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[00:00:08]

Hello and welcome to The Stand with Eamon Dunphy. The stand is proudly supported by Tesco at Tesco, our exclusive house for over sixty fives. Family carers and extremely medically vulnerable customers are every weekday, Monday to Friday, up to nine a.m. Health care and emergency services have priority access at all other times now, more than ever, every little helps. Now, we have found over the last fortnight that we have taken several steps backwards in our endeavours to suppress the coronavirus and now we have a major problem.

[00:00:51]

And that may entail, according to the minister for Health, another lockdown. This is a scenario that will terrify workers, people who own businesses and indeed everybody who's concerned for the welfare of the country to discuss the consequences. Now, I'm joined by Jim Power, one of our leading economists who knows very much what's going on in the in the economy and what we are facing. And I'm talking here about the ordinary worker and indeed people with small and medium businesses who aren't having a good time.

[00:01:34]

Jim, thank you very much for joining us. I know that the figures for the last quarter have just been published. This is retail sales figures, I take it. What's the news?

[00:01:48]

OK, well, it's interesting if you look at the the trend in retail sales from month to month. And I think this gives us a very strong indication of the implications of a total lockdown in the economy in March, which only the whole month wasn't locked down. Roughly half of retail sales fell by twelve point four percent. But then in April, they fell by forty three point seven percent. And then in May, as the retail sector started to reopen, they were up by thirty two percent.

[00:02:20]

They were up by thirty eight percent in June, and they dropped by another one point one and a half percent in July. So what that tells us is that the dramatic impact of the lockdown on the economy, on the retail sector, and there's no surprise about that, because if shops are closed, obviously you're not going to be able to go out and spend money. But it also shows us that as the economy has re-opened, retail sales have come back very, very strongly.

[00:02:47]

In July, we're starting to see a little bit of a slowdown because that sort of catch up has now caught up. And consumers are now settling into, I think, a more sombre mindset whereby they are now increasingly worried again about the prospect of a further full lockdown in the economy, which is something that the health minister, very unhealthy, in my view, come out in the last few days and warned that interruptus committee. Yes. That we could be facing into another total lockdown of the economy.

[00:03:18]

I mean, I have a problem with that because the notion of another total lockdown, the economy just in my view, does not stack up from a whole lot of perspectives. One is obviously the economic impact would be absolutely disastrous because businesses are still trying to get back on their feet faced with another lockdown, you know, at their absolute they'd be decimated. And the second issue is getting public buy in to another total lockdown, I think would not work.

[00:03:51]

And indeed, it's interesting in the papers this morning, new rules being are are being considered to be implemented if they become an offence to organise or attend a gathering in a private house with more than six visitors indoors or outdoors. You know, I think those sorts of regulations will meet with incredible resistance from the public. And I think for any of these rules to work, you need public buy in that sort of suggestion that the force of law and order can come into your house and actually stop a function happening to me is absolutely ludicrous.

[00:04:31]

And I suppose the third reservation I would have is that, you know, do we keep the economy locked down until we get a vaccine? Because the reality and the inevitability about this, and I think economists and health experts would have forecast this, that as the economy gradually reopens, there was an inevitability about cases starting to rise again. So the only way you can prevent that from happening is to keep the economy fully locked down until you get a safe and effective vaccine that works.

[00:05:06]

And that could be two years down the road, so we just can't do that because the social and the economic impact and I think the mental health impact of an ongoing, prolonged lockdown would be absolutely detrimental. And I think certainly the cure would be worse than the disease in many senses. Yeah, I mean, I think it's important.

[00:05:30]

We've had a number of scientists and epidemiologists on the stand on our podcast, Jim. And the fact of the matter, it was explained most lucidly by Professor Paddy Mallon from St Vincent's Hospital. He is a very experienced and highly respected figure in this area. And he said, and I'm more or less quoting him verbatim, that the coronaviruses as part of the common cold family, nobody has found the cure for the common cold, which has been with us, or a vaccine for the common cold for thousands of years.

[00:06:09]

He said if anyone found a cure or a vaccine for the common cold did win the Nobel Prize and they'd be very wealthy. So the prospect, despite all the paper, till the prospect of a vaccine for this virus, it is quite remote. And again, Parimal and made the point that the AIDS HIV AIDS virus has they've never found a vaccine. What they have is a viral compound that allows people to survive now and may be something other than a vaccine can emerge from all the trials that are going on.

[00:06:55]

But if we're going to wait for that and that's going, that could be an extremely long wait. Wait. And there's a lot of misinformation out there about the prospect. Just let me ask you about one of the things that is so important and has been this is the state subsidies scheme, which has been given to people affected, businesses and workers affected by this coronavirus. That's due to end and be altered, Jim. And from 410 euros a week, I think down to two hundred and three euros a week possibly.

