The Tiramisu Budget: Is Ireland West European or West African?

0:00Podcast today comes from New York City. I am having a total laugh over here, doing a few gigs, and again, trying to feel the pulse of the United States. And the pulse is saying to me that Americans are worried about AI in a way they weren't worried some months ago. Now, the podcast is all going to be about that, because the money from AI and tech has cascaded into Ireland, and it's the background noise for the Irish last budget. and this podcast is going to be how Ireland is wasting all this money. It is going to be called the two tiramisuos of budgetary discipline. I know that makes no sense to you now, but it will in a couple of minutes.

0:41Talk to you then. It's all coming up in a few minutes.

0:47Hey, we're Nick and Jack, hosts of The Best One Yet. Behind every episode, there's research, email, spreadsheets, and our shared Google Doc, the headline hammer. With Google Workspace with Gemini, Google's AI is built right into the premium versions of tools we already use, like Gmail, Docs, and Sheets. No new tools or extra logins, just personalized AI for the way we work. That means less time on the work around the work and more time finding the stories worth talking about. Get AI tools for work. Upgrade to Google Workspace with Gemini at goo.gle slash workspace with Gemini. That's goo.gle slash workspace with Gemini.

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1:58Just before we start, as part of this year's Kilkenomics, we have a new musical offering called the Marble Sessions. Headlining this are Cardinals, one of the most talked about young bands. And you remember the other day, I was talking about the experience that I had seeing U2 when they were one of the most talked about young bands in Ireland. and that experience changing the way I thought about music. Well, now's your chance to see Cardinals at Kilkenny during the set theatre in Kilkenny on Saturday nights. Have a gander at kilkennyx.com for your tickets for Cardinals' headliners of the Marvel sessions.

2:39We'll see you in Kilkenny. Turn white as a ghost For the girl you love most In this home that you call on To understand the economy, you have to understand human nature. This podcast is powered by Acast.

3:03How are you doing there? It is time for the podcast. Today the podcast comes from the United States of America, from New York City. To be specific, from Greenwich Village, John, where I am doing a gig tonight. You'll know that gig we were actually talking about a while ago in the Irish Arts Centre in Hell's Kitchen, where I will be talking to Tony O'Sullivan this evening. And it's great to see the whole thing sold out. We're going to be talking about America. We're going to talk about Ireland. We're going to talk about Europe. We're going to talk about the world. All that sort of stuff. Yeah, sounds great.

3:38Sounds great. I'm sorry I'm not there, Mac. I just didn't get the invite, you know? You didn't get the nod. You didn't get the nod. But it's just that your top line melodies are good enough, you just have to work on them a bit more, you know? Yeah, yeah, yeah. Back to the drone board, absolutely. Back to the drone board. But you know what is funny though, Mac, is that you are sitting in New York, the home of tech, you know, the big gleaming city on the hill and your Wi-Fi is absolutely crap. Well, I think, you know what it is, John, it is interesting if you look at public infrastructure in the United States, any element of public infrastructure.

4:14and of course your telecoms infrastructure is part of that, it's very shoddy in comparison to the European offer. There's absolutely no doubt. And again, that goes directly to the paradox of the United States,

4:28David McWilliams: which is that when it is good, it is extremely good. But when it is bad, it is the worst in class. And it's those two paradoxes that people constantly have to juggle in their head about the US, you know? I mean, just to give you a sense though, John, I've been speaking here, I was speaking last night at another event, a more finance-y event, and it's very obvious now, very, very obvious now, that every single discussion I have with finance people reiterates about around when this AI bubble blows and what happens when it does. It's not a case of if, but when. I was going to say, so it is, they're absolutely convinced that it's going to blow.

5:14David McWilliams: Well, it's just, you can feel it in the last couple of weeks. There's a sense that, hold on a second, the long-term interest rates in America have risen dramatically. That's the 10 and 30-year rate of interest. They're moving towards 6 % now for the first time in two and a half, three decades. Now, what that means is that the cost of borrowing has gone up dramatically. And of course, the people who are doing most of the borrowing are the AI superscalers who have been borrowing enormous amounts of money. All the while, the price of AI, the actual cost of your chat GPTs and your clods are falling.

