# Dept of Finance warned government of dangerous policies



## onq (1 Feb 2011)

From the Sunday Business Post yesterday



> [broken link removed]
> 
> Report: Dept of Finance warned government of dangerous policies
> 30 January 2011 By Cliff Taylor
> ...


It seems I've been unfairly maligning our civil service in relation to them failing to do their job advising the government on the economic implications of government fiscal policy.

Happy to set the record straight.

ONQ.


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## horusd (1 Feb 2011)

That is bombshell stuff ONQ, and hardly a suprise. I wonder if Ahern or Cowan, or now Martin was approached for a response  & explanation from  Cliff Taylor?  This is surely a critical issue in the election but it seems to have gotten little airtime so far? I did hear an item on Newstalk with Eamon Dunphy on Sunday. Not sure if it related to this report, but one of the commentators (McWilliams?) suggested that the Dept of Finance was fighting a "rearguard" action to exhonarate themselves in advance of a new gov.t & motivated solely by self-preservation. But given that this is an independent report, it seems hard to justify this respecting this particular report. Given that  directors can be held accountable for reckless trading, surely politicians should  be held accountable for wreckless governing?


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## rustyjack (20 Feb 2011)

*bombshell stuff*

hi, 
for me, this is one of the key points if not the key point in the whole election,.
ff are saying that fg and labour were also promoting low tax high spend during the celtic bubble.
does anyone know if the department of finance advice re budgetary policy during the celtic bubble would have been available to the opposition or was it for government eyes only?

thanks,
rusty


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## Brendan Burgess (20 Feb 2011)

David McWilliams has some cheek.

Check out 

In McWilliams own words: 



> _The  officials in the Department were (by then) also advocating a  guarantee  of people's deposits but only to a certain level. However, I  argued  because the Irish banks' funding had become so unstable, if we  didn't  guarantee the funding as well as the deposits, the banks would  come  crashing down and you would have had to come up with the money   immediately for people's deposits. The whole point of a guarantee is   that you want to avoid paying out right away.
> ...
> __but he[Brian Lenihan] still wasn't convinced and,  from what I could gather, his  officials in the department were dead set  against a full guarantee_


So the civil servants were dead set against the McWilliams Blanket Guarantee of the bondholders as well as the depositors.  But Brian Lenihan acted on the advice of McWilliams. 

We slag off the public service very easily. They are not really in a position to defend themselves publicly. They can't come out and say "We advised the Minister not to do x but he rejected our advice".  

Brian Lenihan and the government were faced with a horrible choice. He took the advice of McWilliams against the advice of his own civil servants and we are all paying for that now. 

But McWilliams has the solution again now. Let's have a referendum and refuse to pay out debts.


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## rustyjack (20 Feb 2011)

Brendan Burgess said:


> David McWilliams has some cheek.
> 
> Check out
> 
> ...



wow.. did not know that mcwilliams was the brains behind the bank guarantee as enacted by lenihan. he has been advocating for some time to "haircut/burn the bondholders/convert bonds into equity" so i wonder was he advocating a short term guarantee until such time that the bondholders could be brought around the table and forced to take a haircut?
and now, the ecb are preventing this as they are worried about contagion?


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## Smart_Saver (21 Feb 2011)

Its very strange how this has not been brought up yet. Your OP Onq was written on Feb 1st yet I haven't seen any of this even mentioned on RTE or TV3. Maybe they're keeping it for this week but surely its a little late for that now for the election as I presume most people have made up their minds. 
As to whether FG or Lab knew about it, the OP specifies it was a confidential govt report so presume they didn't.


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## Brendan Burgess (1 Mar 2011)

Wright's report has just been published 




> An independent review of the Department of Finance over the past ten  years has found that it did warn about Government budgetary polices and  the property boom, but that any warnings were 'overwhelmed' by political  and other pressures.
> 
> 
> The review,  commissioned by Finance Minister Brian Lenihan, was headed by Rob  Wright. He was most recently Canada's deputy minister of finance
> ...


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## Sunny (1 Mar 2011)

So pretty much confirms that social partnership was simply bought.


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## RonanC (1 Mar 2011)

Sunny said:


> So pretty much confirms that social partnership was simply bought.


