Aaron McDaid

Some of the complaints in the US and elsewhere against stimulus plans for the economy are that the expenditure today, and the debt repayments in the future, will somehow 'crowd out' wonderful efficient private activity and investment.

It's easy to recommend straightforward Keynesian responses for the Republic of Ireland today, such as David McWilliams. But this neglects one crucial factor, Ireland is in the euro now. I hope David will go into more detail sometime on what we should do given that we can't print punts any more.

When Ireland had its own currency, the punt, creating full employment and fixing the economy was relatively easy. The government could borrow as much money as it liked, by printing punts if necessary. Keynesianism tells us that full employment will cause the recovery, not the other way around; so any move to increase employment is a good thing. Hence deficit-funded infrastructure programs are a no-brainer. And any mild inflation that results is probably a good thing, because the alternative is much worse; deflation can be the final straw that turns a recession into a depression.

'Capital growth prospects' are very often misunderstood. It is often interpreted as 'house prices rocket forever' and drivel such as 'Microsoft will return to its traditional, very large, price earnings ratio'.

The price of an asset cannot be any more or any less that the sum total of all future income. And future incomes aren't as valuable as immediate consumption; you're not going to pay a full year's rent in 2009 to be able to use a house during the year 2020. So a house is only ever going to be worth approximately 20 years' rent.

Recently, I had become a fan of David McWilliam's writing, but not any more. In "Fight for our right to prosperity" he vaguely argues that the Republic of Ireland's economic salvation will lie in increased exporting. He seems to even hint, in the final paragraphs, that the Republic of Ireland should leave the eurozone.

We can't just wave a magic wand and become exporters again. Our trading partners, such as the UK and US, will be trying to do the same. We can't expect that Germany and Japan and China will suddenly decide to import trillions of dollars of stuff every year instead of exporting.

I wrote this piece on 8th November, and I should have published it then, but I'm publishing it now over a month later. I have just recently bought a few book on economics (including Keynes' famous book) to read over the holidays. Hopefully this post will still make sense to me after I've educated myself a bit more!

Credit Crash Britain on the BBC on 2008-11-14 had the predictable conversation with somehow in Britain who wants to buy a house.

"Renting is throwing your money away. I want to feel that I'm putting my money into something"

Throwing money away you say?! Look up you fool. That's a roof over your head! Go sleep on the streets if you think that accomodation is such a worthless commodity. Next you'll be pointing out that food expenditure is throwing your money away on something that doesn't last.

Economics is fascinating. I've only just scratched the surface, but I'm eager to learn more. The mess we're in now (2008) is both very simple, and very complicated, at the same time. Economics seems to be a mixture of mathematics, common sense and a manageable amount of non-rationality.

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