6:02David McWilliams: So unless they get a massive, massive uptake in usage, it is very, very difficult for them in a world where the rate of interest is rising, so the cost of borrowing is rising, but their revenue model is based on people continuing to buy expensive AI and the price of AI tokens are falling. So all taken together, it seems that there is the beginning of a nervousness in financial markets about the integrity of the super scalers in the sense that, yes, one of them may emerge as the winner in the AI race. It could be NVIDIA. It could be Anthropic. It could be OpenAI. But say OpenAI and Anthropic are the two big AI companies.

6:48NVIDIA is more making the sort of back-end sort of stuff, right? As to as Oracle, as to as Intel, et cetera.

6:55David McWilliams: But if you take those two major, major companies, you really get the palpable sense of anybody involved in that business that the next 12 months will prove critical as to whether one survives or the other one survives. And of course, into the mix, of course, you've got DeepMind and all those other companies, all of whom are spending enormous amounts of money on trying to alight upon the quickest, fastest, cheapest microchip to power the entire AI. That's the first thing. The second thing is, of course, as AI gets better, it becomes more and more and more data heavy because you're trying to scrape everything that has ever been written, everything that has ever been laid down, everything that has ever been mentioned on anything.

7:46So you need enormous amounts of computing power. And that enormous amount of computing power has to be stored somewhere. And that's our data centers. And in those data centers, the computing power is made either quicker or slower by the quality of the microchip. So it's like a massive arms race, John. You get the feeling that we're in the middle of a crazy, crazy arms race in order to see who wins this at the end of the day. It's like a space race of the 60s. It's very much like the space race in the 60s, except the numbers are greater. The numbers are bigger. That's the first thing. And the second thing is, now we're seeing that the demand for capital from the super scalars

8:31David McWilliams: is so strong that it is beginning to elbow out the demand for the American treasury. So the American treasury market, the very long end of the curve, is where everyone is financing themselves. And what you see, and we're going to come back to this on Thursday, is that the ratio of super scalers demand for capital to the treasury's demand for capital has gone from almost 1%. So basically, 1 % of all the capital out there was being used by super scalers, let's say, three and a half years ago. it is now 17%, 17 % of all the capital that the American government is requiring to run this whole country and to repack all its debts and to roll over all its debts and to pay for the military and to pay for health and education and everything.

9:2917 % of that is now being gobbled up by the super scalers alone

9:35David McWilliams: who are using that to build data centers. So there is an end of siècle feel to the place. And I didn't get that the last time I was here at all. And it's against that background that I want to discuss something that we avoided judiciously last week, which was the Irish budget, because I couldn't be arsed talking about who gave money to who. I really couldn't. But with the benefit of a couple of days of reflection, we can actually locate the Irish budget in a gradual deterioration of the competence of the Irish state. At a time when, this is my point, the message from the United States is the ebulence, the effervescence, the abundance of the tech stroke super scalar world.

10:27That abundance where there's loads of money and don't worry, and therefore there's loads of money left, there's loads of tax revenue, there's loads of money coming into Ireland, that may well be changing.

10:36David McWilliams: So just as the American world begins to worry about the spigot of money that has been thrown off by tech, which is in effect the gravy that lubricates the Irish budget machine, just when they're getting more worried about it over here, the Irish politicians are becoming more flahool and far, far less conservative and far less prudential at home. And that, I don't believe, bodes well for the future. So that is the podcast today, Johnny Boy. Fair enough. And just before we get into that, can I just ask you a question, though? I mean, would you view the amount of money, as you were talking about 17%, would you view that amount of money being thrown at AI or invested, let's be fair, invested in AI and tech and all the rest as being irresponsible.

