Kenny’s irrational behaviour hard to understand

As a part-time lecturer in economics I always try to hammer home to students in the first class the hazards of trying to forecast the economic future based on the fact that economics is a social science where outcomes are very heavily determined by human behaviour.

Kenny’s irrational behaviour hard to understand

Human behaviour is rarely straightforward and can rarely be predicted with any degree of certainty. The other unfortunate aspect of trying to forecast the future is the inordinate impact that the actions of the political classes can have.

In my experience the long term for most politicians does not extend beyond the next election and hence their actions will tend to be very heavily influenced by what they need to do to get re-elected.

We saw a prime example of this over the past week with the intervention by a former junior minister who was instrumental in setting up the new Irish Water company launching a scathing attack on it.

This is bizarre, but presumably is driven by the need to tell his electorate what he thinks they might want to hear and hence boost his fragile re-election prospects. Such behaviour is not easy to understand at one level, but on another level is totally rational, given that re-election is the objective.

Perhaps it is the case that politicians are actually the most rational amongst us, but even politicians will occasionally act irrationally. The latest opinion polls show that the main party of government has been caught by the main party of opposition, Sinn Féin, in the latest opinion polls.

This is despite the fact that economic forecasters are falling over each other to upgrade economic forecasts for this year and next.

Even the traditionally cautious Department of Finance is getting in on the act. This week its chief economist presented the economic forecasts on which next week’s budget will be prepared and presented.

It makes for pleasant reading. After seven pretty dismal years for the country, activity as measured by gross domestic product (GDP) is forecast to expand by 4.7% this year and 3.6% next year.

While this is pretty strong stuff it is still considerably less buoyant than the latest prognostications from the ESRI also published this week. The department is also forecasting pretty decent growth in employment and a steady decline in unemployment over the next couple of years.

Based on all we know and currently understand about the economy, these forecasts are difficult to argue with and there is a fair chance that the ESRI’s much more ambitious prognostications could be even more realisable.

Against this backdrop the minister for finance will be able to stand up in the Dáil next week and deliver the most positive budget since 2006. He will be limited in what he is able to deliver due to the massive sovereign debt overhang, but he will still be in a position to make some contribution to people’s pockets with the promise of considerably more next year.

In very difficult circumstances, the Government has presided over and can take some credit for the improved fortunes of the economy. Yet it is still performing poorly in the opinion polls and I have heard a number of Fine Gael people express wonder at the ingratitude of the electorate.

The Taoiseach grabbed defeat from the jaws of victory in recent weeks with the total debacle over the Seanad by-election. Indeed this debacle, and the manner in which appointments to state boards is being made by government, is playing into the hands of Sinn Féin.

It is really difficult to understand how a seasoned politician could behave so irrationally, but it threatens to destroy the political fruits of the good job it is doing in relation to the economy. It is not easy to comprehend.

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