July 26, 2014

Property market resurgence a case of deja vu all over again – but can it be stopped?

Posted in Irish Independent · 38 comments ·
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News that property prices shot up again last month shouldn’t take you by surprise. Before we analyse, let’s just take stock of what is happening.

Property prices were up by 12.5pc in June across the country when compared with the same month a year earlier. In Dublin, prices jumped by 24.4pc over the past year. Apartment prices rose by 18pc, the new figures show and it was the 13th month in a row that prices rose nationally on an annual basis.

The question is where will this stop?

To answer this, let’s take a bit of altitude.

In early 2012, this column argued that the housing market had troughed and it would bump along the bottom until 2013 and from then it would begin to recover. At the time the notion of an imminent property market recovery was dismissed by mainstream commentators. But this was the same mainstream that argued for a “soft landing” a few years before.

A few months ago, the column warned that there was a definite bubble emerging in Dublin. Again the mainstream economic view dismissed this contention, arguing that the dynamics in the property market were all about supply and demand. This analysis shows a rather extraordinary inability or even unwillingness to learn. The last time we left the housing market to supply and demand, we ended up with “ghost estates” (far too much supply) and a monumental crash (far too little demand). Supply and demand didn’t synchronise. In fact, they went in opposite directions.

In short, supply and demand may explain the general direction of prices over long periods, but not the absolute velocity of price increases or decreases. Supply responds too late and demand responds too quickly.

Why is this?

It is because the extent of price increases is a function of human psychology and the availability of financing.

Let’s deal with psychology first.

Unfortunately, economists make economic models based on people who don’t exist.

Economists talk about rational people, who make decisions, like buying a house, based on logic. These sorts of people are supposed to be cold, calculating and utterly beyond emotion.

But have you ever met these people? Such people don’t exist and if they did, you wouldn’t fancy going for a jar with them.

In reality, real people – you and me – are more like football fans than calculating traders. We are terribly emotional, terribly easily influenced, we do highly irrational things, like falling in love, supporting pathetic teams and we always think that this time it will be different. We also panic. Rather than be coldly calculating, we are wildly emotional.

Nowhere is this more evident than in the Irish housing market where the rules of economics are turned on their head.

Economists think that when the price of something goes up, the demand will go down. I argue that the opposite is the case.

When Irish property prices go up, the demand goes up because people think they are going to rise yet further and we say to ourselves “if I don’t get in now I will pay more next year”. So increases in prices prompt real people to bring forward their buying decision.

As a result of deep human frailty, a property bubble begins in our heads. Once the herd moves, we all do and the extent of price increases is then a function of the amount of money available.

The reason Irish prices are moving so rapidly is that there is actually a lot of money in the country.

This is because when the balance sheet of the country imploded in 2007, people panicked and started saving.

Yes, I know it sounds odd when hundreds of thousands are trying to make ends meet, but the savings ration of the country went through the roof. These savings generated interest. But now that interest rates went to zero, the people with savings yet again started looking to the housing market as a place to put their savings. Today, rather than get nothing in the banks, they are betting on property. These are the “cash buyers”.

So money is driving up prices, but as it does, it creates the boom dynamic where every price increase scares first-time buyers to play catch-up and therefore, begets another upward price lurch. This is the “get on the ladder” panic, which is evident all over the country.

Mainstream economists argue that without credit there will be no sustained increase. But the problem with this view is that credit always finds its way into a bubbling market, because that is what credit does.

My hunch is that the vulture funds that bought the prime commercial prizes in 2010 and are now “cashing in”, will use a proportion of this loot to finance new mortgage lending. With clever lawyers, they will find a legal away of providing mortgage financing – this is what they do.

The funds have to get a return for their investors. In a world of zero interest rates, where the banks are still licking their wounds from the last crash, these funds need to act like, but crucially, not appear like, banks.

Remember, the commercial property market in Dublin went stratospheric without the Irish banks’ involvement at all, the same will happen to the mortgage market.

The Central Bank could act now to limit banks and these funds lending for property. But will it?

