Professor Alan Barrett:

The committee would then only have to talk about two things, not three. That is our first constructive contribution and we would probably put the emphasis on capital.

One of the first projects I worked on in the institute 20 years ago was an evaluation of a global capital programme that the EU was funding. It was 1997 and very famous people such as John FitzGerald and Patrick Honohan were also working on it. The EU was going to spend a huge sum of money and our task was how to prioritise that across a range of areas. I think that because we have had so little capital expenditure in Ireland for a long time, we need to step back and ask how we are going to allocate whatever quantums of money there are in the medium term across a range of areas. We have got out of the habit of doing these things. The housing problem is so clear that we can all agree we should be doing something about it.

The other point to be made, however, and colleagues at the institute have been working on this, is that we should not be thinking about infrastructural spending in segmented components, for example, broadband. Research has shown that broadband can be very useful in terms of the economic impact on an area but only if there is a reasonably high level of educational qualification among the population in that area. Just spending the money without there being an institute of technology or university locally does not give the same bang for one's buck. Broadband now has a sort of motherhood and apple pie dimension to it, everybody is in favour of it and how could one be against it but we need to step back a bit and think in a more integrated way about how we should be spending on capital to make sure we do it well. There are good lessons analytically from the recent past on how to do it.

An issue that has come up in certain circumstances, and I am going to talk once again about my much-derided profession of economics, is that economics says when interest rates are essentially at zero, we should invest quite a lot, more than is allowed by a narrow interpretation of the fiscal rules. I think the Department of Finance is already talking to Brussels about this and Professor McQuinn has touched on it. Fiscal rules should not be so ridiculous that if there are expenditures that would genuinely add to the productive capacity of the economy, they should not be reflected in the scope we have to invest in capital. The notion of treating the productive impact, for example, of a road or houses in the same way as a reduction in the universal social charge, USC, strikes me as kind of crazy. There is flexibility and Commission officials have said that. As a country, we need to explore that flexibility as much as possible.