Who shot the Celtic Tiger? Well, don’t blame me and George Lee

The idea that the media is responsible for the loss of consumer confidence that has undermined the economy is nonsense.

If anything, the media is guilty of not ringing the warning bells loudly or often enough during the boom. But then again few enough people wanted to listen

IT’S ALL George Lee’s fault, with those doom-laden news reports he delivers on radio and television.

Or, if you prefer, you can blame David McWilliams and those populist books of his that made the economy so accessible. Or you can trace it all back to that Future Shock television programme that Richard Curran made for RTÉ Television last year and which highlighted the damage to the economy that would be done if values in the property market collapsed.

Judging by many of the text messages I get to The Last Word each evening some people believe I’ve played my part, too. My “crime” has been to bring a succession of economists like Jim Power and Alan Aherne onto my radio programme to spread doom and gloom and, according to my text critics, I’ve asked them all sorts of leading questions in order to prompt them to draw their dire conclusions.

No wonder the economy is in trouble with all of this loose talk. All the talk from Lee, McWilliams and Curran has made money more expensive to borrow, increased the price of oil and just about everything else and pulled down property prices.

All of the confidence created by the boom of the past decade has been undermined by my ilk with our scaremongering. Some of these pundits also stand accused of almost revelling in the fall, of creating much of the misery that they then fall upon to prepare their reports. They may try their best to hide it, but they cannot disguise their pleasure at being proved right (eventually)... that it was all too good to be true, that it couldn’t last and that it would all end in tears (I’ve been accused of that too in some anonymous text messages).

This brings us to consumer sentiment, which is something that can be measured apparently. IIB Bank and the Economic and Social Research Institute (ESRI) produce an index each month, and for April 2008, the score was 56. This is bad news, they say, because this is a substantial fall from the previous month’s mark of 63.3 and is the lowest-ever score since the index was constructed to measure the health of the Celtic Tiger.

The previous low was 60.9 in July 2003 when the slowdown caused by the bursting of the hi-tech bubble was being felt and just before a pick-up that autumn became discernible.

The compilers of the index do not provide a definition of what exactly is consumer sentiment, but I assume it to be a statement of how confident people are about spending and investing money and having a future inflow of the stuff.

The ESRI’s David Duffy has warned that in April “one in every three consumers expected their household incomes to disimprove over the next 12 months … Consumers remain concerned about the jobs losses, rising prices and the outlook for the property sector”.

The IIB’s Austin Hughes is a glass half-full kind of man. He believes the collapse in consumer confidence was almost inevitable given the issues mentioned by Duffy. He noted the survey indicated that Irish consumers are notably more worried about the general economic climate than about their own personal finances. “This may suggest that consumers have braced themselves for a difficult period but are not experiencing acute problems,” he said.

Let’s hope Hughes is right because his contention then is that while spending may remain sluggish for a few months, confidence will return.

However, there remains the more likely danger that people haven’t copped on that all that’s going on in the world applies to them, not just to everyone else. Then, when the cent drops, they may rein in spending considerably, either by choice or by compulsion.

The idea that the Irish media is responsible for causing a loss in consumer confidence that has undermined the economy is nonsense. If anything the media is guilty of not ringing the warning bells loudly or often enough during the boom. But then again few enough people wanted to listen and hype merchants always demanded their say in the interests of balance.

The main cause of the current crisis is the so-called credit crunch, an international phenomenon that has made bank finance largely unavailable, notwithstanding the low interest rates set by central banks.

The problems for Ireland have been made worse by the excessive property valuations of recent years and the loss of competitiveness for exporters caused by the rise in the value of the euro against sterling and the dollar.

The media should not shy away from the job of pointing out what is happening, even if it has the effect of further undermining confidence. That sort of censorship is what some people appear to want, particularly business people. The irony is that many of the same people are not slow to cite all sorts of negatives when it suits them, especially when demanding that employees sacrifice pay rises.

It should be admitted, however, that some of the dislocation between people’s sentiment towards the general economy and their own personal circumstances could be the result of hyped media commentary. People cannot avoid being bombarded with negative publicity and awareness of it can distract from the fact that their own financial circumstances may remain in rude good health. For example, it seems we have never had so many wealthy people here — 33,000 net asset millionaires in one estimate for example — and even though property values have declined by about 20% many people retain very substantial, if unrealisable, equity in their homes. The savings rate — at 32% — is also considered high and many people wisely squirreled their money from Special Savings Investment Accounts rather than blowing them last year as had been expected.

HOWEVER, an age and wealth profile of the ubiquitous consumer, as measured by the IIB/ESRI index, would be useful. I suspect many middle-aged and older people are relatively unconcerned by all that’s going on economically at present — apart from a few worries about their pensions.

It’s younger people, often those with dependent children, who may have far more reason to worry.

Seduced by the devious propaganda of ever-rising markets and ever-better times, they borrowed massive sums of money to buy overpriced assets and may now have difficulties in meeting repayments. They are especially vulnerable to job losses or reduced overtime, or pay freezes at a time of rising inflation.

However, all the news this week was not bad and, paradoxically, the best came on the day Dell announced 250 job losses (and the IIB/ESRI survey was released).

The head of the US Chamber of Commerce in Ireland, Joanne Richardson, came onto my programme and revealed that for every job lost at a US multinational in Ireland this year, three had been created by existing or newly arrived firms.

The recruitment pages remain surprisingly full and employers do not waste money advertising jobs they don’t want to fill. Many people still have money to spend and may do so if they see better value available. If more realism is shown on the way down than it was on the way up, the extent of the slump can be limited.

The Last Word with Matt Cooper is broadcast on 100-102 Today FM, Monday to Friday, 4.30pm to 7pm.