That’s the question.

 


    • eosiochru

      his CANNOT be happening again!

      1:-We need a site value tax to get speculators to immediately build out or sell their land banks and empty properties
      2:-We need the banks to sell the land banks and empty properties of the bankrupt developers.
      3:-We need the banks to immediately put the underwater buy-to-lets on the market.
      These actions will drive down the value of development sites and derelict, unfinished and unsuitable rental residential accommodation making it available for purchase by the 99% of ordinary citizens and new clean-hands private and social housing developers.
      4:-We need rent control regulations to prevent annual rent increases higher than general inflation.
      This action will give some relief to renters and will frighten off hedge fund carpet-baggers and investment funds who might take a longer term view and compete with local buyers for the property made available by actions 1-3.
      5:-We need to set up local public banks like the Sparkassen in Germany to fund permanently affordable housing as per NESC report on Social Housing. The Sparkassen Foundation has pledged to help us in every way.
      6:- We need government guarantees and cheap funding from the EIB channeled to the Local Public Banks to channel lending to social developers to provide permanently affordable housing to compete with private and public sector housing options. (We do not want a ‘housing fund’ dependent on the international bond market; only banks can multiply funding for much more effect).
      7:-We need the government to direct NAMA and the bailed out banks to make 50% of their choicest foreclosed property and sites available to Community Land Trusts at preferential rates and conditions – see below.
      8:- We need Community Land Trusts to build permanently affordable housing for rent – and for sale – together with integrated sustainable energy generation and commercial and industrial space for rent to permanently cross subsidize community services like child and elder care and to keep living cost low.

      Will this happen? No it won’t. Not until our pathetic government has got the best price it can for the NAMA and ‘pillar banks’ properties that still languish on their books. Never mind that our new landlords will be ‘absentee’ of the worst kind carrying no brief for Dubliners’ welfare. Never mind that the outflow of rents will be a long term hemorrhage of money needed in the local Dublin economy. Never mind that young, and not so young, Irish families will lose the chance to buy a reasonably priced home -perhaps forever. Never mind that residential rents will continue to rise because so much of the newer rental properties will be in the hands of an absentee elite who will manage their property to maximise returns and value.

      • J-Will

        @eosiochru

        A Truly Powerful post!That’s a carefully crafted Roadmap right there!

        That took a lot of thought and i only see wisdom in your strategic intent and directionality,where major non-linear changes would result across the board economically,upon implementation – all to the benefit of The Common Good.

        This man from Delmonte,says YES.

        eosiochru,i don’t know if you are aware,but our host was a guest on the radio with Marian Finucaine recently and then again on the airwaves for a two week spell( where David,in fairness,skilfully hosted “Pat Kenny’s Newstalk”)and mentioned most,but not all,of these eight,very well made points.

        That’s why I find this article another [frustratingly] prime example of David not fully realising his unique opportunities and of David’s ‘trickle-feed’ technique of delivering his creative solutions,that have the Power to address this particular death-grip on our citizens – that is,among many Threats,our worryingly bubbleicious property market.

        And also when David was a guest on The Late Late Show recently,thro no fault of his,there was a moment that night – due to an ‘over-run’ in audience contributions i think – where Tubridy never got back to our host in relation to David’s solutions regarding our property bubble – which annoyed me no end ! [ Why the hell invite Ireland's leading economist with Real-world applied economic solutions and then not dedicate enough time to hear David think out loud and share and expand on these thoughts?! I found it infuriating! [Tubridy *Ughhh!*]

        • J-Will

          Then David writes this article,on housing again ,[fine of course and much needed considering our quicksand,camouflaged as a trampoline by the usual suspects – Enda being my #1choice for a line-up]and although this article was a quality offering overall and finishes strong with a wise top-down approach regarding the influence of our central bank’s PIVOTAL role in making a monumental change to steady the ship,i am finding this ‘drip-feed’ approach of Davids, beginning to feel like ‘drip-torture’… like there’s no sense of urgency,when i’m supremely confident that his grasp of the gravity of the situation,is tight clad!