 
What it shows to me is that Civil Servants in the department were doing their job and doing it correctly, but were blocked at all times by Government who had their own mandate and listened to interest groups instead and the social partners were possibly involved but I would imagine the construction industry were the closest to the Cabinet table.


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## AlbacoreA (1 Mar 2011)

...The dogma that no one told them, is looking a bit thin now...


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## horusd (1 Mar 2011)

RonanC said:


> What it shows to me is that Civil Servants in the department were doing their job and doing it correctly, but were blocked at all times by Government who had their own mandate and listened to interest groups instead and the social partners were possibly involved but I would imagine the construction industry were the closest to the Cabinet table.


 
+ 1. And the civil servants were fed to the media as the bad boys by politicians who told us they always followed "the best advice". This was a disgrace. I certainly felt led to believe that it was the Dept of Finance who cocked up so spectacularly.


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## Sunny (1 Mar 2011)

RonanC said:


> What it shows to me is that Civil Servants in the department were doing their job and doing it correctly, but were blocked at all times by Government who had their own mandate and listened to interest groups instead and the social partners were possibly involved but I would imagine the construction industry were the closest to the Cabinet table.



I never said the civil servants weren't doing their jobs. The report specifically said that the budgety process was overwhelmed by social partnership and government programmes to increase spending and cut taxes. Blaming big bad developers is nice and populist but the construction industry werent the ones calling for huge increases in things like social welfare. The construction industry was part of social partnership as was IBEC and these bodies are just as guilty as politicians and trade unions for short sighted leadership.


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## RonanC (1 Mar 2011)

Sunny said:


> I never said the civil servants weren't doing their jobs. The report specifically said that the budgety process was overwhelmed by social partnership and government programmes to increase spending and cut taxes. Blaming big bad developers is nice and populist but the construction industry werent the ones calling for huge increases in things like social welfare. The construction industry was part of social partnership as was IBEC and these bodies are just as guilty as politicians and trade unions for short sighted leadership.


 
Sorry I misquoted you on that, I didnt mean to say you never said the civil servants weren't doing their jobs. I was saying thats how I read the report, that the civil servants were in fact doing their jobs, but ignored at all times. 

I do agree about the social partners involved in regards to pay rises, social welfare increases and so on, but I stand firm over the construction industry. They lobied and lobied for tax exemptions here there and everywhere and the economy was allowed to be built on very shaky foundations. Who was in the Galway Tent? Who was taking back handers for re-zoning of lands? Who was giving massive tax breaks for developers?

Also, the increases in public spending were facilitated by the taxes the construction industry generated, which in itself should have set warning lights flashing in every Government Buildings.


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## csirl (2 Mar 2011)

> 3.2.3 The Panel reviewed in detail the annual June Memoranda to Cabinet on Budget
> Strategy. Generally speaking, we found that advice prepared by the Department for Cabinet
> did provide clear warnings on the risks of pro-cyclical fiscal action. These views were
> signed-off by the Finance Ministers of the day who would submit the Memoranda to
> ...


 
This extract from the report should be a bombshell - turns out that the Department was giving the best advice.

Interestingly the report goes on to say that there are not enough economists in the Department - a lot of the economic work is being done by generalist civil servants. Given that the Department outperformed the best Irish and International economists, it makes you wonder whether there is any value to hiring economists and/or seeking their advice. If the Departments predictions are the best available, dont upset it by introducing economists.


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## Chris (2 Mar 2011)

csirl said:


> This extract from the report should be a bombshell - turns out that the Department was giving the best advice.
> 
> Interestingly the report goes on to say that there are not enough economists in the Department - a lot of the economic work is being done by generalist civil servants. Given that the Department outperformed the best Irish and International economists, it makes you wonder whether there is any value to hiring economists and/or seeking their advice. If the Departments predictions are the best available, dont upset it by introducing economists.



I think this perfectly highlights the problem with government hired economists and their "advice". As an economist hired by government you are hardly going to say that what the organisation paying your bills is doing is wrong or detrimental. Just look at how the government treated economists that were highlighting the impending economic collapse and weren't on the government books; ridicule and contempt were thrown at them.

I haven't read the full report, but it does not surprise me that people with no economic background now look like better economists than the Keynesian ilk that are still being entertained to this day.


