# Is Ireland really the most prosperous country in Europe?



## 24601 (9 Feb 2021)

The Central Bank published an interesting Economic letter in the past week written by former Governor, Patrick Honahan. It's very short but is very easy to read and serves as a useful illustration of something that we all knew already.  The letter can be viewed *here*. 

He looks at the distortions the multinationals have on GDP/GNI and HDI and argues that we really rank somewhere between 8th and 12th for prosperity in the EU and 21st internationally. I'm a little surprised that the ranking could be as low as 12th in the EU but the logic seems  sound enough. 

From the preamble:
_The well-known distortions affecting Ireland’s GDP complicate international comparisons. Ireland is a prosperous country, but per capita GDP data mislead by placing it second only to Luxembourg in the EU. Other measures, such as the Human Development Index, are also marred. Modified data provide an indication of the extent of the re-ranking that it is warranted._


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## Jim2007 (9 Feb 2021)

12th in the richest club in the world, poor you, how sad for you.


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## meepman (9 Feb 2021)

24601 said:


> The Central Bank published an interesting Economic letter in the past week written by former Governor, Patrick Honahan. It's very short but is very easy to read and serves as a useful illustration of something that we all knew already.  The letter can be viewed *here*.
> 
> He looks at the distortions the multinationals have on GDP/GNI and HDI and argues that we really rank somewhere between 8th and 12th for prosperity in the EU and 21st internationally. I'm a little surprised that the ranking could be as low as 12th in the EU but the logic seems  sound enough.
> 
> ...



You would never think Ireland is that wealthy when  living outside dublin with hardly any services.  Do all the usa businesses here distort it a tad?


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## Purple (10 Feb 2021)

24601 said:


> The Central Bank published an interesting Economic letter in the past week written by former Governor, Patrick Honahan. It's very short but is very easy to read and serves as a useful illustration of something that we all knew already.  The letter can be viewed *here*.
> 
> He looks at the distortions the multinationals have on GDP/GNI and HDI and argues that we really rank somewhere between 8th and 12th for prosperity in the EU and 21st internationally. I'm a little surprised that the ranking could be as low as 12th in the EU but the logic seems  sound enough.
> 
> ...


Great link, thanks. 
That's a very striking graph on page 3 and a conclusion that is hard to disagree with.
It also puts public spending as a proportion of real economic output (relative to GNI*) and housing costs, both to buy and rent, into perspective. We are a rich country but the areas of the economy and State provision not open to international competition are very expensive and deliver bad value for money. This has a direct impact on the lives of ordinary people and creates the feeling of the "squeeze" for those in the middle.


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## 24601 (10 Feb 2021)

meepman said:


> You would never think Ireland is that wealthy when  living outside dublin with hardly any services.  Do all the usa businesses here distort it a tad?



As per the Letter the key distortion is MNCs. We knew that already but this attempts to show just how much of a distortion they account for. I do agree that many of regions are a lot less wealthy than Dublin, and that a stroll around most regional towns and places like Limerick and Waterford City present a very different picture than the narrative we are fed.


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## joe sod (10 Feb 2021)

Leprechaun economics - Wikipedia
					






					en.m.wikipedia.org
				



A good explanation of the term leprechaun economics above coined by Paul krugmann economist to describe whats going on in irish economy. The big distortion between GDP and GNP caused by the gravitational fields of the giant multinationals on our relatively small economy otherwise. The international attention and ridicule provoked the CSO to invent this new statistic GNI *.


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## Purple (10 Feb 2021)

joe sod said:


> Leprechaun economics - Wikipedia
> 
> 
> 
> ...


I wonder would Krugman have used a similarly racist term to describe the economics in an African country?
I do know he's the guy who said that there would be massive mortgage defaults here and indeed that Irish borrowers should default. To me he's in the McWilliams Stable of economists; very interesting to listen to with simple solutions to complex problems but not great with facts or reality.  He's also not the first person to point out the distorting effect MNC's have on GDP and GNP. The Economist beat him to it by nearly a decade.


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## 24601 (10 Feb 2021)

joe sod said:


> Leprechaun economics - Wikipedia
> 
> 
> 
> ...



God, that doesn't read very well!


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## Purple (10 Feb 2021)

24601 said:


> God, that doesn't read very well!