          I read one of your response recently on this blog David that you want your articles to be thought provoking,but sometimes David,there’s a need to just SPELL IT OUT … Now is one of those times my man!

          David,you are in an enviable and responsible position to influence and shape our politicians and citizens’ thinking and challenge Ireland’s current economic policies.

          Many people Trust you.

          I happen to be one of them!

          Please don’t let this amadán sink us !!

          1minute
          http://www.youtube.com/watch?v=i5KkSoHhWfY

    • eosiochru

      ….
      Never mind that the older cohort of Dubliners who own their homes by accident of birth date, would swap the high capital value of their house in an instant to bring their own sons and daughters home to live in affordable homes nearby and to work in a revitalized city. Never mind all that….

      Our government prioritizes the solvency of the currently useless Irish banks and the opinion of the international financial elite over Irish citizens.

      This fact will not change until Dubliners take to the streets.

      This situation will not change until Dubliners take to the streets.

  1. Antaine

    Would you not be considered Mainstream David?

  2. StephenKenny

    It’s quite natural really, it’s been the bedrock, if not the only rock, of the economies of a number of western economies, for the past 20-40 years. Property speculation is now the established route to considerable wealth, for everyone. With the exception of a few internet successes, and an even fewer publicly available financial services successes, there is no decently yielding investment to be found anywhere, except property.

    And we ask whether we’re going to get another bubble? It’s in everyone’s interests today to have one. Everyone. OK, there is one theoretical exception – a person who had the long term health of the country at the forefront of their efforts – so, as I say, theoretical.

    It isn’t even a matter of informing people so they know the truth of all this bubble mania. It wouldn’t help if they did because we’re all playing out a game of the Prisoner’s Dilemma – and there is, to all intents and purposes, no actual alternative: If you don’t play you lose; if you do play you have a chance of winning – however slim, a chance.

    This argument excludes alternatives such as palladium futures and Siberian farmland, which are just not on the radar of the 99.9%, and would very quickly be destroyed as alternatives if they were.

    The truth is, we’re living in an age of the results of 20-30 years of massive malinvestment, and there just isn’t much, commercially, going on that creates any old fashioned profits.

    • StephenKenny

      Property and other speculation, in this malinvested economy, is so much more profitable than all the old fashioned stuff, that it all goes out of business and disappears.

      • Adelaide

        Global Capitalism had its 20th century meteoritic rise and hey-day when it piggy-backed the 100 year bounty of plentiful cheap oil. Those days are over, we’ll reach Global Peak Oil in the next decade, 2025 is the general consensus, and the era of mass production and consumption will cease. Housing crisis, unemployment crisis, debt crisis, financial crisis, these are precursors to the demise of oil-fuelled capitalism. What will replace it? The next 10 to 30 years will see the answer. With the double-whammy of Peak Oil and Global Warming the next four decades will be unique in the history of humanity, it will determine humanity’s outcome, and from a detached observer’s point of view it will be utterly fascinating.

        • gcy_1980

          I think this perspective about resources is one that is usually overlooked by economists.They tend to rubbish ideas around peak oil and how vital the interactions are between economy and the environment. Many just look to ideas of substitute-ability between capital and the non-declining capital idea. Unfortunately if we talk about “Limits to Growth”,we are Club of Romer’s or something like that. Malthaus talked about this. Marx said that the capitalist system could not survive and the constraints of our environment would aid the collapse. It’s not an accepted idea and one where we will be put standing in the corner if we mention it…:)

  3. There are upwards of 300,000 empty houses in this state – many of them ‘earning’ more for their owners than someone working hard in a full-time job. Meanwhile hundreds of thousands of Irish people have been financially ruined for the crime of wanting a home, while hundreds of thousands of others are forced to pay extortionate rents for sub-standard accomodation. Housing is without doubt the greatest source of stress, anxiety and insecurity for most Irish people.

    The housing market is not a free market. Supply is restricted by the artificial scarcity of zoned land – a socially created (and necessary) restriction that creates vast private profit. Demand is increased by speculators seeking unearned economic rent and/or capital gains. Caught in the middle are ordinary people who just want a secure roof over their heads.

