0. The problem is a complex interplay of the existence of greenhouse gas emissions, security of fuel supply and carbon taxes/carbon charging. Now this will be tied together post-Lisbon, I expect.

1. There is no point in building a power plant here. We in Ireland simply do not have the knowledge base to run nuclear power stations. Any plant purchase would send Irish taxes to France or Japan.

2. Uranium is much more prevalent than, say, North Sea Oil, which has been declining since the 90’s. The price of Oil/Gas will continue to rise from now on. Around 5.5m easily accessible tons of the stuff. This gives us a reserve of 80 years. Considering so many more countries are planning to build now, that is probably around 50 years. Nuclear’s contribution to energy generation in Europe and North America has grown in the last 20 years, despite the decline in power plant construction. No plants have been ordered in the US in more than 20 years. The key has been improved reliability.

3. Government’s target of up to 40% of electricity generation from renewables (mostly wind) by 2020 is borderline insane. The recent Irish Academy of Engineering report suggests this. Simple pricing rules will really help. For example, the Government should be locking in oil futures, as prices for 3-5 years time as the current weak price will not last.

4. Here’s a potentially much more successful and cheaper policy: undersea inter-connectors and  a focus on energy efficiency. Wind power won’t change this either. Go to Eirgrid.com, plot a chart of the 14th of November. Wind generation by MW/h is all over the place–not enough to actually produce on demand power, and certainly not reliably.

5. I therefore take an ‘ecopragmatist’ view of James Lovelock/Stewart Brand of the Long Now Foundation. The only viable, workable solution at this moment and for the next 5-10 years we can see is nuclear power. In its recently-issued Second Report, the Joint Oireachtas Committee on Climate Change and Energy Security makes worthy proposals for legislation relating to climate change. It argues in some detail for provisions to encourage energy conservation and renewable energy, two of the three major means for combating climate change. The third means is nuclear energy, which supplies 16 per cent of the world’s electricity without significant carbon emissions.

I think, therefore, that the costs and benefits of nuclear generation in an Irish context should be fully studied. If it turns out that the costs outweigh the benefits, then we shouldn’t do it. But until then, let’s keep an open mind in this area.

Contrary to popular belief, investing is not rocket science. It boils down to a simple concept: buy when the price is low and sell when the price is high to make a profit. Even the most complex investment product or structure comes down to the same simple goal – generate a return. But if it’s really that simple and logical, why are we all not millionaires?

via Linking psychology and economics | The Post.

In the long run, Ireland faces two apparently unrelated challenges. First, our infrastructural deficit will grow due to repeated government cutbacks. Secondly, as our population ages, our society will struggle to pay for pensions of a greyer society.

The two problems of pensions provision, and infrastructural investment, are intertwined.

They can both be alleviated using municipal bonds.

In essence, individuals buy bonds issued by the government or even a local authority, which the government will honour in, say,45 years or longer, when the individual retires. The government uses the flow of funds from the bonds to build roads, bridges and levies today.

read the rest here: Municipal bonds could be the solution to many problems | The Post.

Everytime we talk about the economic situation in Ireland we always focus on consumer spending.

On today’s lecture u asked what ‘What will be if the government double the dole?’. In my opinion, by doubleing the dole,at the beginning the consumer spending will increase but not for a long while. Employed people would prefer to give up their jobs and go on  social welfare benefits as they would benefit from it more. As a result, costs of production and all the other costs will increase which will lead the consumer spending to decrease. People would not operate with the same amount of money in their hands and accordingly decrease their spending and the final result will be the same as at the beginning = Recession.

In my opinion, the first thing we should concentrate on is the effect of the tax on consumer spending. Firstly, employer has to pay at the moment very high tax on his employees, eg even if employee doesnt earn that much the employer still have to pay the tax. As a matter of fact, the employers would not be able to hire that many people and the unemployment will increase. If the government decrease the taxes, employers would be able to offer more work positions and the unemployment would decrease.
Secondly, decrease in the taxes would lead to the increase in investments…Foreign countries would invest more in Ireland and open their businesses here . We have to remember that soon every country would finally beat the recession and Ireland has to be prepared for the potencial investors giving them the best conditions for the opening up their businesses such as decrease in the tax.