11:33I know in a free market economy, you can't put caps and restrictions on stuff, but do you think there should have been? Is there an argument to put a restriction on the amount of money that's been spent? Because after all, when the bubble bursts, it's going to really burst and it's going to affect everybody, not just the tech industry, but the whole economy and global economy at that. Well, I think what you're seeing, John, No, I don't think you can put a cap on it because that goes against the very essence of the system here. But what you're seeing is a classic FOMO moment that everyone loves a winner.

12:09Okay, so just take that basic idea. Everyone loves a winner.

12:12David McWilliams: The winner has been tech and its most recent incarnation, AI, over the last 10 years since the pandemic. Okay, that is the area of the stock market that has gone up most. to the area that's created most wealth here. And as we know, a significant amount of Americans operate and manage their own pension through a system called the 401k. So they are actually soldered onto the stock market. And they talk about the stock market here all the time. Like nobody in Ireland would ever say, oh, CRH shares have gone up and Ryanair shares have gone down. Nobody talks like that. Well, it depends what bar you go to.

12:49Well, yeah, the sort of bars you go to, they talk about your CRH portfolio. The sort of bars I go to, right? Anyway, so that's the first thing.

12:57David McWilliams: There is a mindset here that is soldered on to the easy money of wealth creation. That's the first thing. The second thing is that there has, over the last six or seven years, emerged a much more gambling mentality in the United States rather than working. And that is something that Kyla Scanlon talks about, particularly about young people, which is that if you can only work on the minimum wage and everything you want has become unattainable, like a flat share or a flat or a home or all that sort of stuff, and you see people basically punting the market and getting rich, therefore you say, you know what, I want some of that easy money.

13:41David McWilliams: So that is the sort of background, and that background noise is facilitated by very low interest rates. Those very low interest rates came in during the pandemic, and psychologically there's still a perception that they are low. even though they've shifted too much, much higher, right? So that's the third thing. And you find that gambling instinct here on the stock market, on the bond market, on any sort of financial investment and our engineering, be it bonds or stocks or real estate, that's just in their psyche. And as a result of that, to answer your question, there seems to be a collective FOMO going on where everybody thinks they're missing out on something.

14:28David McWilliams: Everybody tells each other the story of the winner, not the loser. Because of social media and because of the extraordinary takeover of the media and the airwaves by social media, what you find is that social media is creating even more herd-like mentality because it's creating more people in the herd and as a result of that when the herd begins to turn it turns dramatically so all that i think is in the background that's the first thing the second thing is then every single tech person wants to be involved in ai the wages in ai have gone through the roof because the borrowing and AI has gone through the roof.

15:12And then if you look at inequality in the United States,

15:16David McWilliams: so I'll just give you a very strange figure, John, which is that the top 10 % of American earners, all of whom are leveraged to the stock market, account for 49 % of all consumer spending, right? So think about that. The top 10 % are the main consumer spenders. and 72 % of the top 10 % are between the age of 50 and 60. So what you have is you have the wealth is hyper-concentrated in the old and the wealthy and the top 1%. And then everybody else is playing the gambling game. I always draw the distinction in America, but I've always felt like there's two types of investors here. There's long-term, clever investors investors who are on the inside and play the game.

16:07David McWilliams: And then there's a whole underclass lottery players, people who are in effect buying scratch cards, right? And it's a scratch card mentality that one of these things will pay off, right? But you know that when you do the risk and return for these people, the lottery card, the scratch card investors, that they always lose. And the house, i.e. the wealthy people always win. And at a time of a huge speculative bubble like it's happening right now, the FOMO on the part of the scratch card investors drives them late into investments that the real guys have already got out of. And that's what I think is happening here.

16:48David McWilliams: And you can feel that anxiety under the hood a little bit. And all this brings me then to what happened last week in Ireland. And the reason it is, as our listeners know, is that Ireland is a derivative of the American economy. And like all derivatives, first, second, and third, the volatility of the derivative is much more than the volatility of the OG, the original of the species. and of course what we're finding in Ireland is that all this cascading of money has arrived in the coffers of a government, a political class, an institutional class, a public servant class that is probably least well disposed to spending the money properly and that's I think what we saw last week and that's what we're going to talk about.