    Housing is a non-elastic human necessity, like food, water or healthcare, yet in Ireland it has become a mechanism whereby those with capital extort vast sums of unearned money from those without – money for which they create nothing, offer no service and provide no value. The human neccessity of housing has become a means for one sector of society to legally steal from another – a crime in which the media and political system collude.

    There are many financial instruments with which speculators can speculate – the basic human necessity of housing should not be one of them. But there are things that can be done:

    - End house hoarding by dramatically increasing property taxes on empty houses the longer they remain empty.

    - Discourage speculation by dramatically increasing capital gains taxes on capital gains from property beyond the rate of inflation and the cost of improvements.

    - Through a land value tax, capital gains tax or compulsory purchase, take the increase in land value due to rezoning into public hands.

    - Publically reframe and portray residential property speculation as the social and human evil that it is.

    - Dramatically increase and enforce tenant protections and landlord responsibilities.

    - Take social housing seriously.

    In other words, hound, hurt and persecute speculators out of the housing market and stop these parasites from using the basic human need for housing to extort unearned wealth from others. If they want to speculate let them go to the financial markets. Their participation in the housing market causes far too much pain to far too many people.

  4. Many good suggestions on here today but NONE of them are going to be instigated in this backward place.

    Never ever.

    • With all due respects, that is a completely and utterly useless attitude that was once applied to slavery, colonialism, the right to vote, social welfare, gay rights and just about any other social progress you can think of.

      Housing is a very real and very deep source of pain and anger to a great many Irish people – and it’s just getting worse. If that pain and anger can find a coherent focus anything is possible – especially in the context of another housing bubble so soon after the destruction of the economy by the last one.

      My belief is that this focus must be clear and simple – i.e. that speculation in residential property is the source of much of the pain, anxiety and insecurity experienced by the Irish people today.

      After all, that’s not a difficult case to make.

      • All due respects gladly accepted. To be more precise the whole political system in Ireland needs to be completely overhauled first before any progress can be made on the housing issue (and other issues). I’m not talking about voting in a new set of charlatans to replace the current crop, but rather a completely new structure and systems to be set up. Only then will there be meaningful change. I just can’t see it myself.

        • J-Will

          @Adam

          “I just can’t see it myself.”

          Well with eyes wide open,please see this

          http://www.zerohedge.com/news/2014-07-27/china-cements-eurasian-trade-routes-great-silk-road-revival-infographic

          This Silk Road project is Real,as is The BRICKS New Development Bank with initial credit of 100Billion for infrastructural projects to enhance the World’s Physical economy.This is History in The Making.

          The global tide is turning and yes there is,and will continue to be resistance,[with Obama leading that offensive and Wall St as his backers]but when given enough oxygen to this economic flame,giver of LIFE,we will have the Real Power to fuel economies beyond our imagination,not just in energy output,clearly,but the potential discoveries that Science can make as a function of the introduction of this new axiom,which will propel us in ways we cant possibly now anticipate.

          True Physical Science has been in a coma for decades,but the Genie is outta the bottle now in the form of the BRICK nations and their mission,their axiom.- High Productivity ! Enhacing efd to successively higher and higher levels of Power

          There’s nothing stopping Ireland but fear – in whatever debilitating form,of MANY,that it may manifest itself,but mostly fear of change.

          Adapt,or Die Ireland !

          We need a focus on being productive by learning new skillsets to meet this new reality.This new world of long term,MEGA engineeering projects [ and certainly not derivative hocus-pocus and property speculation ]This is now our Reality! Mega Investment,but not in any areas that now thrive on bubbles,but rather in areas of true Value – entrepenurship and innovation !

          Opportunity is knocking….

          • J-Will

            Our deepest fear

            is not that we are inadequate.Our deepest fear is that we are powerful beyond measure.It is our light,not our darkness,that most frightens us. We ask ourselves,who am I to be brilliant, gorgeous,talented, fabulous?Actually,who are you not to be?You are a child of God.Your playing small doesn’t serve the world.There’s nothing enlightened about shrinking so that other people won’t feel insecure around you.

