Joan Burton (Dublin West, Labour) | Oireachtas source

It is the tenth anniversary of what has been called in stockbroking circles the "St. Patrick's Day massacre". During a booming Irish economy, it was the day on which time was called by the disastrous fall in stock prices that engulfed Bear Stearns and when the writing was on the wall for the casino capital model of Anglo Irish Bank. However, the problem was not confined to Anglo Irish Bank. Like a horror movie, it went on to destroy the rest of the banks and the Irish economy. What was the outcome of the St. Patrick's Day massacre? Not too long after it, Bertie Ahern announced that he was going to stand down as Taoiseach, which he did. Brian Cowen took over and was very unhappy for a while because he was the person who was going to succeed Mr. Ahern. Mr. Cowen succeeded him not in the best of times, which I think was what he expected, but in the worst of times. Nonetheless, that summer, that new Fianna Fáil Cabinet led by Brian Cowen effectively proceeded to party around the country in celebration of achieving office. I say this simply to highlight the differences between certain kinds of reality. There were things to celebrate. The country was richer than ever before and yet this appearance of riches and wealth was built completely on sand, particularly the model whereby people borrowed too much in order to pay for houses and to finance business ventures.

One does not need to be an economist to figure out that the way economics measures different things is highly inadequate. As accountants say about a balance sheet, it is literally a moment in time. When that moment passed, those economists and, in particular, various bankers used to come into this House used to say "Ah, but the fundamentals are sound" while the country fell apart around us. We had lost the capacity to explain, by means of normal economics, what was happening. Some time later, we could count the 330,000 people who lost their jobs but, of course, that was not done by the Department of Finance but by the lowlier Department of Social Protection because it did not have particular access to economic insights or economic control. Joseph Stiglitz, who used to - perhaps he still does - hold a part-time lecturing position in UCD, is a very distinguished American economist. In his very important book The Price of Inequality, which was published during those years, he used Ireland as a model on several occasions. He was sympathetic to the fact that our social welfare system, as with those of most other European countries, is completely redistributive. Without our social welfare system here, up to 60% of the Irish population probably would have fallen into deep poverty - that is, fallen off the cliff - as a consequence of the collapse. Instead, through redistributive transfers via the social welfare system, the levels of poverty hardly increased. In fact, Fianna Fáil had a fantastic economic argument in those days. It argued that if 300,000 people lost their jobs, society became more equal because the incomes of these people went down. The theory was that as a result- and one can figure it out by simple arithmetic - society became more equal because there were fewer people who were in the middle levels and were either somewhat better off or better off. This is the difficulty with economic analysis and it is why economists are often referred to as being two-handed - on the one hand and on the other hand. If they had three or four hands, they would keep going - all to offer different options but never to make decisions themselves. In respect of accounting, which to some extent economics is about, Joseph Stiglitz said that people in countries around the world now know that GDP per capitadoes not provide a good picture of what is happening to most citizens and how the economy is doing.

The front page of the business section of today's edition of The Irish Timesleads with a story about the ESRI calling for new national accounts to cope with multinational distortions. Kieran McQuinn, the head of the ESRI, suggested that the growth figures we have just seen are effectively a product of the extreme distortion of our national statistics by perhaps ten to 20 highly profitable multinational companies. I think we mostly all know the companies in question. The ESRI suggests that the real figure would be something like half of the suggested figure and that, in the future, real growth figures, as experienced by people across Ireland, would be in the order of 3% or 4% and not in the order of the 7% or 8% the current figures give as our answer to the question of how we are doing as a country. Trying to reach an agreement on how to count, be it from an economic or accounting point of view, is very important because it is on that basis that this country can borrow, which we need to do to be able to do in order to invest in all of the different areas in capital investment we need. It is on this basis that businesses will invest and employ so they need a reliable measure because they need to be able to make their economic decisions. Nonetheless, the system is inherently faulty.

During my time as Minister for Social Protection, I had many meetings with the ESRI because, together with the Department of Employment Affairs Social Protection, it carries out the only work in this area and has been doing so for some time. That is the social impact assessment that is carried out shortly after every budget to find out in broad social terms who are the likely winners and losers in the budget. That is based on the simulating welfare and income tax changes, SWITCH, model. The ESRI and people like Tim Callan acknowledge that this model is quite flawed. It is an attempt to measure in a way that does take into account factors such as how different sectors in society are doing. Lone parents and their children, particularly lone parents with some work, did particularly well out of the budgets of 2014, 2015 and 2016, especially the latter two, because family income supplement was increased very significantly. However, it is very difficult to capture that in the context of the way economic counting is done.

4 o’clock

I welcome the attempt to find a way of identifying genuine progress indicators, which is a good and reasonable objective. However, I am sceptical about how easy this is to explain. I will not repeat the stories here, but Lyndon Johnson, the former American President, had some great comments about politicians talking about economics and by and large he advised them not to do it. It is a nerdy science and a dismal science. It requires from politicians something close to the patience of Job to listen to it in detail and to try to marry it to the programmes that politicians want which is usually about building new schools, new roads, expanding ports and increasing the well-being of society.

The other issue we need to address is as follows. I will finish on this simple example. We have the switch model in which it is not possible to include, for instance, the value of a medical card. Many economists might not know in detail how important a medical card can be to a family. Irrespective of the side of the political spectrum they come from, almost everybody in this House understands the significance of a medical card. Does a person with an income of €10,000 without a medical card have the same wealth as another person with €10,000 in income but who has a medical card? The models are exactly the same, but in practice most of us in this House know that there is an important difference. That is the problem with our current measurement system. Irrespective of whether it is something very large or something very small, such as the impact on a household of a medical card, we are not at the moment able to measure it.

Deputy Howlin's proposal goes some way to trying to address some of these issues. I wish the Bill well. I would love to see it happening, but I think it may be a while yet before it does.

See this speech in context