17:35Yeah so what actually changed your mind from last week you were avoiding it like the plague, like the Russian plague. You didn't want to talk about the budget. And now you do. So what is it that you want to say, Mac?

17:50David McWilliams: I just thought, because I don't think the podcast should get involved in the Punch and Judy theatre that is Budget Day analysis in Ireland. Of course, of course. So now we've got a little bit of distance. We can see what happened, right? We're going to start our discussion on the Irish budget and its consequences. And we've taken a little bit of altitude from it and he's given it a few days to rest. By a quote by the Scottish diarist Samuel Boswell, who said that nothing focused the mind like a hanging, which I think is quite a good expression, right? Because he's basically said that he was talking in this case about an Anglican minister who was sentenced to hang in three weeks due to corruption.

18:29David McWilliams: This is in the 18th century. And then this man, of course, is trying to get his affairs in order. He's trying to focus his mind. And he's saying basically nothing focuses the mind like a hanging, which I think is one way of looking at capital punishment. But as long as it's not an American execution, you know, speaking of shoddy infrastructure and all the rest, there was the shoddy attempted execution of your one Christy Pike or whatever her name was. And now they're going to have a public execution by firing squad. Like, what's going on there? But anyway, that's a side. It's just that you brought up.

19:10Is that what they're doing? Yeah, Hegseth announced that the guy who shot the soldiers on the military base, I can't remember which one, about 10 years ago, he killed about 12 people. I mean, it was a shocking case altogether. But he was sentenced to death. But now Hegseth says that it's going to be a public execution on network TV via firing squad. I mean, given their track record, they'll probably miss anyway. Oh my God. Okay, I see.

19:41David McWilliams: I'm an American. I haven't even been following that. But I mean, I think when the home of liberalism decides that public executions on telly will make it stronger, you know there's something seriously wrong with the leadership. Well, it's akin to Iran and the Iranian regime. Yeah, yeah, yeah. That's the irony of it. No, it's dreadful. Anyway. The economic equivalent of nothing focuses the mind like a hanging is nothing focuses the mind like a hard budget, right? A hard budget is the key to making organizations and countries efficient, innovative, and thoughtful. It injects financial discipline into everything.

20:20It ensures that decision makers work through their options to get value for money. The hard budget in itself leads to better management, getting more from less. and because it requires more effort, right?

20:33David McWilliams: So a hard budget, if you're doing a gig and they say the budget is 10 grand, you say, okay, fine. But if somebody says, actually, the budget's seven grand, so you still got the thing made, you've got to get the gig up and running, on stage, everything working. Suddenly you become incredibly inventive, you become innovative, you do deals with people, you figure out, you know, can we cut that corner? Can we make do with this? Can we make old material work? We make maybe old infrastructure work. And suddenly the hard budget makes you sweat. And the hard budget makes you pensive. And it makes you thoughtful.

21:10And it leads to better management. In contrast. A sloppy bloat. I mean, you get this for everything you do, right? Well, I'll tell you what, Mike. I mean, that very point has brought home to me a number of years ago when I went to Japan to do a TV soundtrack. And we were there for three weeks. and we worked in like i'm telling you these were the best studios ever they were equipped top to toe with all the best gear the latest gear and lots of vintage gear and actually i found it overwhelming too much choice because i was kind of plugging everything in and when i listen back to the mixes that i did there they weren't nearly as good as the album i did on a farm where we put together a small 16-track studio in a barn in Shropshire.

21:59And those limitations in the barn in Shropshire made us work everything so much harder. And what it drew out was even more creativity in the engineering and innovation. And as a result, there was more soul, there was more energy, just a much better vibe. And the album sounds great, if I may say so myself. So take that, so take that. What's the name of the album, by the way? Tell the listeners. That was The Immaculate Fools' Another Man's World from about 91, I think. Another Man's World by The Immaculate Fools. Okay, then you will see, you will listen to the product of John's innovation. But your point is absolutely made well, right?

