Economics in easy steps

Sighs of relief will have been heard all over this country, and indeed around the world, at the news that the US Federal Reserve…

Sighs of relief will have been heard all over this country, and indeed around the world, at the news that the US Federal Reserve has seen fit to cut interest rates by half a percentage point in order to stave off a potential US recession.

Well, no. The truth is that most people would admit to having only the haziest ideas about international monetary policy and how it impacts on societies and individuals. And yet the impact is not in doubt. It just takes some time to be felt.

The trouble for the public is that the media analysts largely spend their time analysing developments for each other, leaving the rest of us in utter confusion, a blind panic or, more often than not, a state of complete indifference. These commentators are not really in touch with the ordinary reader. The man in the street can hardly be expected to be elated by a cut of half a per cent in anything, even if he should be. A "half-point" does not sound like much to him, even when it's a cut from an interest rate of 6-1/2 per cent, and thus represents a percentage rate drop of nearly 8 per cent.

(See how quickly it gets complicated?) He is not excited by the news that the Nasdaq ("dominated by high-technology shares") shot ahead by 14.1 per cent, the largest one-day gain in its history, or that the Dow Jones index also closed higher. It is economics at a distant remove.

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The man in the street is however generally aware that this country is Doing Well. He knows that there is money in the State coffers.

Though his personal exchequer position following the Christmas excesses may show a surplus of spending over revenue (and may well have done so for years), he almost certainly knows that the Government has cash to spare. He may not know that there is more cash than ever (a surplus of £2.4 billion), but he is fairly confident that the position is sound.

This kind of vague national confidence combined with reckless personal expenditure is entirely a product of Celtic Tiger mentality. Increasingly, people are blithely indifferent to financial realities, the money they spend and the money they could save.

Commenting just the other day on the drop in petrol prices and the fact that people could save £1.50 on a 30litre tank of fuel by shopping around, the AA's Conor Faughnan remarked that despite this, "people have an extraordinary tolerance for price differentials". Quite. Economists and commentators in recent days have been making much of what they tend to call the "full half-point" drop in US interest rates. However, to pedants, perfectionists, sub-editors and other picky people, a full half-point is a contradiction. There is a full point, but no such thing as a full half-point. It is Americanese.

Some people might well be served a "half-point" (of Hoineken perhaps) in south county Dublin pubs, but there is no difference at all, except in the eye of the beholder, between a full half-pint and a half-full pint. This brings us to a crucial economic indicator, the price of drink. Following the latest drop in VAT (I almost wrote VAT 69), our publicans have pledged to lower the price of a pint by 2p. With the average price of a pint of lager in a Dublin pub standing at £2.70, this means a price reduction of less than three-quarters of 1 per cent. One waits excitedly to see what the reduction will be on that terrible economic (and cultural) mistake, the half-pint. Even considering that a man who drinks five pints nightly (I know, I know) is set to save 70 pence weekly, and £36.40 over the course of a year, it is hard to get excited, any more than the man's wife will be thrilled when she learns how much he is "saving". And finally, based on the experience of recent weeks, here is a devastatingly simple economic plan for next Christmas. Go to your bank exactly two weeks before Christmas Day. Withdraw £30,000 in cash. No more and no less. You will find - if you are reasonably careful, of course - that this sum is perfectly adequate for all your seasonal needs.

It will buy your food and drink, the turkey with all the trimmings, the tree, the cards, the decorations, the presents and all the last-minute extras. The joy of it is that for a full fortnight, you will not need to write cheques on a daily basis, abuse your credit cards or visit the ATM at two-hour intervals. Like all the best economics, it is simplicity itself, and if there are any flaws I would like to hear about them.