It might be economics, but it's not science

No sooner do I coin a well-received definition of economists, to wit: 

 “…the study of economics is not a science. Note that I did not write “exact science”.It is not a science at all. It is a set of beliefs that are held by individual practitioners and invoked under any and all conditions. Economists are Keynesians, Monetarists or follow the Austrian School in the same way as the devout adhere unquestionably to Mohammed or Christ or L.Ron Hubbard. Economists cannot agree among themselves on the right course of action under any given set of circumstances and they most certainly cannot predict what will happen in the future”. (See "Vincent Browne and the Euro) 

than a group of them comes along and seems to make every effort, in the pages of The Irish Times, to support my thesis.

An article in the paper of record on Friday 6th April and signed by no less than 43 academics, many in economics positions, is entitled “Austerity without growth a guarantee of stagnation”. It points out that a subset of the same group argued, two years ago, against spending cuts and tax rises as a means of dealing with the economic crisis on the grounds that it would kill growth and create high unemployment and debt. The current article seems to be claiming that this prediction has been proved correct, 24 months later. But two years is a mere blip in terms of the time required to create the economic conditions that would come close to being defined as normality.

“The evidence is clear”, they say, “contractionary fiscal policy does indeed restrict economic activity and employment”. This is an example of the kind of wooly thinking that's indulged in by those who have misappropriated scientific terminology. The statement is certainly reasonable, and one could even be persuaded to base policy upon it in certain circumstances. There is however no evidence, never mind clear evidence, in this opinion piece to support it.

The article is unscientific in that it never addresses other, feasible, hypotheses. For example, the proposition that taxes on high income groups actually reduce the tax take because they make it economically viable for the rich to simply remove themselves to another tax jurisdiction. Or that the EU / ECB / IMF solution to current woes - austerity now (but nothing like what the global financial markets would impose on countries like Greece and Ireland if they were to have a disordered sovereign default) to repair and consolidate Euro-zone peripheral economies so that the E-zone as a whole can prosper and grow in the future – might be the correct course of action.

The article could conceivably contain contradiction. At the start it is arguing against tax increases on low and average earners as the means of raising the funds for growth in infrastructure and other labour intensive projects. Less than 800 words later it’s calling for …”taxation targeting high-income groups, property assets, unproductive activity and passive income…”, “…stronger local taxation…”, “…the potential of social insurance and local taxation to broaden the tax base…” and claiming that “…PRSI [another form of taxation] can be expanded and combined with general taxation to provide free (sic) universal healthcare and earnings-related pensions”.  Many hold that all these measures simply trickle down as costs to middle and low earners through market forces.

Definitely not science. The scientific method has no room for ideology, for expediency or for plain, old fashioned, wishful thinking.

Nouriel Roubini thinks Ireland 'has a chance'

Nouriel Roubini, the US Economics professor who has gained fame for predicting the housing bubble, the disaster that would come of poorly understood mortgage backed securities and the eventual recession, and who is now best known for his brutally frank judgements on current economic matters, actually had some kind words for Ireland recently. He believes that we are “in with a chance” because of our long standing policy of attracting high-tech foreign direct investment.

You can hear what the professor has to say in the video above, which was recorded during a discussion on the margins of an economic conference in Australia.

For what it’s worth, the Dutch far right also seems to give Ireland the benefit of the doubt, even if by default. They have been quoted as calling for the expulsion of Greece, Italy and France from the Eurozone, the first two because they have blotted their copybooks and France because Nicholas Sarkozy is seen by them to be interfering too much in the economic affairs of other nations. To illustrate that logic or consistency was never a far-right area of strength, they say nothing about Germany, whose Chancellor has, if anything, been even more prescriptive to her Euro neighbours than the French president.

Should we be worried that the Dutch far right has not singled out Ireland? What are we doing that would please them, or can we hope that they just forgot we were members of the GIIPS group (this is the format I will be using for this group of countries – acronyms that make up pejorative terms are not only intellectually lazy but also fail to add anything helpful to the debate)?

One way or another, the Euro story keeps on rolling.

More positivity for the Irish economy - why am I worried?

Now I'm worried. So many international pundits have been rushing recently to extol the virtues of the Irish economic recovery that one has to start remembering that we've been here before – and it didn’t work out well.

Think about it. In the mid nineties the term “Celtic Tiger” was coined to describe what appeared to be a runaway success in terms of becoming a prosperous nation in the shortest possible time. We could do no wrong. Retired Irish politicians and business leaders toured the global lecture circuit telling the rest of the world how it should be done. The Irish bought anything that came up for sale, whether it was Polish banks or Chicago real-estate.

The truth of the matter is revealed in this video clip by Alan Mattich of Dow Jones Newswires. Ireland is a small, very open economy. We depend on international trade, much of it carried out by non-indigenous Multi-national corporations that have been attracted here by our corporate tax rate, combined it must be said by the very real facts that we have a sharp, young, well educated workforce, are the only English speaking state in the Euro zone (Memo to government: don’t even think about leaving the Euro or doing anything that might endanger it as a unit of currency) and enjoy the benefits of having one of the most professional and effective development agencies, IDA Ireland, in the world.

But it is so, so easy to lose the run of oneself. Will we be more circumspect this time around? And if so, for how long?