Economics: Twenty-five years ago, almost to the day, in May 1981, Magill magazine's front cover issued a stark warning: "Politicians have been engaged in reckless policies which may well lead to financial collapse and national bankruptcy. The situation may already be out of control . . ." Five "senior economists" were pictured under the heading and inside the magazine they expounded on this thesis over eight pages.
It was one of the low points of our economic history, with unemployment approaching 16 per cent, inflation running at around 21 per cent and the country so heavily in debt that the phrase "public sector borrowing requirement" was being bandied around knowledgably from the hairdressers of Crumlin to the pubs of Cahirciveen. The people needed to be rescued from the cruel clutches of the politicians and civil servants and the Famous Five rode into town to show the way. Calm was eventually restored and by the end of the decade inflation and unemployment were reduced to low single figures, conversations about the "public sector borrowing requirement" were replaced by discussions of the relative merits of different makes of SUVs and apartments in the Algarve. Economists were confined to the snugs of Doheny & Nesbitt's, apart from the occasional foray on Saturday or Sunday mornings to assure everyone on radio chat shows, which only their mothers and close friends listened to, that we were all doing fine.
But success inevitably brings its own problems, from the intractable (ie, the health service) to the inexplicable (ie, the price of houses), so it may well be time for another dose of economic reality before we overdose completely on economic excess.
A new book by a young British economist could be a good starting point. Tim Harford has been writing an amusing "Undercover Economist" column in the Financial Times's Saturday magazine, in which he discusses mundane issues from everyday life in the dry academic language of the professional economist. Recent examples dealt with the old gender war classic, whether toilet seats should be left down or left up, and the most economically efficient way to cope with the problem of wedding presents. Most of the conclusions tend to be a little extreme and are often impractical but invariably there is a disturbing grain of truth which forces you to question the status quo, not to mention your own inbuilt prejudices and assumptions. Harford's book deals with more weighty issues, such as why some countries are rich and others poor, but he also explains why popcorn costs so much in cinemas, why more of us are prepared to pay exorbitant prices for a cup of coffee in busy urban centres, and how to beat powerful grocery retailers by recognising the items with high mark-ups. But the approach is the same, to view contemporary problems from a purely economic perspective. The result is strangely illuminating and may be directly relevant to our current situation.
The chapter on traffic congestion is a case in point. The author's relentless economic logic leads him to the conclusion that the problem is not the number of cars, but the number of car journeys people make. The price drivers pay for extra trips is low because road tax is flat, therefore the obvious answer to the problem is to impose congestion charges. Within a year of congestion charges being introduced in London, car journeys in the capital fell by nearly a third.
LIKE MOST ECONOMISTS, Harford believes the market represents the truth, the light and the way because it ensures that businesses are making the right things in the right proportions. Like most economists, he points out the dangers of the tangled web we are likely to weave if we interfere in the workings of the market, but he recognises that the market, which he likens to a race, can lead to very unfair results, and is therefore prepared to re-arrange the starting blocks.
We have enjoyed unprecedented economic success during the last decade but some of our own "undercover economists", being true to their nature and always wanting to spoil the party, have pointed out that we were merely playing catch-up with the rest of Europe. Now that we've caught up, an addiction to gambling on bricks and mortar may not be enough to maintain our giddy success. It has recently been pointed out that the earth is increasingly flat so we can expect to face more competition from countries we haven't even bought any property in yet. We are faced with harsh decisions on health, education and transport and our tentative steps towards deregulation have been uninspired, to say the least. The light that economics can bring to bear on these decisions won't be welcomed by any of us but that makes it all the more necessary. Politicians and civil servants should prepare themselves by reading this book and economists may have to forsake the comfortable "cover" of Doheny & Nesbitt's and rescue us once again.
The Undercover Economist By Tim Harford Little Brown, 255pp. £17.99
John Fanning is executive chairman of McConnells Advertising. His book, The Importance of Being Branded: An Irish Perspective, will be published by Liffey Press next month