About P O Neill

is Irish and lives in America.

Bad neighbourhoods

From US Secretary of State Mike Pompeo’s “The West is Winning” speech at the Munich Security Conference

The West is winning. We are collectively winning. We’re doing it together.

Let’s start with a simple fact: Free nations are simply more successful than any other model that’s been tried in the history of civilization. Our governments respect basic human rights, they foster economic prosperity, and they keep us all secure.

It’s why so many people risk a dangerous journey across the Mediterranean to reach Greece and Italy, but you don’t see the world’s vulnerable people risking their lives to skip illegally en masse to countries like Iran or to Cuba.

Iran has been absorbing refugees for decades from Afghanistan. There are around 1 million registered and more who were displaced. And then there are the generations of Iraqis who took refuge in Iran during the Saddam era. Or as Pompeo would say, they “skipped illegally en masse.”

Irish election resources

The exit poll is out. The widely reported 3 way tie — in first preference votes — between Fianna Fáil (main opposition), Fine Gael (minority government) and Sinn Féin (the ostensible surprise packet in the election).

The next indication of results will be the famous “tally” — an estimate of first preference votes, constituency by constituency, based on skilled observers of the ballots as they are sorted. These people are clearly needed in Iowa (or could have lucrative careers in Las Vegas). Check the website of national broadcaster RTE (and no, that’s not Erdogan’s twitter account) later on Sunday morning for these numbers.

But more than any recent election in Irish history, the action is going to be way down in the count — as lower preference votes are allocated, and the big 3 parties walk a tightrope between too many candidates per constituency and thus splitting votes, and too few to pick up vote reallocations.

At this stage it looks like a pattern seen in other countries — of a quiet late surge back to the governing party (e.g. Austria, Australia) is being replicated in Ireland. On the other hand, much hyped features of last year’s European Parliament election (such as the “green wave”) have gone into remission.

Finally for now, since the main interest overseas will be in the SF surge, here is their manifesto. It has some interesting points of emphasis, and omission.

The Eurozone bailouts: learning more

The Independent Evaluation Office (IEO) for the IMF released its evaluation of the Eurozone bailouts last week. Unfortunately, the excellent report was released on the Thursday of what was for Bureaucristan the last working week before September, and was released as a package with prebuttal of the recommendations by the Fund itself, which diluted its impact. And even in the financial pages of the newspapers, attention was more focused on the banking stress tests which came the following day [UPDATE: good attention to the IEO report from the New York Times]. Nevertheless, the report deserves a long shelf life; below the fold (direct quotes in italics), a selection from its more striking findings: note, these findings may have been documented elsewhere sporadically before, but one value of the report is collecting them all in one place and integrating them into a broader narrative.

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Headline chasing

IMF note to the G20 meeting in Shanghai in February —

The global recovery has weakened further amid increasing financial turbulence and falling asset prices. Activity softened towards the end of 2015 and the valuation of risky assets has dropped sharply, especially in advanced economies, increasing the likelihood of a further weakening of the outlook. Growth in advanced economies is modest already under the baseline, as low demand in some countries and a broad-based weakening of potential growth continue to hold back the recovery. Adding to these headwinds are concerns about the global impact of China’s transition to more balanced growth, along with signs of distress in other large emerging markets, including from falling commodity prices. Heightened risk aversion has triggered global equity market declines and brought a further tightening of external financial  conditions for emerging economies. Strong policy responses both at national and multilateral levels are needed to contain risks and propel the global economy to a more prosperous path.

IMF note to the G20 meeting in Chengdu in July–

“Brexit” marks the materialization of an important downside risk to global growth. The global outlook, set for a small upward revision prior to the U.K.’s referendum, has been revised downward modestly for 2016 and 2017, reflecting the expected macroeconomic consequences of a sizable increase in economic, political, and institutional uncertainty. But with “Brexit” still very much unfolding, more negative outcomes are a distinct possibility.

The two notes, which are written barely 6 months apart, read together bizarrely. The earlier note sees anxiety in financial markets and searches around for any narrative that could justify that — to the point where even a fall in oil prices could be bad! The new note has the luxury of an actual negative shock — Brexit — to work with, but with one big problem relative to the doom-and-gloom narrative of February:– it says that if it wasn’t for Brexit, the IMF was ready to along with the evaporated panic from February, and anyway financial markets haven’t taken Brexit particularly badly!