[00:07:39]

And anyone earning more than seventy thousand a year gets nothing.

[00:07:44]

Now, I want to ask you about the cost of unemployment and the cost of laying people off.

[00:07:52]

It's ten thousand a year plus. Add another ten thousand. When you add in all the benefits and the loss of tax and parricide and everything else, it cost twenty thousand effectively to lay people off.

[00:08:13]

Yes. Yes, it does. And I mean, I just want to put it in context. The Germans yesterday announced an extension of their furlough scheme until the end of twenty twenty one. So what are the economics of that, Jim?

[00:08:30]

Well, you know, as you say, the cost of unemployment from a financial perspective, it's roughly twenty thousand a year. And as you say, the social welfare benefits of that is that are paid directly and the other benefits that are being paid and also a loss of tax revenue from people not working. So, yes, roughly 20 thousand per person. So that is significant financial cost, but the social costs at the personal health costs and all that of unemployment is even higher.

[00:09:05]

Obviously very difficult to measure in monetary terms. But it is you know, unemployment is unambiguously evil and needs to be avoided to the greatest extent possible. And earlier this week, the Central Statistics Office published the labour force data for the second quarter of the year. And they're incredibly difficult to interpret because they're adjusting for at the pandemic unemployment payment benefits and then the direct subsidies that are being paid through the revenue measures to employers to hold on to workers. So it's a very confusing picture.

[00:09:43]

But one thing that is interesting is that between the first and the second quarter, there was a decline of almost one hundred and fifty thousand in employment in the economy and three sectors accounted for. Sixty two percent of that. So accommodation and food services, over forty seven thousand jobs lost. The wholesale and retail sector almost. Five thousand and then what they call administration support services over twenty one thousand, so you can see where the pain has been felt in the economy and there are no surprises there because it's quite obvious that the hospitality sector is the sector and indeed the retail sector outside of grocery.

[00:10:28]

They are the sectors that are being most adversely affected by what's happening at the moment. And the problem, of course, is that those sectors are relatively low paid sectors. The workers who work in those sectors don't pay a lot of income tax anyway because of their level of earnings. They also tend to be sectors that have lower levels of educational attainment generally. So there is a serious social implication from what's happening in the labor market at the moment. And there are many businesses out there at the moment in those sectors who are still in business because of the direct support they are receiving from the state.

[00:11:10]

And as those are, if those supports are being are going to be gradually reduced and eventually eliminated at the end of April next year, well, then I think you will see dreadful job losses over the coming months. And that then becomes sort of permanent long term structural unemployment in the economy, which is definitely a serious problem. And the Germans recognize this. That's why they have extended the furlough out to the end of twenty, twenty one. I think as expensive as it is, we are going to eventually well, certainly we should do the same thing in this country because many businesses, as I say, at the moment, are struggling to survive.

[00:11:54]

I was in a restaurant during the week in Dublin and I was talking to proprietor and he normally can see one hundred people in the restaurant. It's now down to thirty five. So he is struggling to survive. And without the sort of subsidies he's receiving, it's shut down in the morning. And that's the reality for many businesses out there at the moment. So we have we have a choice to make it and we're prepared to continue to directly subsidize businesses like that to maintain employment or we stop paying it, in which case there will be serious social and economic and indeed financial consequences that will take a long, long time to sort out so that there's a choice to be made here.

[00:12:38]

And in my view, it's quite clear choice that has to be made. We have got to continue to support that despite the cost involved. And I did go back to the point you made at the beginning of the question of the cost of unemployment is roughly twenty thousand per worker. But the that the sort of social the mental health costs is significantly greater than Dasch. So we have a choice to make. I hope we make the right choice. Yes.

[00:13:05]

And it's also important to frame this whole problem in the context of the cost of money at low interest rates, the bond markets. You can actually borrow money now for nothing, can't you?

[00:13:23]

Yeah. Ireland's 10 year bond yields yesterday was minus point one four percent. So you can effectively borrow money for nothing at the moment. And that's what that's what every country in the world is virtually doing at the moment. Yes, we have. And we are doing is OK, let's make that clear. We are borrowing a lot of money. We are going to run a deficit of about 30 billion this year. But the point is that we are definitely not at the stage yet where we can start to reduce that sort of support for the economy because the pandemic is still very much with us.

[00:13:58]

The economic implications are still being felt. If you look at the regional lockdown's in Offaly leash and the ongoing lockdown in Tandare, you can just see what the obvious risks are at the moment. So there is a long way to go. There is definitely a requirement for considerably more support for the economy. And regardless of whether we go into a full lockdown or not, which I really hope we do, we can avoid, well, then we've got to recognise that this cost exists and we are going to have to face up to it.