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## Brendan Burgess (2 Mar 2011)

csirl said:


> Given that the Department outperformed the best Irish and International economists, it makes you wonder whether there is any value to hiring economists and/or seeking their advice. If the Departments predictions are the best available, dont upset it by introducing economists.



That had occurred to me as well. I am always astonished by the confidence which economists have in their forecasts and their solutions when their general record has been so poor. 

Brendan


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## Chris (2 Mar 2011)

Brendan Burgess said:


> That had occurred to me as well. I am always astonished by the confidence which economists have in their forecasts and their solutions when their general record has been so poor.



I think it is important to distinguish economists by their economic school of thoughts. Economists of the Austrian School have been incredibly accurate in their predictions, especially in the incredibly large busts of the last 15 years.


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## Padraigb (2 Mar 2011)

Chris said:


> ... it does not surprise me that people with no economic background now look like better economists than the Keynesian ilk that are still being entertained to this day.



It might be overstating it to say that the DoF comprises people with no economic background. There are people there with qualifications in economics, although I don't know how many. In addition, many of the generalists are quite bright people who might not have formal credentials in economics, but have the intellectual capacity and the motivation to become well-versed in economics.

On the other side of the equation, many of those who are seen, and taken seriously, as informed commentators are not formally qualified in economics. The same goes for our politicians. Most of those who have held economic ministries are not formally qualified in economics. Offhand, I can think of only one Minister for Finance who was a qualified economist (Alan Dukes).


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## boris (2 Mar 2011)

Wife is an economist but not working in that area.

She always tells me that economists have predicted 5 out of the last 2 recessions.


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## Firefly (2 Mar 2011)

Chris said:


> I think it is important to distinguish economists by their economic school of thoughts. Economists of the Austrian School have been incredibly accurate in their predictions, especially in the incredibly large busts of the last 15 years.



Hi Chris, Do you have any links to this? I'd be interested in learning more.. Thanks, F.


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## liaconn (2 Mar 2011)

Padraigb said:


> It might be overstating it to say that the DoF comprises people with no economic background. There are people there with qualifications in economics, although I don't know how many. In addition, many of the generalists are quite bright people who might not have formal credentials in economics, but have the intellectual capacity and the motivation to become well-versed in economics.


 
I would agree with that. A lot of 'economics' is really just a practical grasp of what's going on domestically and globally, allied with the intelligence to analyse it and come up with good advice. 

I heard, from the horses mouth, a couple of years ago that officials in the Dept had been warning Govt for ages of the dangers of their economic policies and were being brushed aside. I am very glad those civil servants have been vindicated. They had effectively been slandered by short sighted, greedy, power hungry FFers.


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## csirl (2 Mar 2011)

Padraigb said:


> It might be overstating it to say that the DoF comprises people with no economic background. There are people there with qualifications in economics, although I don't know how many. In addition, many of the generalists are quite bright people who might not have formal credentials in economics, but have the intellectual capacity and the motivation to become well-versed in economics.


 
Maybe this is the secret of success - hire bright people with intellectual capacity who have not been infected with the type of group think you seem to have with the professional economists who all think the same because they have been trained in the same manner.


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## Shawady (3 Mar 2011)

AlbacoreA said:


> ...The dogma that no one told them, is looking a bit thin now...


 
+1.
It also puts a big hole in the arguement that the opposition were also screaming for more spending. In fairness to FG/Lab, they hadn't got access to the advice from DoF and if they were in government may not have over ruled them.


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## Shawady (3 Mar 2011)

Sunny said:


> I never said the civil servants weren't doing their jobs. The report specifically said that the budgety process was overwhelmed by social partnership and government programmes to increase spending and cut taxes. Blaming big bad developers is nice and populist but the construction industry werent the ones calling for huge increases in things like social welfare. The construction industry was part of social partnership as was IBEC and these bodies are just as guilty as politicians and trade unions for short sighted leadership.


 
I agree with a lot of that this but when people talk about social partnership they rarely think about groups like CORI or St Vincent De Paul.
I haven't read the report yet but would be interested in what is says about the period 2004-2008. The increase in the social welfare budget in this period was astronomical and is a major factor in our deficit at the  moment, even more so than the public sector pay bill.