            We are all meant to shine,as children do.We were born to make manifest the glory of God that is within us. It’s not just in some of us; it’s in everyone.And as we let our own light shine, we unconsciously give other people permission to do the same.

            As we’re liberated from our own fear, our presence automatically liberates others.

            http://www.youtube.com/watch?v=dPLOOFGWWb0

      • I fully agree that speculation on property is wrong but the politicians, developers, landlords et al don’t give a flying f*ck what you or I think. Yet, in the case of the politicians the same old parties till get voted in by the very people they are cannibalising. Figure that one out for yourself. I prefer not to engage with these parasitic rentiers on any level, that’s my own form of mobilisation and it works for me.

        • DB4545

          We’re all up to our necks in it Adam. The problem is a one euro brick and 50 cents of mortar doesn’t create a long term future. Germany focuses on affordable housing and infrastructure including transport and invests in leading edge technology. They make the machines that make the machines for the global economy. We just need a tiny niche of that market. We have the people. We just need to ditch the bullshit.

  5. LKSteve

    Enda says there’s no bubble.
    Remember the last time anybody rang the alarm bell about the Irish economy what our leader of the time said? ”Sitting on the sidelines, cribbing and moaning is a lost opportunity. I don’t know how people who engage in that don’t commit suicide”.
    Ireland’s problem is incompetent, ignorant, petty, self-serving, blind, corrupt leadership. Everything else is just a by-product of that.

  6. gcy_1980

    I sometimes think we are in a rime where there exists a “bubble of bubbles”:) Because of the financial crisis, our “rationality” is affected by the idea that increasing asset prices mean a bubble.
    Can supply and demand provide an answer to what is happening….Prices going up and demand still rising? Of course. Price is no longer the the causal variable. It is expectations which are causing shifts in demand. If we assume an inelastic supply due to supply lags, we have an answer to the case quantity demanded can rise in line with price rises.
    We still might have a bubble though…Do the prices reflect fundamental values. It could be argued they do. The crash meant very little housing was added to the stock. However, there was always a flow of the population who, in normal times, would have entered the market. This flow built up over a couple of years waiting for the price floor in the market to be hit. Once this signal hit, people piled in. From this perspective, the values probably do reflect fundamentals of the current marketplace.
    So is there a chance we will hit bubble territory? This all rests on what occurs once extra supplies hit the market. These current price signals will act for suppliers to start building. So the builders expectations will lead to a shift in the supply curve. This will take time but once supplies come online with this shift, prices should come down. If they keep rising, this is where I believe prices will start deviating from intrinsic values.
    Just a couple of my ideas. One thing is for certain, the property market will never reflect static supply/demand analysis due to time lags, etc.

    • StephenKenny

      And the number of young people – ‘first time’ buyers – who’ve emigrated over the past 6 years is? The number of unused properties is?

      During property bubbles, property is generally viewed as a speculative instrument – not somewhere to live. So yes, you could call it ‘demand’, but it’s demand for speculative instruments, not places to live.

      Once you view property in this way, everything becomes fairly predictable. The problem is that it’s not a sustainable market, this market of speculative property instruments. Because the obvious solution is that the 99% live in tents in the far south west, with just enough coming back, living 25 to a house, to sustain the “market”.

      Interestingly, this is what the UK is actually doing. There were two key pieces of 150+ year old anti-slum regulations – maximum density or people per hectare, and minimum space per person in a residential property. These transformational laws must have played merry hell with the landlords back in the 19th Century. You can see how important they are.

      Well, they’ve got rid of both of those pesky rules. The Labour government got rid of the first, and the coalition got rid of the second. A ’2 bed flat’ will increasingly be sold as a ‘flat sleeps 4′, or ‘flat sleeps 8′. Combine that with zero interest rates, and the world’s most generous view towards refugees, upward pressure on property prices is fairly sure to be maintained.