[00:14:32]

Yes. I mean, as an economist and particularly one who works with business, small and medium sized businesses, all businesses I know has a kind of perspective to the rest of us don't have about the reality of all of this. The the possibility, Jim, that this will change the world, our world forever, and that some of the people, particularly middle aged people, may be people who don't have superduper. Qualifications are going to lose their jobs and maybe never get another job and that businesses are going to go to the wall before there's any relief from this terrible pandemic and businesses that won't ever open up again.

[00:15:24]

And I know of a couple of people who have said they're not up again at all. I'm sure you know of many more. So we are facing, aren't we, a real threat to the world? We've been used to going back forever.

[00:15:41]

Oh, most definitely. And why what is happening at the moment is a fundamental reordering of the world. I think there's no doubt about that, because the virus is obviously going to be with us for a considerable period of time. At the hope would be that like with AIDS and HIV, at best, we can manage to treat the symptoms and prevent it from becoming a fatal disease. That's ultimately what you'd hope. And the science will take us. And somebody like Luke O'Neill and Trinity, for example, is quite optimistic about that prospect.

[00:16:17]

Yes. Having said that, if you look at the retail sector, for example, globally, the retail sector was undergoing structural and dramatic structural change with the growth of online and so on. And that has been seriously exacerbated by covid-19 and the impact that's had. So in other words, that whole online shopping thing has been ramped up dramatically and I think in many cases permanently. Because if you think about at the moment that they're going out shopping, apart from for food is an ordeal.

[00:16:56]

You're going into shops, you're wearing a face mask, you're sanitizing. Yes. And try on clothes, all of that stuff. So why bother? People are much more inclined. And I think this behavior change will be permanent for many people if you look at the accommodation and food services sector. Clearly, international travel is going to remain seriously restricted for the foreseeable future and people are going to be reluctant to go out and eat in certain places and so on.

[00:17:30]

So and of course, the sectors, as I said, that are most adversely affected are relatively low paid, relatively low skilled occupations. So what what this OK, and so that's a serious problem. But then you look at the other part of our economy, you know, in financial services, in the public sector, in the multinational sector, people are still doing very well. Earnings are still growing quite strongly. So there's a large segment of the economy that is from an economic and financial perspective that is largely unaffected by this.

[00:18:08]

But then there is this significant segment that is seriously and adversely affected. And this is not unique to Ireland. It's the same the world over at the moment if you look at what's happening in the United States. So if the net result of all of this is that we will see a serious exacerbation of an already existing problem called inequality and inequality, it's from from from a sort of a personal perspective, from a social perspective, from an economic perspective, it is not good.

[00:18:42]

But then I think the more even the more serious aspect of that is the political implications of a yes. You look at the Republican National Convention happening this week, for example, and you look at the sort of stuff that's been thrown out there is pretty distasteful, putting it mildly. And it's sad to see an Irish woman joining in all of that during the week thought that sort of radical politicization is a result of inequality. I think there's no doubt about that.

[00:19:16]

So if there is a huge imperative on policymakers everywhere to look after those people that are spat out from the covid-19 crisis, I think there's no doubt about that. And I spoke to before and I'll say it again, I think it's really important that we really do need to look at this country, at the possibility and the logic of introducing a universal basic income to protect people, because because if we don't see that the health consequences, the economic consequences, the political consequences will be very, very severe.

[00:19:53]

So we have an opportunity to act now. We should do it and listen to the debate we are having here is not unique to Ireland. This is a debate that either is or should be happening in every country in the world at the moment. We are, I think, at a major tipping point. Yes, unfortunately, you referenced Donald Trump and in Britain we have Boris Johnson populists and populism is a dangerous and dangerous weapon. Jim, just to underline one of the points you made about this country, exports rose through the second quarter here.

[00:20:31]

This is the multinational and the effect, is it not safe? Pharmaceuticals doing very well and of course, all the technology companies as well and giving a superficial gloss, if you like, to our GDP and all of that.

[00:20:53]

Indeed. I mean, the the chemical pharma sector accounts for around sixty five percent of our total merchandise exports, and they are currently growing year on year at a rate of around 11, 12 percent. So that part of the economy is doing very well. If you look at the profit, the performance of the Nasdaq and within the Nasdaq, the companies like Google, Apple, et cetera, all LinkedIn, all companies that had significant operations in this country, their share prices are doing very, very well because the companies themselves are doing very, very well.

[00:21:28]

And we have a lot of those here in this country. So I would see that as a positive rather than negative in the sense that we are really lucky that we have a strong multinational base to anchor the economy at the moment. And I don't have concerns about the multinational side of the economy, but I have serious concerns, as I spoke to you before about the SME sector of the economy and ninety nine point eight percent of businesses are SME, they employ roughly one point two million people.