↓Tax => ↑Investment => ↑Work positions => ↓Unemployment => ↓Costs => ↑SPENDING

Thirdly, decrease in taxes is followed by the decrease in costs like ESB, GAS, rent,etc. So people will have more money and start saving more in case of another recession. There will be more savinig accounts opened so that their interest rates would increase the amount of money lodged and the banks would have more money to operate with so the overall bank investments in the country would increase and makes the economy moving up.
After all the unsuccessful bank operations people will lost the trust to the banks so the banks would have to increase the interest rate to attract the clients.

I know that in the case of decreasing the tax government would have to borrow the money however the same thing would happen if the government double the dole. However, decreasing the tax would make the recovery process of the economy a lot quicker.Finally  it would bring the profit to the economy and we would be able to start paying the debts. It is a big risk but we can always tryes different ways of solving the problems.

Click below for my reply, and feel free to use the comments to give your opinions on the subject.

Thanks again for your very smart email.

The low taxes route you suggest is both valid and workable, but not
when the government has a really low level of tax to begin with.
Ireland is a fairly low tax economy, especially of corporations. In
the 2002-2006 period, Ireland’s tax take was also the lowest of any
Euro Area economy, at 34.9% of GDP compared to Euro Area average of
44.9% of GDP. When certain areas of tax revenue are much reduced, such
as VAT and Stamp Duty, there isn’t much scope to cut taxes. Perhaps
cutting VAT by a percent makes sense to stem some of the flow of trade
up to Northern Ireland. There is a good policy proposal out there to
remove employer PRSI for new employees for two years, making it
cheaper to hire new people, and this would operate via the channel you
describe:

The state of the public finances is another argument. There is
actually a lot of scope to borrow for infrastructural projects, in my
opinion, but the ‘received wisdom’ from several sources is that the
budget deficit must be plugged over three or four years by decreases
in government spending and increases in taxation.

I completely agree with you that the price of utilities like gas,
electricity, and telecom services should come down, and also,
continued investment in broadband-esque initiatives would really help
us get out from under the recession via new business creation.

And the student’s reply:

just to continue our debate, I personally think that we can not forget about the direct subventions.  From my point of view government should focuse on the one particular target which in my opinion should be the big enterprises to bring the foreign capital in to Ireland. This direct subvention should concentrate on the regions that are mostly impacted by the crisis as an example in Limerick. To achieved that government should turn the Limerick into The Special Economic Zone. This zone allows government directly donate the enterprises to set up the work departments. This donation would offer the tax exemption to the enterprises for example 2 yrs period. Instead of paying the tax the enterprises undertake the condition that states money would not be lodged as a profit directly to companies bank accounts but the money would be used for a creation of a certain amount of work positions in the before consulted period of time.

What do you think about these issues raised in class?

Did you know, for example, that an average of 43,000 people from the new EU member states signed on during the third quarter of the year? Sure, this may be nothing, compared to the 350,000+ Irish signing on. And sure, the problem looks to have turned a corner with the numbers signing-on falling every month since April. But I think you will agree from the graph below (the red line is the one we’re worried about, just in case you’re wondering), new-EU signers-on is a problem that is getting out of hand. Just think, in early 2004, there were only a couple of hundred of them signing on!

—

It gets worse for Mayor Kiely. Summing up over the past 12 months, their contribution to the Exchequer has been about €1bn, while the Government has had to pay out about €350m. Perhaps, in some alternate universe, if there’d be 50 times as many of them (that’s right, if they’d doubled our population), we would have a problem and even then only a problem about as large as our government finances!

And that’s before taking into account things like the VAT the Goverment gets from their day-to-day expenditure. Or that the presence of 175,000 workers and their families has helped sustain Irish businesses that depend on consumer expenditure. Or any number of other factors.

via Ronanlyons.com

Author, award-winning journalist, and policy analyst Sara Burke will be in UL tomorrow talking on the subject of

GUBU 2009 – the Irish health system.

All are welcome, the talk is on from 2-3pm in KB1-11.

Economics for Business Lecture 19 from Stephen Kinsella on Vimeo.

From Michael Taft’s blog, which is excellent, here’s an interesting chart describing Ireland’s current situation and our policy choices in 5 weeks’ time.