22:39So a hard budget focuses the mind, right? A sloppy budget, a bloated budget, where money's no problem, for example, always leads to waste. It leads to laziness. It leads to cynicism. It leads to cutting professional corners and outsourcing decision-making to the new machine, for example. And of course, it leads to the abandonment of accounting discipline to actually say, is this worth money? When money is wasted, this essential connection between the cost of something and the delivery of that quality breaks down. Yeah. So without a hard budget, management becomes almost impossible and corporations or organizations or countries that just begin to drift because eventually and gradually those countries and those companies become unable to deal with any shocks to the system that might lie ahead.

23:32Like I always compare it to like, it's like somebody who allows themselves to get out of shape, right? You allow your muscles to weaken, your weight to soar and eventually that person becomes far more susceptible to physical and even potentially emotional and psychological fragility. So the idea is what makes you fragile. And one of the things that makes you fragile, which looks like a strength, but actually is a weakness, is this idea of an easy, bloated budget. And I think if you take the image of the individual who kind of allows themselves to get out of shape, and you take countries and corporations, what you see is they operate in a similar fashion.

24:14Because if they become addicted to easy money, particularly if that money is somebody else's, this is the key, right? The gap opens up between reality and fantasy, reality and the real world, right? And the managers in these corporations or in these countries begin to feel that the money, the free money is theirs and they are entitled to it. And this creates a dependency. And then successful management no longer revolves around having the best use of resources to achieve some specific outcome. Successful management then becomes a smash and grab exercise centered on how much of this easy money do I get to expand my own little fiefdom here, my own little kingdom.

24:59This is what we're talking about when we're talking about big corporations, big bureaucracies. So without a budget constraint, the objective of management becomes expansion, not efficiency, becomes size, not value for money, and becomes terrain and terrain building rather than quality of output, right? And of course, then what happens, and this is all centered on what's happening in the Irish public sector, the organization morphs into an extractive machine, extracting money from the central budget, allowing the corporation or the part of the organization to get bigger and bigger. And of course, the bigger it gets, the more money it gobbles up, the more money it needs just to stand still, what you see is it begins to waste.

25:47that that is exactly a description of what's happening in the Irish state right now

25:52David McWilliams: with the American money coming in, this so-called free American money. Yeah. When it comes to things like budgets and stuff like that and policy, there's always this argument about, you know, who would be better to set a budget and to run a country, a politician who has little or no experience in the outside world, you know, arguably, or a so-called businessman. You know, if Michael O 'Leary was running the country. But I mean, we've seen this many times where running a company and running a country are two entirely different things. Yes, they are. Because there's a lot more nuances and stuff in running a country.

26:33Whereas somebody with a, you know, a commercial mind, a leader, a decision maker, a doer, somebody who gets things done, will be better running a country. But, you know, perhaps the ideal is somewhere in between. Well, I think the very interesting thing is about businessmen, right? Is that they are entirely, look at the AI. That's been run by alleged businessmen. The Irish banks were allegedly run by businessmen 20 years ago, right? Well, fair point, fair point, yeah.

27:00David McWilliams: A businessman's proclivity for blowing the budget is as obvious to me as a bureaucrat or a politician, right? We focus on a certain type of business person. So, for example, you take about Ryanair. Ryanair's absolute model is cost control, cost control, cost control. We are going to be cheaper than everybody else. And as a result of this, we are going to expand our fleet based entirely on cheapness. The only way we can be cheaper than everybody else is if we are more assiduous cost cutters. Because the price of petrol is the same. The price of the aircraft is the same for everybody. unless you can do big deals.

27:44You can only do big deals if you can discount,

27:46David McWilliams: if you can get huge buying power. The price of labor is more or less the same, or should be more or less the same. So what O 'Leary has done is he's attacked the non-unionized labor by paying less in certain areas. And they have tightened up on every single thing, so much so that he says to his fellas, what would I be doing giving you pens? Go and rob them in hotels like everyone else. and as a man who spends much time in hotels. Did he say that? Yes, he did. So are you filling your pockets there, are you? You're filling your boots. My rucksack is full of pens from various hotels around the world, all robbed.