Could it be that the financial market-led narrative in February was a panic in search of a problem, except that the markets — and thus anyone using that as their lens — missed the one problem that was actually on the horizon, namely Brexit? As it happens, financial asset prices could well be a bit player in the way Brexit eventually plays out.

Timeliness challenge

The IMF Board considered the annual surveillance of the UK economy barely 2 weeks ago, and the associated report was published even more recently. And a couple of days after that, its main findings about fiscal policy — trumpeted by George Osborne during the visit — are effectively dead. Here’s what the Fund says (page 10) —

Relative to the last pre-election budget (March 2015), the authorities’ latest fiscal plans as announced in the 2015 Autumn Statement envisage a smoother path of deficit reduction. Consolidation is also now based somewhat less on spending cuts than previously projected, partly due to revised revenue and interest expenditure projections and new revenue measures. The consolidation path is appropriate in the baseline scenario. Continued consolidation is needed to rebuild buffers, thereby allowing more aggressive countercyclical policy during the next recession.  

Similar language is peppered throughout the report. The problem is now out in the open in that Osborne used a G20 trip to Shanghai and a linked interview with the BBC’s Laura Kuenssberg to confirm what had been obvious to analysts for a long time: the revenue, growth, and modeling assumptions underlying the Autumn Statement cannot be met.

Imagine if an African country finance minister uncorked a worse economic scenario than he’d told the Fund just weeks after their visit!

Language adjustment

The IMF World Economic Outlook update is out. Despite all the China and financial markets talk, the movement in the forecast is more about the uselessness of BRICS as an economic concept: deeper recessions than foreseen even 6 months ago in Brazil and Russia, extreme sluggishness in South Africa, what the Fund still views as an adjustment and not a crash in China, and strong growth in India.

But anyway, the projection contains its typical sentence from the post-2008 years: Risks to the global outlook remain tilted to the downside.

Why does it never say The projection remains tilted to the upside?

The wealth of the masses

From the Davos-timed Oxfam analysis of global wealth distribution —

In 2015 the net wealth of the 3.6 billion people living in the bottom 50
percent was $1.75 trillion.

That means average wealth for those 3.6 billion people was US$486. It’s a wonder they’re not all trying to move to richer countries, but at that wealth level, they probably can’t afford to!

Edward Hugh, RIP

Unfortunately the dark and cold days of winter tend to bring some untimely departures and this season’s deaths now include our blogging colleague Edward Hugh, who we gather died yesterday in Spain. Edward’s posts here and on other platforms marked him out as someone with the fresh eyes of an economist who had made his own way to an analytical framework that found its ideal subject in the Eurozone financial crisis. The slow-burning demographic strains of which Edward had long written remain even as the banks get very slowly cleaned up, and are of course a subtext to the current migration crisis. Here’s a link to the New York Times profile of Edward from a few years ago which further broadened his audience.  Our condolences to those who knew Edward best.

UPDATE: The New York Times has a nice obituary.

Right said George

imf_gbr

From UK Chancellor of Exchequer George Osborne’s opening statement at the joint news conference with the IMF yesterday, Mme Lagarde in attendance, to conclude the IMF assessment of the UK economy –

Yes, there are still risks. The IMF have identified the risks, and they are the same risks we’ve identified and are taking action to prevent. I take this as an endorsement of our plan to fix the roof while the sun is shining.

The table above is from the IMF’s July 2008 assessment of the UK economy. Bear in mind that the first tremors of the global financial crisis had happened nearly a year earlier. The debt and deficit are now over twice as high as these numbers. The IMF team of course doesn’t have much choice but to sit there politely when Osborne uses his 7 year old political slogan about fixing the roof etc. But by the IMF’s own standards, the roof was in good shape in summer 2008. The pile of rubble fell afterwards.

Asymptotic Austerity

OBR_Nov2015

If George Osborne continues to be able to find enough new future cash via changed modeling assumptions to spread around, he might yet get the growth of GDP, and eventually the level, back to where it would have been before austerity started!

Figure source Office for Budget Responsibility Economic and Fiscal Outlook November 2015. Chart 2.1: Selected vintages of ONS real GDP estimates and OBR forecasts.