Spending Changes

The multiplier row I referred to in the lecture starts here and here, you can read the rest yourselves. The Ernst and Young report is here. Irish estimates of multiplier effects have been done recently by the ESRI, and the figures are here. Tomorrow we’re all about Aggregate Demand and Supply. See you there.

::Don’t click here::

Computer scientists have spent decades developing techniques for answering a single question: How long does a given calculation take to perform? Constantinos Daskalakis, an assistant professor in MIT’s Computer Science and Artificial Intelligence Laboratory, has exported those techniques to game theory, a branch of mathematics with applications in economics, traffic management — on both the Internet and the interstate — and biology, among other things. By showing that some common game-theoretical problems are so hard that they’d take the lifetime of the universe to solve, Daskalakis is suggesting that they can’t accurately represent what happens in the real world.

Game theory is a way to mathematically describe strategic reasoning — of competitors in a market, or drivers on a highway or predators in a habitat. In the last five years alone, the Nobel Prize in economics has twice been awarded to game theorists for their analyses of multilateral treaty negotiations, price wars, public auctions and taxation strategies, among other topics.

Read more.

Here’s a piece I co- wrote with Karl Deeter for the Limerick Leader this week on Muncipal Bonds in Ireland. It’s the first part of a larger project we’re engaged in. Comments are most welcome.

Limerick faces a funding crisis. The recent Comptroller and Auditor General report highlights that, in the long run, Ireland faces two seemingly unrelated challenges. First, our infrastructural deficit will grow due to repeated government cutbacks. Second, as our population ages, our society will struggle to pay for pensions of a greyer society. Over a 50-year time horizon, the costs of pensions provision are staggering.

Currently, net public service pension payments absorb 0.5% of our national output, and as a result of demographic changes it will be necessary to devote 1.8% of the nation’s output to meet the net cost of pension payments by 2058. The two problems of pensions provision and infrastructural investment are intertwined. They can both be alleviated using municipal bonds. In essence, individuals buy bonds issued by the government—or even a local authority—which the government will honour in, say, forty-five years or longer, when the individual retires. The government uses the flow of funds from the bonds to build roads, bridges, and levies today.

Limerick’s citizens should not trust the bulk of their retirement incomes, and indeed their wealth, to come from stock markets. Stocks and shares are inherently risky investment products. While stocks may generate a higher return for the retiree than bonds, the reduction in uncertainty that would perforce come from a continued investment in a guaranteed payback mechanism like a municipal bond would compensate for that potentially higher return.

Two facts convince us of the need for a structure like municipal bonds to be implemented in the next five years. First, our society will get older in the next forty years. By 2036 there will only be two people working for every pensioner. By 2050, 1 in four workers will be over 65, 1 in 10 workers will be over 80. Regardless of the year of retirement of these workers, and the replacement rate of the old by the young, the implications of this demographic shift for our pension and health care systems are enormous. Pension provision may bankrupt the state unless private provision is instituted on a mandatory basis. Cash-strapped local authorities and governments can use funds generated by these bond issues on a yearly basis to reduce our infrastructural deficits in transport, water provision, port equipment, broadband provision, and community initiatives, to name a few. Second, Ireland’s infrastructure ranks as one of the worst in the industrialised world. Out of the OECD-30 nation group, Ireland ranks 26th. A systematic over-investment is required to bring Ireland up in these rankings, given that other countries are forging ahead in modernising their infrastructures, while we lag behind. The present ‘tax and transfer’ system for the provision of funding for infrastructure means that potential willing investors are not included. This error of omission is further compounded by the level of money lost in extraction costs, because getting money off the taxpayer and into these projects is a costly exercise. It would make more sense to have a government-lead web based clearing house (along the lines of treasurydirect.gov), where individuals or pension funds can participate in various proposed projects such as broadband fibre rings, tram lines, or roads, and in return receive a future cash-flow from the operation of the project in addition to the guaranteed payout from their retirement bonds once those bonds mature.