      The final piece in the property ‘supply and demand’ jigsaw in the UK is the truly hilarious ‘savings’ dilema. A retail financial specialist explained this to me recently, and it goes something like this.
      No one, any longer, has any faith at all in the promises of the pension system, be it private or public. Zero interest rates and a hollowing out of the economy has meant that there’s simply possibility of a return on investment that will provide for a quarter an average old age, let alone a whole one. So people stopped saving. Makes sense, good old ‘supply and demand’ kicking in.

      Well, that’s not popular with the City funds that rely on a nice regular stream of income, so they get the government making it compulsory to give them money every month. Of course, it’s sold as being ‘responsible’, so the financial sector, the media, and all the rest of it, put on their best suits and wander around sagely nodding their heads.

      The problem is, absolutely no one believes a word of it – they all say they do, newspapers, TV, and radio, are absolutely full of it – but clearly no one does. And how do we know this? The government changes the pension rules so these new compulsory pensions can, as of 2015, be used to invest in residential property, directly.

      A compulsory pension scheme that enables direct investment, by the saver, in residential property. I’m sure, as the top economic experts in the media would have everyone believe, it will have a benign effect on property prices.

      • McGoo

        Very interesting StepenKenny. That change to the pension rules in the UK will instantly cause demand for residential property to double, and therefore prices will double, and therefore over time real rents will double, which will cause living density to double (which will be allowed due to those old lays being abolished). It’s a recipe for total social disaster, and it’s probably all being done just to boost the government’s ratings for the next election.

  7. SMOKEY

    Off topic, does anyone else find the Rubberbandits song Fella Homophobic?
    I think it is extremely offensive to homosexuals and it actually debases them at the end of the video with a guy in a public toilet waiting to be cruised for sex.
    This is not what the homosexual community is about Im sure, and as a heterosexual male who doesn’t agree with some of the high camp theatrics of panti bliss and issues like homosexual adoption, I find this video to be degrading, not that clever, and mean spirited towards men who are born homosexuals. Im not so sure that this isn’t just being outrageous for the sake of it, and hurtful to some as well.
    I liked horse outside for its blatant irreverence and folly, but this one seems to be a bit of hate speech disguised as an anti homophobic message, this is going to backfire on them. Ive flagged the video as abusive.

    • Why would you even watch any of that crap? I’ve never even heard any of these so-called ‘artistes” songs.

      I presume you are being sarcastic SMOKEY or someone has hacked your account.

      • SMOKEY

        No, I live in the real world Adam, and people are influenced by these things. Having a backround in recorded music, from way back, I keep in touch with the latest. Im as serious as a heart attack about this and think it is pretty much as you described, a load of crap. Check it out and see for yourself. I’d be offended if I were a homosexual and Im not a left leaning kind of guy. But this video is an insult to our queer brothers says I.

  8. SMOKEY

    On topic. David, it will not happen as it makes too much sense for the Casper Milktoast Taoiseach to recommend any type of manageable long term moving average solution, in short, this government and all others in recent years are so far out of their depth its pathetic. Remember your Dunnes stores finest patent leather shoes?
    Prediction: no central bank action, of any kind on this except maybe some cheerleading.

  9. cooldude

    The theme of this article doesn’t go deep enough into WHY people are repeatedly sucked into the constant asset bubbles that our modern system of elastic money supply and the fractional reserve system of banking who enjoy the special privelage of supplying us this ever expanding money supply. In fairness you did allude to the below zero returns which now exist on deposit accounts with the banks. What wasn’t mentioned is the now inevitable bail in scenario which is presently being lined up by the ECB and the only real question is how they will roll out this system of theft off savers who trust the completely corrupt banking system.

    If this article had been a bit more in depth it would have gone into WHY we are being forced into getting involved in all these asset bubbles which our modern system of banking and money repeatedly throws up. Believe it or not David this has nothing whatsoever to do with us being “terribly emotional” or being “terribly easily influenced” but has everything to do with people making rational decisions on the available options open to them. These decisions are made because the banking system is forcing people to remove their money from their fraudulent system and seeking “yield” in the totally dodgy property ladder.