I wonder would he have used the N word to describe the Nigerian economy?


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## 24601 (10 Feb 2021)

Purple said:


> I wonder would he have used the N word to describe the Nigerian economy?



I don't think it's the same thing, and it's definitely not on the same level of offence. I think it's more about drawing a parallel between what he sees as the mythical nature of Irish GDP and the mythical nature of leprechauns, which are associated with Irish folklore abroad, and particularly by Americans (some of whom believe they are real!!). 

But back to the point, I agree with your view of Krugman as being from the McWilliams school of economists. Indeed, McWilliams also has an irritating penchant for creating awful buzzwords and phrases such as the "breakfast roll man", or his more recent "pandession".


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## joe sod (10 Feb 2021)

We just need to be realistic about the "actual " irish economy and not get offended by what is said internationally. Sometimes we delude ourselves especially those that work in the government bubbles. We might have rich country cash flows but we are certainly far from Switzerland or Luxembourg in being a rich country.
As for McWilliams I don't pass too much remarks on his latest thinking but he certainly nailed it with "breakfast roll man" he did exist, sometimes you have to cut through the financial speak to the real world,  and "breakfast roll man" was a phenomenon.


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## Purple (10 Feb 2021)

24601 said:


> I don't think it's the same thing, and it's definitely not on the same level of offence. I think it's more about drawing a parallel between what he sees as the mythical nature of Irish GDP and the mythical nature of leprechauns, which are associated with Irish folklore abroad, and particularly by Americans (some of whom believe they are real!!).


Maybe we should accuse him of cultural appropriation and cancel him!


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## Purple (10 Feb 2021)

joe sod said:


> We just need to be realistic about the "actual " irish economy and not get offended by what is said internationally. Sometimes we delude ourselves especially those that work in the government bubbles. We might have rich country cash flows but we are certainly far from Switzerland or Luxembourg in being a rich country.


I agree. There is some "old money" in this country but very little though older people who bought property before the last bubble and those with pre-95 State pensions hold most of the real wealth. The ability of young people to accumulate wealth is severely curtailed by high accommodation costs and high taxes, coupled with the almost complete lack of taxation on wealth, in particular property wealth. That is where the focus of the Government's longer term financial planning should be. I think most people with young families would be happy to pay for GP visits if their mortgage or rent was halved.


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## NoRegretsCoyote (10 Feb 2021)

Purple said:


> coupled with the almost complete lack of taxation on wealth, in particular property wealth.



This is not true. There is CGT of 33% on capital gains. There has been no indexation since 2003, so even if your portfolio grows by inflation of 2% a year you will pay CGT on disposal. In effect it's a tax of about 0.6% a year on wealth.

There is also LPT on property of 0.18% a year. This is not high, but I wouldn't call it an "almost complete lack".

Most Irish billionaires are non-resident, which I doubt is an accident


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## Purple (10 Feb 2021)

NoRegretsCoyote said:


> This is not true. There is CGT of 33% on capital gains. There has been no indexation since 2003, so even if your portfolio grows by inflation of 2% a year you will pay CGT on disposal. In effect it's a tax of about 0.6% a year on wealth.
> 
> There is also LPT on property of 0.18% a year. This is not high, but I wouldn't call it an "almost complete lack".


About 80% of wealth in Ireland is in pensions and the primary residence. Capital that is subject to capital gains tax accounts for about 10% of total wealth and that is concentrated amongst the top 10% of the wealthy. Most people accumulate wealth in pensions and their home. That is real tangible wealth and frees up income to provide a comfortable and prosperous lifestyle.
Those who are now seeking to accumulate wealth are having to spend far more of their income to acquire the same home and get far less return on their pension if they are a State employee despite actually contributing more to it.



NoRegretsCoyote said:


> Most Irish billionaires are non-resident, which I doubt is an accident


 Then they are not Irish Billionaires for the purposes of this conversation.


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## NiallSparky (10 Feb 2021)

Purple said:


> To me he's in the McWilliams Stable of economists; very interesting to listen to with simple solutions to complex problems but not great with facts or reality.



In fairness to Krugman, he's won a nobel prize for his work in Economics, specifically in relation to Trade. He's among the living economists with most citations in economic textbooks and journals. He has more to him than simple solutions and is a completely different league to McWilliams.

