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The Sunday Times - Money Comment 08/11/09

Posted by Jill Kerby on November 08 2009 @ 14:10

 

A report has arrived in my inbox encouraging me (as a member of the media) “to take a holistic view of prosperity and understand how it is created. Holistic prosperity extends beyond just material wealth, and includes factors such as social capital, health, opportunity, security, effective governance, human rights and liberties, and overall quality of life.”

Quite right too.  The best countries in the world, say the Legatum Institute, a London-based think tank, are those with high scores in areas like health, safety, freedom, and social capital, but they also include categories that look at the country’s democratic institutions, education, entrepreneurship and innovation, good governance and personal freedom.

Their assessment of us under some of these categories is pretty startling. Not only did we come out 11th in the overall rank of 104 countries, but we somehow managed to convince the evaluators that we are the number two country in the world under the Health category, 5th under Economic Fundamentals and Safety and Security,12th for the three categories of Entrepreneurship and Innovation, Social Capital and Governance, the latter’s variables of which include issues like business regulation and corruption and  government effectiveness and corruption.  We also managed to come in at number 18 and 25 under Personal Freedom and Education. 

This is a fascinating report but I’m not sure I entirely recognize the country they call Ireland, especially when they rank the French at number 14 under the Health category.   Not to put too fine a point on this, but perhaps the data they were using was…out of date?  

You can download the 2009 Legatum Prosperity index here http://www.li.com/ and make up your own mind: 

 

It looks like it’s going to be a lean Christmas for the clients of Irish charities, even as some people perform small, anonymous gestures of generosity.

One day last week, just as the Society of St Vincent de Paul was imploring the Minister for Finance in its pre-Budget submission not to cut social welfare payments - “already this year, calls for assistance have risen by almost one-third in some areas, and the situation is getting worse” - the third world aid agency, World Vision Ireland received an envelope stuffed with €2,760 used notes and a raffle ticket.  

World Vision wants the donor to make themselves known so that they can thank him or her personally. “It’s incredible. It’s restored my faith in people, that’s for sure,” said the worker who opened the envelope.  

I rather doubt that’s what he or his colleagues in St Vincent de Paul will be saying about Minister Lenihan delivers his Budget speech on December 9th, except maybe the “incredible” bit.  

The Minister is in no position to be generous with anyone this year and even the charity sectors long standing request for enhanced tax relief on donations is probably now just a distant aspiration. 

 

Do you believe that the price of your house and all the houses in your neighbourhood have stopped falling? Me neither, but the Irish House Builders Association (IHBA) say not only that house prices may have hit rock bottom but that there’s going to be a shortage of property in the Dublin area in the next few years if the decline in new house builds continues. 

The IHBA is just one of a long list of property sector trade bodies that has no choice but to ‘talk up their book’ and put on a positive face in an effort to convince potential buyers, who are sitting on the sidelines, to take the plunge a become a home owner. 

They say that Irish house prices have already probably dropped by 40% and there is very little give left in the system.  What they don’t mention is that massively exuberant asset bubbles, like the 10 year long Irish property one, can give up nearly all its volume before the reflating process eventually starts all over again.  Laughably, their chairman Dominic Doheny last week sited “commentators” in AIB as a source for his belief that the peak to trough fall in Irish house prices will stop near or at 40%. 

House are now selling below cost price, claims the IHBA and “Current prices are not sustainable in the medium and long run. Companies will not resume building new houses or apartments until market prices reflect all cost inputs and a reasonable return for the investment.”

What does that mean?  That if prices do remain this low (or go even lower) the properties will never be sold?  That his members will bulldoze them into the ground? 

Clearly, no one in the IHBA realizes that during an economic depression, the price of all assets fall in proportion to the money supply – the availability of credit – just like the earlier price bubble was created by the inflated money supply and loose lending conditions. 

A deflated property price might not represent good value for the builder who is sitting on a loss, but the reality is that every house will find a willing buyer…if the price is low enough. 

With the market still moribund, there’s some way to go yet. 

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