28:27I can't help myself, John, when I leave a hotel. So I'm coming down. Anyway, let us get back to the issue at hand,

28:33David McWilliams: which is the bloated, endless amount of cash that is cascading from American multinationals who are AI and superscalar and tech adjacent into the Irish state, right? In development economics, we call this thing the resource curse. Because in effect, and we said it before in the podcast, the American multinationals can be regarded in terms of their impact on the broader Irish macroeconomic scene as being akin to an oil find, right? We didn't have them 20 years ago. we have them now. They are the result of a little bit of tricky and quite clever tax arbitrage. But in effect, we are suffering the same thing as the oil curse that you see in Angola, Nigeria, Venezuela.

29:23David McWilliams: The money flows in from the oil industry. It goes into the coffers. In those countries, it is divvied up. Lots of it flows into the pockets of the rulers, but it drives up the cost for everybody else. And the country ends up completely unbalanced, rich in some parts, but without the public infrastructure that the financial windfall could have paid for. That's what happens in the Nigerias of this world, in the Angolas of this world, etc., right? Where these huge oil finds have not elevated the position of the average citizen who actually owns the natural resources, but elevated the position of the rulers.

30:01David McWilliams: Now, in those countries, it's much more of a kleptocracy. In our country, the public sector is what is robbing the money. The kleptocracy exists, but it's going into something that looks democratic and that looks part of the system, but that is actually the same process. We just don't have the alfresco corruption of actually taking the money from Ireland to a Swiss bank account, which is what some of our African friends do. What we are doing is we're taking the money and We're putting it into the machine that is the bureaucracy. So it's not corruption as such. It's just mismanagement or incompetence.

30:39You could say it's corruption in the sense that what it is,

30:41David McWilliams: it's a smash and grab exercise by one sector of the population, the bureaucracy, to acquire the fruits of this windfall. You could say it is. Whereas other countries would say that what you should do is you should actually reduce the tax rate on everyone rather than build up the bureaucracy in which everyone gains. So these are two different ways of looking at it. But in terms of management, right, if African countries like Nigeria are synonymous with bad management, an example of a good country with an oil find is, of course, Norway, which is synonymous with good management because Norway have taken their oil windfall.

31:20David McWilliams: They've invested it judiciously and democratically for future generations rather than blow all the goodies today. Yeah. So now you've got that framework in your head, John. let's look at what Ireland is doing. Norway is saving for the future. Nigeria is blowing it today. What's Ireland doing? Is Ireland West European or West African? That's the question, Joe. Well, let's delve into that in a few minutes.

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33:54So, Mac, are we more West African or West Europe in our financial dealings? In the way in which we manage the windfall, right?

34:04David McWilliams: Let's look at the evidence. The evidence is last week's budget. The Irish state has a choice as to what to do with this money. It can spend it today. It can save it. It can use it for public infrastructure judiciously, or it can give away sweeties. Tax cuts, for example, or welfare increases are a combination of both, right? So the first thing to look at is the government flatters to deceive. So the first thing that came out was, we have an overall budget surplus of 9 billion euros this year. That's what it said, okay? Woo, isn't it amazing? Isn't it amazing? We're the only people in the world, right?

34:45But that looks great.

34:46David McWilliams: But then you consider the Department of Finance regards about 23 billion euros of the 34 billion euros in projected corporation tax this year as being transient. So it says, the department says, the 23 billion of the 34 billion shouldn't be spent because the chances are it's entirely related to this AI boom over here in America. And when that goes bust, the large tech companies will retrench dramatically because they have to pay all the debts they've actually incurred. And that money, that so-called corporation tax will disappear, right? Disappear overnight. And so they're saying once that disappears, and if it disappears, we're in a different world.