Dublin’s Luas project could have been funded in this manner. Instead, the state spent more to get a tram on a track in Dublin than it cost to put the Beagle Spacecraft onto Mars 400 million kilometres away. We simply have no way of closing the infrastructure gap using our present funding methods, in the current economic climate of fiscal retrenchment. Municipal bond issuances are one of the few ways we can change that. Bond issuances would also allow significant private savings to be utilised for the public good, with positive spillovers from the built environment to the real economy via increased investment and jobs created because of world-class infrastructure.
The number of non-resident stocks the average pension fund invests in today ensures that the bulk of private Irish saving is not spent on capital creation within our own borders, and while our article is far from a call for protectionism, it must be noted that we need inward investment in order to become the ‘knowledge economy’ we claim to be aiming for. If the income from a municipal bond is tax free, as it is in the USA, it would make for lower funding costs, as higher yields wouldn’t be required by investors. Well-run bond issuances by Limerick’s County Council would attract additional non-pension savings as well, perhaps drawing international capital to them as well. We could simultaneously address part of our pensions problem and our infrastructural deficit using municipal bonds.

The tools and regulations to issue these municipal bonds exist in other countries, and can be brought into Ireland relatively easily. We currently lack sufficient foresight and the requisite political will to implement them.

Published in The Dubliner.

Not changed utterly. Things will change in Dublin, but they will not change utterly. Dublin in 1970 was similar to Dublin in 2009, and Dublin in 2050 will be outwardly similar. The intervening days between today and 2050 – about 15,000 of them – offer us the opportunity to make things better for the children who will succeed us.

Grey is the new black By the year 2050, one in four workers will be over 65, and one in ten will be over 80. That’s right, I said “workers.” You will be working into your 70s and 80s; advances in healthcare and an increasing retirement age mean many of us will work 40, 50, perhaps even 60 years of our lives. So Dublin will be a grey city, with older people much more visible on the streets. Our golden years will be golden, and as culture and fashion move to accommodate the preferences of this large demographic, it’s going to be hip to be older.

Cities of ruin There is a 25-year development cycle in cities, as older buildings are refurbished, redeveloped, or knocked down and the land used for another purpose. We have just been through a development cycle of epic proportions, but in 25 years, the buildings built today will be depreciating. As a new generation comes into its own, they will need houses, and will change the city to suit themselves, subject to the technological constraints of the day. So expect another construction boom in 25 years. After all, the UK had a property boom in the 1990s and again in 2006/2007. All this has happened, and all this will happen again.

Your kids will be in demand Dublin has experienced a baby boom and unlike our property boom, these kids are here to stay. More babies were born in 2009 than any year since 1897. These children will be in their 20s in 2030, and in their 40s in 2050. They will take the reins of a society facing challenges we can’t yet imagine. The Leaving Certificate will not equip them with the tools to deal with this complex world. It is an obsolete method of instruction, designed to produce gifted list-learners for an industrial structure that doesn’t exist anymore. The main elements of a new educational system would focus on practical skills – First Aid, information management, basic accounting and so forth – while giving students the tools and the confidence to be as creative as they can be.
I have a hard-nosed reason for emphasising creativity as a necessary educational tool. Creative people make things. They want to sell those things. They create businesses to sell those things, and hire people to help them do that. The jobs created are high-value, so society will get richer as a result of the taxes these workers and business owners pay to the State, to support their by now wrinkly forebears; again, you and I.
Fertility levels in other industrialised countries are in long-run decline, so our kids will be a scarce resource in 2030, and in high demand – but only if we equip them with the tools to make themselves competitive in an international market for talented workers.

Flood Warning Rainfall levels are projected to increase by as much as 11 per cent in the coming years as climate change takes effect. More rainfall implies more flooding. What we speculate on now will be a daily reality for our kids, and theirs. We will need to create levees and move houses and businesses out of the areas most likely to be affected by flooding and climate change. Areas such as Ringsend and the Docklands will be under threat of flooding if we don’t take action now to defend them.

Economics for Business Lecture 17 from Stephen Kinsella on Vimeo.

From OECD

This week in 2 classes (EC4004 and EC4333), I talked about Lorenz curves, Gini distributions, and income inequality.

The recent OECD report shows the inequality in who’s contributing to income tax receipts.

The chart shows Ireland is a very unequal country when it comes to paying tax– the rich pay most.

(HT Ronan for the update)

Economics of EU Integration Lecture 8 from Stephen Kinsella on Vimeo.

Economics for Business Lecture 16 from Stephen Kinsella on Vimeo.

Here’s a brilliant podcast from the LSE on a new book discussing the legacy of JM Keynes, have a listen.