[00:22:02]

So they are a significant part of the economy. And many of those SMEs are the ones that are in serious difficulty at the moment. They are the ones that require massive ongoing support because, you know, multinationals and big companies, they can tolerate a deterioration in economic conditions if they were to occur. Mind you, they are not occurring for the multinational sector, certainly at the moment. But for smaller businesses, when economic conditions deteriorate, they have a lot less cash to rely on.

[00:22:33]

Yes. And many of them without support will just disappear and go out of business. And you could say back in 2007, 2008, in the aftermath of the great financial crash, a lot of businesses disappeared, but they were replaced by other businesses. And if you look, for example, at the growth in coffee shops and restaurants since 2009, 2010, it has been quite dramatic. Yeah, and I suppose you might call this creative destruction. And as certain businesses are forced out, other businesses, other men and start businesses, and they may face a much lower levels of rent than the incumbent business did.

[00:23:16]

So you always see, I suppose, the regeneration of these businesses. But I'd be more worried about the legacy of covid-19. I'm just not convinced at the moment that you are going to see that regeneration of those businesses. I think many of them will disappear. Many of them will not be replaced. That's that's the problem.

[00:23:38]

Just a final point, Jim, about the Federal Reserve yesterday hinting that they would like to see some inflation. Figure of two percent was mentioned in recession, such as we're enduring and it's not inflation. You should be worried about what would inflation induced inflation, why would they want to do it? And what would be the effect on our lives at the end of August?

[00:24:12]

Every year, the great and the good of global central banking and indeed economics get together in Jackson Hole, Wyoming, for an annual conference mainly on monetary policy, in other words, central bank policy. And this year it's going on at the moment and it's been held remotely this year. And I know for the last couple of days, Philip Lane, the Irish chief economist at the European Central Bank, made a presentation at this conference. But Jay Powell, the chairman of the US Federal Reserve in the last couple of days, was sort of suggesting that the Federal Reserve's management of US monetary policy, of the US economy is going to have to change.

[00:24:57]

And they are sort of moving away from this rageous inflation targeting that characterizes most central banks. They are basically saying in a roundabout way are sorry, not in a roundabout way, pretty explicitly that they want to see higher levels of inflation in the system. There are good and bad points about inflation and a high inflation environment that the real burden of debt falls significantly. Yeah, yeah. On the other hand, people on fixed incomes and people who are not seeing wage growth moving at a commensurate level will experience a real decline in living standards.

[00:25:41]

Bush, you know, for the last decade at least, and in fact longer disinflation has been the issue. In other words, yes, the rate of inflation has been falling dramatically. And in 1980, inflation in this country was running at around 20 percent. It was a three year period around 1980, but inflation averaged between 17 and 20 percent. Yes, in nineteen eighty seven, inflation fell three point two percent. And I think on only one occasion since nineteen eighty seven has inflation topped five percent.

[00:26:18]

So we're living globally, domestically in this very, very low inflation environment, which is causing serious problems for central bankers because a bit of inflation in the system is good. Deflation, which is falling prices are disinflation, which is a deceleration in the rate of price increase, is a serious problem and it is is difficult to deal with or probably more difficult than high inflation. Witnessed Japan over the last eight years that has been fighting deflation. So for everybody, the environment now is really, really difficult.

[00:26:56]

The rules of engagement have been rewritten in terms of monetary policy. Central bankers are really scratching their heads at the moment, as is being demonstrated by the conference that's going on at the conference that's going on this week for governments and for the European Commission, which manages fiscal policy effectively for eurozone countries. And the rules of engagement are also being torn up. The fiscal rules that limit the amount of money that countries can borrow are being discarded. State aid rules are being discarded, and we see governments, national governments pumping money into national airlines like Lufthansa and Air France.

[00:27:43]

And that creates its own problems in the sense that, you know, an airline like Ryanair that is competing directly in Europe with those airlines is obviously not happy about that and is taking a case with European Commission about unfair competition. But the point I'm trying to make is that fundamentally the world today is an incredibly uncertain, different and very changed place. And it is hard to see that changing anytime soon. And I suppose my key point will be in the context of the current debate that's going on and the warning from Stephen Donnelly earlier this week, a renewed lock down the economy, in my view, is not an option.

[00:28:26]

We've got to do better than that.

[00:28:28]

OK, Jim, we're very grateful to you for joining us on the stand, as always. Thank you very much indeed. One of our leading economists, if not the leading economists, because it doesn't just talk about economics.

[00:28:43]

And we're grateful to Jim, grateful to you for listening and of course, very grateful to our sponsors, Tesco, without whom we wouldn't have a podcast.

[00:28:53]

That's all we have time for. Now we talk to you some.