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## Chris (3 Mar 2011)

Padraigb said:


> It might be overstating it to say that the DoF comprises people with no economic background. There are people there with qualifications in economics, although I don't know how many. In addition, many of the generalists are quite bright people who might not have formal credentials in economics, but have the intellectual capacity and the motivation to become well-versed in economics.


Hi Pdraigb, what I didn't mean to say was that you have to have an economic education background in order to be a credible economist; quite the opposite actually, so appologies if I wasn't clear about that. I think that the less formal mainstream Keynesian education has polluted a person head, the better. The less a person is motivated by winning government contracts, the less that person will say what governments want to hear. And it is precisely these economists, i.e. those that expose problems with government policies, that should be listened to most. Instead what generally happens, and has been now exposed through recent report, is that governments pay for "economic consultants" to tell them what they want to hear, which is that they can steer the economy by pushing buttons, pulling levers and pressing pedals, while ignoring and ridiculing those that oppose them.



Firefly said:


> Hi Chris, Do you have any links to this? I'd be interested in learning more.. Thanks, F.



The two most outspoken Austrian Economists before and during the current crisis were Marc Faber and Peter Schiff; there are some very good youtube videos from the pre-crisis years.
Some with less media coverage were Mark Thornton and Frank Shostak:
http://mises.org/daily/1177
http://mises.org/journals/scholar/Thornton13.pdf

You could also look up some writings of FA Hayek and Ludwig von Mises during the 1920s which predicted the Great Depression from an Austrian point of view. Some of Mises' essays have been made available as a free PDF book: http://mises.org/books/causes.pdf
However, I would suggest looking at this after becoming more familiar with the general ideas of Austrian economics and the Austrian Business Cycle Theory. Here are some basic introductions:
http://www.youtube.com/watch?v=wCmwRN5gjOo
http://mises.org/daily/672

It's all extremely fascinating to see how the same mistaken policies made during the 1920s and 1930s are now being made on almost a global level.


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## liaconn (3 Mar 2011)

This report has apparently been sitting on Brian Lenihan's desk for weeks. How on earth can he get away with keeping it from public knowledge until after he has been safely re elected? I think he should resign.


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## Complainer (3 Mar 2011)

liaconn said:


> This report has apparently been sitting on Brian Lenihan's desk for weeks. How on earth can he get away with keeping it from public knowledge until after he has been safely re elected? I think he should resign.


Indeed - this is a huge issue.


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## Shawady (3 Mar 2011)

liaconn said:


> This report has apparently been sitting on Brian Lenihan's desk for weeks. How on earth can he get away with keeping it from public knowledge until after he has been safely re elected? I think he should resign.


 
I think there will be more of this type of thing to come. When you think of all the areas where money was wasted in the Bertie years, it would be interesting to see what the government was advised.
The new coalition might spill the beans on them.


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## Sunny (3 Mar 2011)

The report wasn't critical of Brian Lenihan. No skin off his nose if it was critical about the department over the past 10 years. He has only been in there for a couple of them and by then it was too late.


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## Complainer (3 Mar 2011)

Sunny said:


> The report wasn't critical of Brian Lenihan. No skin off his nose if it was critical about the department over the past 10 years. He has only been in there for a couple of them and by then it was too late.


Technically true - but I'd bet a fiver that he wouldn't have held his seat if this had come out before the election.


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## liaconn (3 Mar 2011)

Sunny said:


> The report wasn't critical of Brian Lenihan. No skin off his nose if it was critical about the department over the past 10 years. He has only been in there for a couple of them and by then it was too late.


 
No, but it was very critical of his party (not the Department) which would have affected votes for FF.


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## Firefly (3 Mar 2011)

Thanks Chris,

I've watched a few of the Marc Faber clips on Utube alright and they're very interesting. Will check out the others, thanks. 

Firefly.


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## Bronte (3 Mar 2011)

This report by a civil servant on civil servants was based on what exactly?  On all or selective documents made available to that civil servant by the civil servants whose advise is being checked.  Wonder how much went into the shredders.  

Would those civil servants hell bent on managing finances correctly be the same ones who managed to overturn the cuts to their own salaries recently?


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## Complainer (3 Mar 2011)

Bronte said:


> This report by a civil servant on civil servants was based on what exactly?  On all or selective documents made available to that civil servant by the civil servants whose advise is being checked.  Wonder how much went into the shredders.