To suggest he's not great with the facts or reality of international trade is pretty silly.


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## Purple (10 Feb 2021)

NiallSparky said:


> In fairness to Krugman, he's won a nobel prize for his work in Economics, specifically in relation to Trade. He's among the living economists with most citations in economic textbooks and journals. He has more to him than simple solutions and is a completely different league to McWilliams.


Yasser Arafat, Ang Sung Su Chi, António Egas Moniz (the man who devised the lobotomy), Henry Kissinger and Fritz Haber, the man who developed Chlorine Gas for use in the First World War, received Nobel Peace Prizes. 
Sometimes they get it wrong. Sometimes people who are good at one thing think their expertise extends further than it actually does. 



NiallSparky said:


> To suggest he's not great with the facts or reality of international trade is pretty silly.


Krugman may be an expert on international trade but his knowledge of the Irish economy is lacking. He was in the "There will be massive defaults" cohort. He also didn't realise that Irish mortgages were not guaranteed by the State. Kind of a big blooper in my view.


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## NoRegretsCoyote (10 Feb 2021)

Purple said:


> Capital that is subject to capital gains tax accounts for about 10% of total wealth and that is concentrated amongst the top 10% of the wealthy.


So......wealthy people have their wealth taxed, right?




NiallSparky said:


> To suggest he's not great with the facts or reality of international trade is pretty silly.



99% of what Krugman writes about these days has nothing to do with theoretical models of international trade. He can write about what he likes of course, but people tend to over-credit him with expertise on things he looks at for 30 minutes every few years (like Irish economic statistics).


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## Purple (10 Feb 2021)

NoRegretsCoyote said:


> So......wealthy people have their wealth taxed, right?


 No, 80% of wealth is not taxes. The proportion of wealth that the top 10% hold in capital assets excluding their home and their pension is taxed at 33% if they sell it. I do agree that the removal of indexation is a big hit.


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## fidelcastro (11 Feb 2021)

NoRegretsCoyote said:


> This is not true. There is CGT of 33% on capital gains. There has been no indexation since 2003, so even if your portfolio grows by inflation of 2% a year you will pay CGT on disposal. In effect it's a tax of about 0.6% a year on wealth.
> 
> There is also LPT on property of 0.18% a year. This is not high, but I wouldn't call it an "almost complete lack".
> 
> Most Irish billionaires are non-resident, which I doubt is an accident


Lpt tax level is a joke here. Level is very low compared to Paye


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## Purple (11 Feb 2021)

fidelcastro said:


> Lpt tax level is a joke here. Level is very low compared to Paye


Broadly speaking we tax wealth creation but not wealth retention. That's hardly a model to either ecourage hard work and creativity or build an egalitarian society.


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## cremeegg (11 Feb 2021)

meepman said:


> You would never think Ireland is that wealthy when  living outside dublin with hardly any services.  Do all the usa businesses here distort it a tad?





24601 said:


> I do agree that many of regions are a lot less wealthy than Dublin, and that a stroll around most regional towns and places like Limerick and Waterford City present a very different picture than the narrative we are fed.



Really!

Dublin's north inner city is a drugged out wasteland, buildings sprouting buddelia on every side, crime statistics way beyond anything else in the country.

Limerick and Cork are a paradise by comparison, plenty of employment and much cheaper housing, less drugs and far less crime.

While this is not directly connected to the poverty in Dublin, it certainly makes for a far better standard of living.


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## NoRegretsCoyote (12 Feb 2021)

cremeegg said:


> Limerick and Cork are a paradise by comparison, plenty of employment and much cheaper housing, less drugs and far less crime.



Dublin does have the highest average incomes in the country.

My (amateur) view is that Cork has the best living standards of any city in Ireland when you adjust for wages and cost of housing.


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## kinnjohn (12 Jun 2021)

Krugman, Yellen's New Alliance Against Leprechauns  not going down well I see,


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## Gordon Gekko (12 Jun 2021)

NoRegretsCoyote said:


> My (amateur) view is that Cork has the best living standards of any city in Ireland when you adjust for wages and cost of housing.


Yes, it’d be a great place were it not for the people.


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