Skewed economic forecasting: It’s time we read the tea leaves better
It’s been a while since the Victorian historian, Thomas Carlyle, described economics as the dismal science, but, even so, the discipline and its practitioners’ predictions have more influence than they did in Carlyle’s time.
Every government decision, every piece of legislation, every decision to spend or not is framed by that all-important known unknown — “our economic prospects”.
They are the drums we march to. Social stability and equity depend on how this particular set of tea leaves is read.
Though it’s been a decade, the world’s economy still bears the scars of America’s sub-prime mortgage fiasco, an adventure unhindered by economists’ intrusions and facilitated by Bill Clinton’s capitulation to Wall Street on relaxing regulations that had protected America’s banking system from itself for decades.
Just this week, we were reminded of the ongoing impact those reckless concessions have on our capacity to provide public services that match today’s needs or expectations.
The head of the National Treasury Management Agency, Conor O’Kelly, expressed those constraints in the starkest terms. He pointed out that Ireland pays €16.5m a day in interest to service our national debt.
That is a startling figure, for a country where just over 2m people are in work and with so many pressing demands on the public purse.
It seems a perfect example of today’s ever-tightening reality — socialism for the rich, but no-option austerity for the poor.
It is a shocking figure, in a country where, according to the independent advocacy group, Social Justice Ireland, almost 800,000 people, many of whom work, live in poverty.
SJI said, and it is hard to argue with them, that “these figures are unacceptable in a rich, developed country, like Ireland”.
That bleak situation is confirmed by that fact that the number of people who contacted the helpline of budgeting service, MABS, last year, was higher than at any time since early 2013, when the figure was just 1% higher than that recorded last year.
The country’s unresolved mortgage crisis, another toxic legacy of 2008, contributes to that figure and it shows that the much-trumpeted recovery is, at best, uneven.
There are many reasons for these failures, but, this week, the Economic and Social Research Institute (ESRI) pointed to one that may not be immediately apparent.
It urged the Government and the Central Statistics Office (CSO) to adopt a separate set of national accounts to better tell the story of our economy, without the distorting influence of multinationals’ transactions in this jurisdiction.
The ESRI warned that headline growth figures are skewed by large transactions by a small number of firms, involving the transfer of intellectual property assets to Ireland, in the wake of global moves to clamp down on tax avoidance.
In a country where a finance mandarin is rewarded despite a €3.6bn accounting blunder, this might seem unsurprising, but it may also be another expression of our cultural aversion to look-in-the-mirror exercises in the dismal science — and our reluctance to learn even the hardest lessons of our past.
Reading the tea leaves properly may make for grim reading, but, in the longer run, it would be the wise thing to do.