This is a scurrilous allegation, made on absolutely no evidence whatsoever. The authors are two international former heads of Dept Finance in their own countries, and one Irish former Sec Gen, not of Finance. They are smart people, and even in anyone tried to pull the wool over their eyes, they would have seen it. You should really withdraw this allegation.


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## liaconn (3 Mar 2011)

Bronte said:


> This report by a civil servant on civil servants was based on what exactly? On all or selective documents made available to that civil servant by the civil servants whose advise is being checked. Wonder how much went into the shredders.
> 
> Would those civil servants hell bent on managing finances correctly be the same ones who managed to overturn the cuts to their own salaries recently?


 
It was not a report by Irish civil servants as you seem to so ignorantly assume. Also, civil servants are suffering from this recession too you know, in fact a lot more than some people are. Why would they cover up for Dept of Finance officials if they had created the problem. If you're going to make a post like that contemptible one above, at least get your facts right.

Your post clearly indicates that you are just determined to bash (not to mention slander) civil servants no matter what the situation. Hardly gives you much credibility.


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## Bronte (3 Mar 2011)

I will not withdraw my observation.  I know it was not an Irish civil servant.  I'm just making an observation which I'm perfectly entitled to do.  

A report is only as good as what's provided to the person making the report.

If the report is true than no less than 3 Ministers deliberately set about bankrupting Ireland.    And if that is true, why had none of the bright and intelligent civil servants during that time put that information in the public domain.  They surly owe more of an allegiance to the Irish state and thereby it's people than to politicians whims.


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## liaconn (3 Mar 2011)

It was not an 'observation', it was a nasty little statement with no basis whatsoever. You are deliberately implying that civil servants witheld files and documents from the investigators. Are you also saying that the investigators made up the statement that civil servants had warned the Govt repeatedly about the dangers of their policies? How would withholding documents facilitate that??


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## Berni (3 Mar 2011)

Bronte said:


> why had none of the bright and intelligent civil servants during that time put that information in the public domain.


Because they have signed the Official Secrets Act, and probably didn't fancy 6 months in Mountjoy


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## Bronte (3 Mar 2011)

liaconn said:


> It was not an 'observation', it was a nasty little statement with no basis whatsoever. You are deliberately implying that civil servants witheld files and documents from the investigators. Are you also saying that the investigators made up the statement that civil servants had warned the Govt repeatedly about the dangers of their policies? How would withholding documents facilitate that??


 
I am not saying that the conclusions are incorrect, and so far I've only heard what the media has chosen to highlight.  

My point is that after the fact it's easier to change the emphasis on certain things.  I don't know if the Minister for Finance was told for example here is 10 ways to go ranked in order of danger to the economy.  Or was the Minister given one document that says don't do this because it will damage the economy and then the Minister ignored that advice.  

It wouldn't be beyond the realms of possibility that as civil servants are in the hot seat now to justify what they did advise at the time that they show only that which they want to show.  But you all seem to think it's a fantastic report that vindicates the civil servants and that's it end of story.  

To the post about the official secrets act.  Surely one of those top intelligent guys in the civil service would have found a way to get out the information that the government was ruining the economy.  A person loyal to their country could have released the documents and resigned etc.  Or leaked the documents to a newspaper.


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## liaconn (3 Mar 2011)

Bronte said:


> I am not saying that the conclusions are incorrect, and so far I've only heard what the media has chosen to highlight.
> 
> My point is that after the fact it's easier to change the emphasis on certain things. I don't know if the Minister for Finance was told for example here is 10 ways to go ranked in order of danger to the economy. Or was the Minister given one document that says don't do this because it will damage the economy and then the Minister ignored that advice.
> 
> ...


 
I presume if a report came out 'vindicating' some of the negative stuff that's said about civil servants you would be equally sceptical?  I think not. By your logic, absolutely no report could be unbiased and honest.


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## JoeB (3 Mar 2011)

Economic treason, as Eamon said.

Bertie and Co should be charged with treason. Have the Guards investigated this?

It wouldn't be acceptable if politicions ignored the advice of doctors, and decided not to make a vaccine available, and then people died.

I agree, Lenihan should resign.


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