Colm McCarthy in the Sindo

Colm McCarthy’s latest includes a non-responsive response to Morgan Kelly. He says the Kelly proposal is impractical because it is unilateral, then he proposes his preferred just-as-unilateral action:

But Prof Kelly's prescription is less convincing. He wrote: "National survival requires that Ireland walk away from the bailout. This in turn requires the Government to do two things: disengage from the banks, and bring its budget into balance immediately." The budget cannot be balanced overnight, although it should certainly be addressed far more rapidly than the Government intends. This should start with an emergency Budget before the Dail adjourns in July. Nor can we walk away from the sole available lender, but it is surely time to cut out payments to unguaranteed and subordinated bank bondholders.

If the EU and ECB want to pay them the €20bn still outstanding, that is their affair. Our Government needs to explain that Ireland cannot be expected to place its sovereign bondholders in further jeopardy in pursuit of a Band-aid solution to the European banking crisis.

As I understand the situation, if we cut payments to unguaranteed senior bondholders, that is tantamount to walking away from the sole available lender. Michael Noonan can explain until he is blue to the top of his shiny dome. The EU and ECB aren’t listening.

Or am I wrong? Is there some reason to suppose that we can get away with cutting payments as long as we supply an explanation? Believe me I would dearly love to be wrong. But I suspect Daniel Davies is closer to the truth with his pithy statement of the EU's approach to Ireland: It puts the lotion on its skin or it gets the hose again.

Concerning Correlation

I write this post with a certain trepidation, since my purpose is to explain to an economics professor how tricky it is to judge correlation by eye from a scatterplot. This calls to mind an old New Statesman competition, in which readers were invited to express a familiar proverb in verse. The winning entry was:

Teach not thy parent’s mother to extract
The embryo juices of the bird by suction.
The good old lady can that feat enact,
Quite irrespective of your kind instruction.

Anyway, here’s my illustration of the problem. Take a look at the far-from-random scatterplot below. (There are 301 observations.) Now – no peeking – guess the correlation coefficient.

If you correctly guessed that the answer is 0.93 then I suspect your peripheral vision kicked in.

John Waters, VSP

The thoughts of John Waters, on Friday 18th March:

Compared with Saddam, Gadafy is a sitting duck, hated by his people far more than he is feared by them, and elaborately surrounded by female bodyguards as though further to taunt the West with its own spinelessness and self-imposed impotence.

For several weeks now he has been there for the taking, but the western powers have prevaricated and procrastinated, tabled resolutions and debated the imposition of a pointless no-fly zone, hoping for an outcome – any outcome – that would not involve them having to do anything.

Barack Obama is the embodiment of this culture of hypocrisy and childishness: a black president who is president because he is black, a walking advertisement for left-liberal vanity, a man who can match, word for word, the verbal flatulence of an era characterised by delusion, cowardice and empty talk. A fortnight ago, when Gadafy was still vulnerable, Obama loudly declared that the Libyan leaders “must go”, but since then he has done precisely nothing to enable such an outcome.

It’s a pity he doesn’t write for the WaPo. The Sadlynauts could have such fun.

Election Reflections

Ah, the grim satisfactions of democracy! Finally we get to kick the bastards out. And we gave them a pretty good kicking too, though certainly no more severe than they deserved. I live in Dublin South-East. I gave my first preference to an independent, Paul Sommerville, who did rather better than I expected. I thought I was just helping him to save his deposit, but in the event he saw off John Gormley and was the second-last candidate to be eliminated. I gave my second preference to Kevin Humphreys of Labour, not because I’m a natural Labour voter but because they voted against the disastrous bank guarantee. But, says Vincent Browne, they voted against it for the wrong reason! Who cares? A ballot-paper doesn’t enable you to spell out your thoughts on policy. All you can do is reward those who vote well and punish those who vote badly.

While I am a naturally vengeful voter, I’m a bit sorry for Chris Andrews. He seems a nice-enough guy. The penalty for belonging to a shitty party was waiting through ten counts before losing his seat. It’s not the death of a thousand cuts but it must hurt all the same.

Nick Rowe’s Critique in Pictures

Nick Rowe has devoted umpteen blog posts to explaining why he thinks some Keynesian economists go horribly wrong by neglecting to stress that their ideas are set in the context of a monetary exchange economy. On the dubious principle that a picture is worth a thousand words and because creating diagrams is where I have comparative advantage over Nick, here’s what he is saying.

If you need me to explain the first picture you’re not interested in economics so stop reading now. It’s here just to set the scene: when all we need is two dimensions then we just draw a triangular budget set and an indifference curve.

But to understand Keynesian economics we need a minimum of three dimensions, so the budget set is bounded by a plane. If that’s the only constraint then the optimum is the point where the plane is tangent to the best attainable indifference surface, which is not shown; imagine it as a shape like a satellite dish facing out from the origin. (I have indicated where I disagree with Nick by marking the vertical axis “Treasure” whereas he would undoubtedly mark it “Money”. But that’s another story. I’ll call it money anyway.)

So far so Walrasian. We go Keynesian and repeal Walras’ Law by introducing a preset money wage (and possibly goods price also) and rationing in the labour market, so that the household is compelled to consume more leisure than it desires:

Finally, Nick Rowe’s move: we let Walras re-enter though the back door by allowing workers to barter with employers, selling their brewing skills for beer:

Households are still rationed, so the end result is not quite Walrasian, but the rationing is confined to the market for assets.

[Edited to fix the perspective in the third picture.]