35:38David McWilliams: So if we were to strip out that 23 billion that they believe is now transient, our underlying budget position goes from a surplus of 9 billion to a deficit of 13 to 14 billion this year. And given the commitments already outlined in the budget, that deficit would rise to 20 billion by 2029. And does that include the likes of all the adjacent businesses that kind of survive off the multinationals in Ireland? No, what it's just looking at is the windfall taxation that is coming in directly in corporation tax. So that's not talking about the amount of people employed, the amount of suppliers, as you said, the middlemen who are servicing.

36:29But all of these parts of the economy are entirely dependent on blue skies forever being the Californian backdrop. The Silicon Valley, we don't want any of your El Ninos. We want any of your clouds coming in. It has to be blue skies all the time. And of course, that's not going to happen. So put that aside, right? But even from a perspective of the macroeconomic worldview,

36:54David McWilliams: from what we call the cyclical perspective, right? A country that is at full employment, which is what Ireland is, we don't need to throw any more money into the economy. We should be taking money out of the economy because the economy is already bursting at the seams. The best way to imagine that is get the M50 any time of the day going north from our neck of the woods around, let's say, Dundrum, where you get onto the M50, all the way across to Liffey Valley is a car park. Now, what is that telling you? It's telling you the economy is bursting at the seams, that the demand, which is the cars, is so far outstripped the supply, which is the road, that traffic, I think traffic is the best for anyone trying to understand economics.

37:48David McWilliams: Forget your macroeconomics and your current account and your budget, just take traffic because traffic shows you that the economy is bursting at the seams and it is all over Ireland, right? So you take that and then you throw an extra 7.4 billion euros into that economy in tax cuts and welfare payments as they've done. That's just going to make the whole thing worse. It's going to make the value for money worse. Basically, you've got more money chasing less goods. You've got more demand chasing less supply. What does that do? That drives up the cost of living, right? Because prices go up. Yeah, of course it does.

38:25David McWilliams: And of course, half of the government's money that they're spending is what they call cost of living relief, right? So they're giving people money to offset the increase in the prices. But the increase in the money they're giving will push up the prices. The extra money, throwing extra money at this problem, will not cause prices to fall. It will cause prices to rise because the extra handouts to soften the blow will simply increase the dependency on handouts rather than cut prices permanently. So you get the worst of all worlds. Handouts drive prices upwards. And this is mistakenly being put forward as a solution to high prices.

39:06It's crazy stuff, right? Well, just on that, Mac, I mean, it was only last week that you were saying that the answer to high prices is high prices. Does that apply here?

39:17David McWilliams: Yeah. So what these people are, what they're doing is they're saying, we have high prices, so we should let them come down naturally. What we're going to do is we're going to give people a subsidy to pay for high prices in things like energy, which will only drive prices up yet further. So if the answer to high prices were high prices, then you let the answer answer itself. What this state is doing, it's using money from the Americans. I mean, this is like the economics of Noddy Land, right? It's taking money from the Americans, which has got nothing to do with Ireland, which is gained elsewhere.

39:48and they're pushing it into an already overheating economy in the guise of a subsidy. And they are hoping that that subsidy will actually make people feel better when they know if any of them, any basic, even ordinary level, leave insert economic qualifications, that what you're going to get is higher prices, right? Again, they can't help themselves. Why? Because the bureaucracy is so bloated that the bureaucracy is only about growing. It's not about value for money. It's not about efficiency. It's saying, let's spend all this bloody money that's coming in. But can I just say, though, that as a government overseeing a cost of living crisis that is worldwide, that is caused by external factors like the war in Iran and the Straits of Hormuz and the oil crisis, along with things like tariffs and stuff, that, you know, they have to be seen to be addressing the people's concerns of, I can't afford my rent or I can't afford my electricity or milk or bread or whatever.

40:54David McWilliams: So the answer to not afford an electricity is build more electricity capacity. Build more wind farms, go nuclear, build more wind farms, and we can subsidize them because you're subsidizing something that's going to produce something. We build a nuclear power station and we use the bond market to do this and we reduce profoundly the cost of power in the future. Also, to build the French interconnector, to use French nuclear power, which is also cheaper. This is the answer. The answer to energy prices is not to continue to give people subsidies to make legitimate the last increase in prices. It's actually to fix it.

