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Archive for August 1st, 2011

I saw that film “The Departed” on TV recently, just after the real-life arrest of suspected organised crime boss, James “Whitey” Bulger in California, after 16 years on the run from the FBI. “The Departed” wasn’t the greatest film but oddly enough won its director Martin Scorsese a Best Director Oscar, his first – previous films like “Casino”, “Goodfellas” and “Raging Bull” went unrewarded in terms of a Best Director Oscar. “The Departed” was based in part on the life of James Bulger and told the story of how the Boston police tried to infiltrate his gang and secure a conviction. It features a female psychiatrist who starts a relationship with an Irish-American cop, and on the first date teases him by asking what Sigmund Freud had said about the Irish. And the cop, played by Matt Damon, impresses her by replying that Freud said “this is one race of people for whom psychoanalysis is of no use whatsoever”. There seems to be some debate about whether Freud did in fact ever say this, and whether it was meant positively or not, but regardless, it’s sometimes nice to be marked out as special or unique.

We are unique in another way as well. As far as I can tell, we are the only nation on this planet whose population has not risen in the past 170 years, by which I mean the population of this island (the Republic and Northern Ireland) was recorded as 8,175,000 in 1841 and in 2011 is estimated to be 6,370,000. Mainland Great Britain by comparison had a population of 18,500,000 in 1841 and its population stands at more than 60m today. For a traditionally Catholic country such as ours which frowned on contraception and where families with 10+ siblings weren’t unusual a generation ago, where there is an abundance of natural food resources with a sometimes too-good supply of water, where we don’t have volcanoes or sit on a tectonic plate boundary; for a country where internal strife has largely consisted of a  brief civil war which claimed the lives of about 3,000, a war of independence (or liberation) which claimed the lives of 1,500 and of course the so-called Troubles which claimed the lives of 3,500; for a country which sacrificed a relatively little 50,000 in World War 1, and in the Republic, was doggedly neutral in World War 2 – for all of this, you would expect our population on a Malthusian basis to be in the order of 250m today. Of course, we did have the Famine in the 1840s which killed over a million and a further million emigrated to escape conditions at home. And the Republic was under British rule until 1921, and there is limited evidence of the Industrial Revolution which transformed other countries in the 18th and 19th centuries. But for all of this, it is truly wondrous that the population of this country hasn’t grown in 170 years.

I don’t know if Freud in fact did say we were impervious to psychoanalysis but we do seem to be a curiosity in terms of a vanishing national population, our very own “The Departed”. Of course we haven’t really vanished, we just emigrated and didn’t come back. So we have a diaspora scattered around this world and we are oftentimes reminded of this scattering in quite stark ways. That President Obama, Mohammed Ali and Mariah Carey are all part-Irish, is testimony to past decades and centuries of emigration. And emigration has positive aspects, particularly in the mix and acquisition of skills but those aspects are positive if the emigrants return. And in Ireland’s case, the experience of the last 170 years is that mostly, emigrants don’t return.

Today, there are question marks over whether emigration has returned to Ireland. The preliminary Census 2011 results published in June 2011 revealed that we had net inward migration of 124,000 between 2006-2011; but because there is no breakdown of that 124,000 by year, there is debate as to present migration levels, with the ESRI and the CSO suggesting net outward migration has returned. Truth be told, because we don’t measure population annually and have limited means of measuring migration in intercensal years (there’s a shaky quarterly household survey), we won’t get to find out conclusively what is happening with migration until the census is taken again in 2016. That lack of information might be something worth remedying given the effect of migration on the social and economic life of this country.

What inspired this entry was a commenter yesterday asking for a view on whether or not there was hope for this country. If you’re reading this from abroad, you might wonder at the pessimism suggested by that question. But living here, we are confronted almost daily by talk of cut-backs, losses, insolvencies, loss in asset values, price increases and interest rate rises, contraction of credit, high unemployment, austerity, bailout, cuts to public services and new or increased taxes. On top of the bad news, we have the added salt in the wounds of sections of society left relatively unscathed and indeed in some cases, making out like bandits. It saps positive energy and undermines society. It has probably also led to a return to net outward migration.

We have a nasty budget deficit – what we take in, in tax is a lot less than what we spend on social welfare and the public sector. The primary deficit, excluding bank and interest costs, is presently €15bn a year, in other words we take in €41bn in tax and we spend €56bn on running the country with health (€11bn), social welfare (€14bn) and education (€8bn) being the biggest outgoings. And at this stage, we know inside-out the reason for the deficit: during the boom years of the 2000s, we matched our expenditure with our revenue, we reduced taxes, increased welfare rates and public sector spending. And the engine which largely drove that growth in the 2000s, banking and property, has suddenly and disastrously ground to a near-halt. So we have spending left high-and-dry at Celtic Tiger era levels but tax revenue has taken an immediate hit. We know we must balance this budget so that as a country we can economically stand on our own two feet. We have agreed to cut at least €3.6bn from the budget in Budget 2012 to be unveiled in December 2011 and an additional €3.1bn in Budget 2013. At this stage it is unclear what further adjustment will be needed in Budget 2014 and Budget 2015 but the view on here is that is will be a total of €3bn. And these adjustments depend on a level of economic growth that some say is optimistic.

On top of the adjustment to balance our budget and eliminate the deficit, we need also repay bondholder debt in our insolvent banks (or at least they were insolvent until Minister Noonan shoveled in billions last week).

Is the level of national debt sustainable? At a peak of 118% debt:GDP or 140% debt:GNP there are many that think it is not sustainable and that there will need to be some element of default on bank debt. Others think that the debt:GDP % is no worse than the mid 1980s and that the peak interest paid on the debt will be about 20% of tax income, which is less than the 30%+ in the 1980s. Debate continues about differences in our circumstances today, for example as a more integrated part of theEurope, particularly in terms of our currency union.

But in answer to the commenter yesterday, yes the view on here is that there is hope. Although balancing the budget is, to put it mildly, a challenge, it is a necessity; indeed there are some that say that taking eight years from our fiscal shock in 2008 to balance the budget just shows a lack of leadership and political ability. If done correctly and if we have mechanisms to ensure living expenses fall in line with our circumstances, and to deal with legacy debt, then as a society we may go back to the living standards of the early 2000s before the property/credit bubbles took hold. The early 2000s where our costs were competitive, where we were growing at 3%+ per annum, where there was little more than the frictional unemployment rate.

Foreign direct investment continues at an heightened level despite the IMF/EU bailout; exports, particularly those by foreign companies based in Ireland, continue to expand; we’re regaining the competitiveness lost in the days of the banking and property bubble; interest rates are rising but are still low by historical comparison, and by reference to total savings and GDP and GNP, we are still a pretty prosperous country even if we do have high levels of personal and national debt.

So to the commenter yesterday, indeed yes, there is certainly hope but we have a test here inIreland today. The evidence of the past 170 years is that allowing others to control our fate as well as sometimes having very weak political leadership means we may muddle through but at a cost to our most important resource, our people. One of the key indicators of success in the next four years is whether we can overcome this financial crisis without seeing a return to traditional emigration.

(It’s a bank holiday inIrelandtoday, tomorrow we will be back to business as usual)

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