    People are not stupid and they know that their money is being constantly and deliberately debased by the central bankers. They are entering into these endless asset bubbles because the SYSTEM is forcing them to do so unless they have the brains to study monetary and banking history and actually understand how our system of money is deliberately designed to rob them. Unfortunately such knowledge is very limited and is actively discouraged by our educational system. There are options outside of the modern totally corrupt banking system such as agricultural land and alternative money systems which cannot be debased such as crypto currencies and precious metals but these options are constantly belittled by the bought and paid for media as being “too volatile” despite the obvious attraction of their inelastic supply.

    You really need to look a lot deeper into the causes of the never ending asset bubbles and forget about human psychology and look into our modern system of money and banking. Thats the real reason if you have the balls to really look into this in depth.

  10. Check this one out from Paul Mason:

    “From Concorde to the iPhone, state intervention drives technological innovation”

    http://www.theguardian.com/commentisfree/2014/jul/27/concorde-iphone-history-state-intervention-technological-innovation

    • StephenKenny

      There are two things that I find slightly irritating about this argument, and it’s around a lot – Noam Chomsky uses it a lot in his writings.

      Firstly, they tend to mislead a lot – in this case, Concorde came out of the British Royal Aircraft Establishment – a military organisation. So although military organisations are of course state, it’s doesn’t have the same civil service ring to it as the ‘Ministry of Supply’. The British RAE decided, in the 1940s to look into a civilian supersonic plane – well, it was sort of their job to do this sort of thing.

      Secondly, they tend also to extrapolate a lot. The iPhone’s link to the state is of course the internet, and the internet was based on work done at ARPA and CERN, and ARPA & CERN are state organisations. The problem with this argument is that the work done at ARPA didn’t, by itself, become the foundation of the networking part of the internet, and the work done at CERN wasn’t even particularly new.

      The great advantage that they both had was that no private company owned them. Had someone owned them, then no other company would have been interested in taking them on (patents, etc).

      I don’t actually disagree with the premise of the piece, but I’ve long given up expecting anything other than insanely expensive catastrophes from institutional (private or state) initiatives. Over the past 20 years, it seems to me that almost everything that’s been really interesting has come out of small outfits, that have been bought and rebranded by bigger.

      So deactivate Gresham’s law, and fix the tax system so it really benefits R&D by small outfits, then stand back and don’t get in the way.

      • StephenKenny

        and just to add insult to injury, so to speak, according to the ever popular Wikipaedia, the inventor of Concorde’s type of motive power, Mr Frank Whittle, created the first prototype without any state aid at all:
        With very limited funding, he and with two other guys founded “Power Jets Ltd”. Having almost run out of money twice, the prototype finally worked, and everyone suddenly became very interested. The state and their contractors got involved, and nature took it’s course – 7 years later the Gloster Meteor jet fighter flew.

  11. David ends this article by musing if the Central Bank will act to restore sanity. How? They don’t control interest rates!

    Once again IFSC Canary Dwarf tries to ‘ape’ Alpha Male Canary Wharf/Wall Street, but unlike the Great Satan/Little Divil USuk minibus-succubus “Ireland Inc” has limited control over events. In fact, they’re now Frankfurt’s prison bitch.

    David’s spot on : the 1% are engineering a 2006 Boom-Redux to rescue their malinvestments. When they”re made good, the ‘mysterious’ Business Cycle will morph & intetest rates will quadruple-but they’ll have sold their stocks of houses/land. Cash Rich, they’ll then hoover up the Little People Who Pay Taxes once a new repossession crisis kicks in.

    As I type this in central Dublin on a yoke of a phone I’m thinking of what a Republic is all about…The Bankster Republic Of D4, that is the reality today.

  12. McGoo

    >which is evident all over the country.
    David, you need to drill into the numbers a bit more. Prices might be up 12.5% on average nationwide, but that breaks down to 24.4% in Dublin and about 2% everywhere else. It’s not evident all over the country.

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