41:44The way in which you bring down rent is you build more houses and you build them quickly and you build them and you go up and you build them in places where people want.

41:54David McWilliams: So rather than find the solution to the problem, we are putting a plaster on the problem, using the soothing balm of other people's money and hoping to kick for touch to the next election. That's the strategy here. The fiscal council say that the government's baseline targets for increasing expenditures about 5 % per year. We are now spending money at double that rate. So we are spending the windfall that should be saved. And we're spending it in order to give the people what they believe the people want. This is Fina Gael and Fina Fáil. But rather than taking the hard decisions, they're using the easy money to do the easy thing.

42:49David McWilliams: Now, of course, it's not just the lack, and this is important, John, of a hard budget. That means hard decisions are not paid, right? Because there's not just a financial management problem here in Ireland. There's an organizational problem. Take, for example, this rotating Taoiseach codology. Okay. It's only a cod. It's complete bullshit, right? It's only a cod. And rotating T-shirts comes from exactly the same place as not being able to make hard decisions on budgets. Nobody stands up and says, hold on a second. We can't be sharing bosses, sharing these jobs. It's a ludicrous idea, right? Okay, so we have one guy, Micheál Martin, who's in the job but on his way out.

43:33We have another guy, Simon Harris, who's about to get the big job. So who's the most important man in the world? the fellow who's about to get the big job, not the fellow who has the big job. So suddenly everything that Micheál Martin says is kind of discounted because he's not going to be in the game, right? Now, what this means is a management signal is that the incentive for all the senior public servants and the politicians is to curry favor with the next guy, not the guy in charge, thus undermining the guy in charge. If you think that chronology is worse, about four years ago, they split the Department of Finance into two.

44:08So now you have the Department of Finance and the Department of Public Expenditure. Like, what the fuck? What was the thinking behind that? Bureaucracy. This is when I come back to the idea. When the money comes into the system, it just bloats. It gets bigger and bigger. It's like, I'll have two apple tarts for my dessert, not one. This is basically what it is. I'll have two steaks. Extra mushy peas, please. I'll have extra mushy peas. We'll have two of everything. Because why? Because we have the money. It's like someone going into a restaurant with a voucher that they've been given for Christmas.

44:42And just saying, do you know what I'm going to have? I'm going to have two tiramisu's because I have the voucher because it's free. Same idea. So you'd have the Department of Public Expenditure and the Department of Finance. In the old days, you'd just have the Department of Finance. So there's a ton of war between these two departments. And then, of course, the department that used to make all the decisions in the past, right? The most important department was the thing called the Department of the Taoiseach, which was the basic nerve centre that made all the decisions. But now they're too tishy.

45:13So they don't know which one to go. Are we the Department of the Taoiseach who's in there now? Are the Department of the Taoiseach who's about to be in, right? And it leads to complete paralysis in the nerve centre of the government. Political gluttony. Yes, exactly. It's the two tiramisu's approach to managing the economy, right? So everything is neutered because nobody knows who's important, who's not.

45:34David McWilliams: that all this is happening at a time when I'm in New York here and I'm listening to the financial players. Last night I did a gig for a big financial outfit. We stayed late. I listened to what the guys were saying. And it was all about worrying that the font of the Irish windfall, they don't care about Ireland. These are all Americans, right? But I'm caring that the font of the windfall, which is the financial health of the large American tech companies, is becoming more and more the subject of nervousness here. And nobody in Ireland, nobody in Ireland is picking this up because we're busy eating tiramisu.

46:14We are busy in the metaphorical, the two-tirmisu eating phase of budgets. And so as a result of this, John, when it comes to macroeconomic management, we are closer to the wrong end than the right end. The right end is Norway, which we should be closer to. But we are now closer to the wrong end, and that is Nigeria. And that's not the place you want to be as we go into turbulence. Talk to you on Thursday. By the way, if you want to get this podcast early and with no ads, join us on Patreon. That's patreon.com forward slash David McWilliams and join the gang.

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