From Department of Public Expenditure, NDP Delivery and Reform
By: Minister for Public Expenditure, NDP Delivery and Reform; Paschal Donohoe
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Last updated on
Wednesday 8 May 2024, University of Limerick
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The memory of the exchange with the young student is always clear to me.
It occurred when I was speaking to politics and economics students in my old secondary school of St Declan’s CBS. I was explaining decisions made in the recent budget.
A young student, seated in the front row, put up his hand and then, speaking carefully and deliberately, asked me the following question:
‘Why are you running budget surpluses if my family is worried about losing our rented home next week?’
I will come back to the answer that I offered him in a few moments’ time, but his question and my genuine attempts to answer it are at the very heart of why I believe the study of economics is so vital, and, in turn, why I am delighted to be with you today to recognise your work as young economists.
The Young Economist of the Year, organized by Oide, is a brilliant initiative. I want to thank the Department of Education and Minister Foley for their support for this work.
It was in secondary school that a brilliant teacher began to explain the concepts of economics to me.
I can still remember asking the question: ‘How can banks lend out more money than they take in on deposit?’
This ignited a love of economics that led me to the study of it at college, to my degree, and ultimately to the last twenty years, during which I have devoted most waking moments to public service.
This study of economics was also fundamentally influenced by the Global Financial Crisis. Anything that could go wrong with an economy went disastrously wrong with the Irish economy. That experience and the many difficult years of the aftermath defined my outlook on politics and economic policy.
So, based on all of those experiences I want to offer four thoughts that I hope will help with your continued study of economics and maybe the pursuit of all of the wonderful opportunities that can flow from it.
First - I fundamentally believe that the study of economics has a moral purpose. It is not ‘an end in itself’. Some study it, and there will be some of you here today, to better understand how financial markets work, to develop insights into how enterprises rise and fall - all with an aim of pursuing a commercial career. I did this before I entered politics. It is exciting, rewarding and great fun.
But, I believe that the deepest value in economics is how we can make better decisions about what matters to a society - about living standards, about homes, about greening our economy.
These decisions are not just about a better economy, they are about a better society. An economy exists within a society, not the other way around. The goal in economic decision making must be the common good. As Erik Angner the Swedish economist wrote ‘Economics has always been about fixing the world, making it a better place, more fit for human flourishing’.
Secondly - economics was divided for too long between ardent and unapologetic advocates of the free market or an almighty and all-knowing State. Thankfully these binary preoccupations have now faded amongst most serious economists. But, this perception still lingers. It is not accurate and it is damaging.
A fruitful theme of study is to be aware of the incredible strengths of States and markets and to gain a deep appreciation of how they depend on each other.
The amazing opportunities that await to be grasped, the immense risks that must be managed - all of this can only be achieved by both markets and States playing their part. The study of economics is essential to achieving this and to the creation of the mediation and regulation that is vital to allow both to flourish.
Third - be a critic, not a cynic. Do not mistake harsh skepticism for elegant thought. One is easy to achieve, the other all too hard.
So, use your studies to develop the skills and mental tools that allow an appreciation of complexity and a recognition of the importance of trade-offs. Beware of the lure of simple sweeping arguments, and if you find yourself making one with vigour and certainty, take a deep breath and re-discover the value of humility in the face of a complex world.
Finally - quantitative methods play a big role in the study of economics. But, I found the real wisdom in the study of economic history and in the psychology of decision making.
I wince to recall the devotion to the efficient markets hypothesis and to the many and artificial assumptions that underpinned models of the economy. We glibly assumed full rationality and full access to all available information in how economic actors make decisions. The consequences of these decisions were anything but theoretical.
Instead, study history. Read about the Great Depression, Tulipmania and why the euro was created - just as no country is poorer for having too many libraries, every economist will be richer by studying the books contained within them.
In conclusion, I wish you all every success in the next phase of your studies, lives and careers. By deciding to study economics, you have made a good decision, I hope it helps you to cross bridges and open doors.
So what did the teacher in St Declan’s say to me?
He explained the operation of fractional reserve banking and the role of central banks. This led me to also understanding the importance of trust in making economies work.
And what did I say to that young student in St Declan’s?
I said to him that my efforts, day and night, are all about meeting his needs. And what makes holding office a privilege but so demanding is the balance between meeting the needs, the urgent needs, of today while not spending money that we may not have tomorrow.
That this has happened again and again and caused such harm to our societies. I accompanied this by explaining how much money is being spent today and all that is been urgently done to provide more homes.
In conclusion, if economics is occasionally defined as the science of allocating scarce resources between competing demands. If this is so, then politics is the art of making these achievements.
In truth, I am not sure which is the art or the science. But I know that both, at their best, are moral pursuits. By studying economics each of you has, at the minimum, deepened your understanding of the world.
It is my hope however that you take this knowledge further, do not be content with understanding the world, use this gift to make it better.
Thank you.