has been to invest hugely in rescuing the banking sector but otherwise to act in a pro-cyclical way by deflating the economy through cutting public services and demanding cuts in social welfare, the national minimum wage and wages generally in the public and private sectors. It is a policy predicated on Ireland being able to recover by increasing its exports when and if the stimulus packages of our trading partners begin to take effect.

David Begg

He also snubs a mention of Ireland’s own Kevin O’Rourke, when citing research that compares the Great Depression with our current international economic turmoil. Perhaps that’s because Kevin is a author on the Irish Economy blog, seen by the anti-devaluationists as key theoretical fodder for the government as it legitimizes public expenditure cuts.

Indeed, Philip Lane has already responded on Irish Economy to Begg’s article. Lane argues that, contrary to Begg’s assertion on the paucity of evidence that deflation facilitates recovery, evidence that real devaluation is helpful for economic recovery is ample, even just looking at Ireland, and cites the devaluations of 1986 and 1993 as contributory factors to economic growth. Lane argues that the best possible solution is to minimize unemployment, and – as so many of us have argued before – we had our fiscal stimulus in the good times:

If Ireland had run a counter-cyclical fiscal policy during the good years, there may have been room to do more in terms of counter-cyclical fiscal expansion now. However, the scale of the fiscal deficits and the fragile state of international bond markets mean that significant fiscal expansion cannot be entertained.

In the comments on the Irish Economy piece, Kevin O’Rourke goes on to make a distinction between two separate challenges, fiscal sustainability and the real economy/unemployment, a distinction I think most economists would be delighted to see embedded in general public debate. Cutting public expenditure can help with the first but not really with the second. A real devaluation is needed for the second. Where the two possibly intersect is the topic of public sector wage rates – hence their importance and presumably the reason that Begg is conflating one (cuts in spending) with the other (cuts in his members’ wages).

A slighltly more frank dissection of Begg’s ideas is also taking place on thepropertypin, hardly a bastion of pro-government hacks. Some highlights so far:

• One Progessive Economy supporter on that forum argued: “I just cant help but instinctively feel that slashing the wages of a load of civil servants and firing a few thousands more will do more harm than good.” The response: “It’s that or double the tax take of the economy. How much harm do you think that’ll cause?”
• Another interesting point raised there is Begg’s idea of risk: is dependence on global trade really more risky than borrowing €20bn a year ad infinitum?
• My favourite line for pithiness, though, even if some of the finer points are lost, is the following:

You don’t understand. The haemorrhaging of jobs is unavoidable. We can either hemorrhage easily replaceable jobs like retail or very very difficult ones to replace like the ones at Intel.

As I write, Begg’s article is generating some comment, mostly critical, on the Irish Times site itself. (This is the first time I’ve seen IT op-eds open to comment, a very welcome development.)

A cause of concern, however, would be if countries started to raise tariffs and other barriers to trade. Earlier this month, the WTO made available for researchers a very detailed database on tariffs at a country and product level.

If all that detail is a little to mind-boggling (or spreadsheet-breaking), the World Economic Forum also earlier this month launched their 2009 Global Enabling Trade Report. The rankings in full show that small open economies are the best for enabling trade. Of note is that all the EU countries score very poorly in the ‘Market Access’ heading, due no doubt to the difficulties faced by agricultural exporters in other countries when trying to get their goods in the EU.

But before it does, I feel we should mark it in song. You can thank An Taoiseach’s about-turn on publication date for the missing fifth and sixth verses… but as it happens only die-hard Leonard Cohen fans know those anyway! Yes, today’s ditty is to the tune of Hallelujah, and while I think Cohen was most inventive to come up with no less than six sentences that sort of rhymed with the title word, surely An Board Snip Nua was made for rhyming with it! So, crank open your itunes and put on Cohen/Buckley/Wainwright/whatserface-from-X-factor – or else open the video below – and get singing…

Now I’ve read we are so short on bread
That even the Galway tent is dead
But you won’t really go for tax hikes, will you?
“You cut like this
Cut FAS, cut NESC
Cut the lads who print the car tax disc”,
The baffled Cowen is told by Board Snip Nua
Board Snip Nua, Board Snip Nua
Board Snip Nua, Board Snip Nua

Your vote was strong but you needed the youth
You cut stamp duty on the hoof
While the OAPs dreamt they overthrew you
They cried you
didn’t really care
They broke your vote, it collapsed in Clare
And the best that you could do was Board Snip Nua

In the 80s we were here before
We know this gloom, we left these shores
We used to live State-side before we knew you.
We’ve heard all about the ECB
But have you seen our GDP?
It’s so cold and it’s so broken; Board Snip Nua

What will you do-ah, Board Snip Nua?
Board Snip Nua, Board Snip Nua

It’s about time that you let us know
What’s really going on with our dough
But now you never tell it straight, do you?
We paid two mill to move in here
But NAMA’s going to cost us dear
And every budget cut by Board Snip Nua

Board Snip Nua, Board Snip Nua
Board Snip Nua, Board Snip Nua (repeat to fade…)

Youtube: Rufus Wainwright on Tubridy, getting the lyrics to An Board Snip Nua wrong

• Over on his blog, Donald Marron discusses Jim Kahn’s contention that house price bubbles depend on productivity growth spurts, rather than loose lending. A similar piece of work has been done by the OECD – arguing that the productivity slowdown contributed to the financial crisis, is over on vox.eu, fast becoming one of my favourite economics resources (not least because every article has a summary!).
• Brad de Long reviews Bob Allen’s conclusion in his ‘British Industrial Revolution in Global Perspective’, describing it as the smartest thing he has read all year.
• Liam on the Geary Institute blog discusses the happy planet index, a measure which seems to turn on their head some of the starting points about economic development.
• Karl Whelan, and a host of commenters (commentators?), discuss the strengths and weaknesses of Ireland’s Smart Economy/innovation strategy.

The main headline is that asking prices fell 5.7% in the second quarter of the year, a larger fall than any other quarter apart from Q4 2008. This means that asking prices fell almost 20% between July last year and June this year, and have now fallen by almost a quarter from their 2007 peak. Dublin city centre asking prices fell by more than 11% for the second quarter running.

One particular map, the nationwide quarterly changes in asking prices, was printed in both the Irish Independent and the Irish Examiner this morning and is reproduced below.

Quarterly change in asking prices, by county, 2009 Q2

What do we know now that we did not know before this report?

1. It is now clear that the more urban the area, the greater the fall in asking prices. Dublin city centre asking prices have fallen 34% from the peak, compared to less than half that fall in Kerry and Tipperary.
2. As a general rule, the greater the fall in asking prices, the shorter a typical property stays on the site. In Dublin, the typical time-on-market was just over five months, compared to more than ten months in some parts of Connacht and Ulster.
3. There is tentative evidence that there is a greater level of transaction in those markets with greater falls. One third of Dublin properties listed on the site on June 1 came off the site that month, the highest figure for over a year. This compares with less than 10% in large parts of Munster, Connacht and Ulster.
4. Sellers – perhaps influenced by their estate agents – are adopting a wait-and-see approach in some counties, while they are playing catch-up in other counties. Some of the counties with the largest falls in asking prices in Q1 saw relatively stable prices in Q2 (Sligo, Wexford), while others with small falls earlier in the year fell sharper between April and June (Kilkenny, Cavan).
5. The national average time-on-market has increased significantly from just six weeks in early 2007 to over seven months now.