THIS week's admission from the ESRI that it "could have done better" in forecasting the financial crisis, cast an unwelcome cloud over the economics think tank's 50th anniversary celebrations and its director, Professor Frances Ruane.
Ever since its foundation in 1960 the ESRI has been at the heart of the Irish economic establishment. This point was emphasised this week when the 93-year-old TK Whitaker, the former secretary of the Central Bank, governor of the Central Bank and de facto patron saint of Irish economics, was wheeled out as part of the ESRI golden jubilee celebrations.
It was, of course, only right and proper that Whitaker, the outstanding Irish civil servant of his -- or indeed any other -- generation, should play a role in the ESRI's anniversary celebrations. Way back in 1960 when serving as secretary of the Department of Finance he recognised the need for an independent economic research institute. Without Whitaker's support it is unlikely that the fledgling ESRI would ever have got off the ground.
Over the intervening 50 years the role of the ESRI has grown steadily in importance. In recent years, as the Department of Finance has found it increasingly difficult to recruit and retain in-house economists, it has increasingly come to rely on the ESRI for the economic forecasting previously carried out by its own staff.
Explanations for the Department of Finance's lack of in-house economics expertise vary. Some blame it on the natural tendency of bureaucrats to marginalise and exclude those with superior technical knowledge.
That is, at most, only a partial explanation. After the Irish pound split from sterling in 1979 the currency and bond trading desks of the Irish banks expanded rapidly. This created a huge demand for trained economists. With money no object the banks were able to recruit economists virtually at will from the public sector.
The haemorrhage was only partially staunched in 1990 when the government allowed Michael Somers to hive off the Department of Finance's debt management division to form the National Treasury Management Agency (NTMA). As the NTMA paid its staff market rates this levelled the playing field somewhat.
Unfortunately, these market-rate salaries didn't extend to the rest of the public sector, including the Department of Finance.
The department's misfortune was the ESRI's gain. Its economic publications, particularly its 'Quarterly Economic Commentary' and 'Medium-Term Review' became the gold standard of Irish economic forecasting. Some of its economists, including former 'Quarterly Economic Commentary' editor, and current IBEC boss, Danny McCoy, became media superstars.
Unfortunately, now that the economic boom has turned to bust, the costs of such prominence are becoming painfully apparent. Like most of the rest of the Irish economics profession, the ESRI missed most of the danger signals flashing angry red from the middle of the last decade onwards.
As late as the summer of 2008 the ESRI wrote in its 'Medium-Term Review' that: "The economy has the potential to grow at around 3.75pc a year over the coming decade, despite significant short-term problems. When the current global economic downturn ends, with appropriate policies the economy should recover quite rapidly."
Oops! The economy has since contracted by over a sixth in real terms. And that wasn't the only clanger dropped by the ESRI.
It assured us in its 'Summer 2007 Quarterly Economic Commentary' that: "As the housing boom comes to an end the economy must move resources to other areas of economic activity, such that the transition is as smooth as possible in terms of output and employment. We are optimistic that such a smooth transition will occur."
Since those soothing words were penned, the banks, stuffed to the gills with bad property-based loans, have virtually gone bust, while construction employment has collapsed from over 280,000 to less than 130,000. A "transition" yes -- but hardly a smooth one.
Then, in March, the ESRI was forced to "correct" a report it had been commissioned to write by the promoters of the proposed incineration plant at Poolbeg following criticism by Environment Minister, and local constituency TD, John Gormley.
While it was all smiles at this week's anniversary celebrations, there was no escaping the ESRI's forecasting errors.
Questioned about these lapses, Professor Ruane conceded that the ESRI "could have done a better job".
You can say that again!
According to Professor Ruane, there is a shortage of macro-economists (the guys who look at the bigger picture rather than concentrating on specific aspects of the economy). As a result, the ESRI failed to make the connection between what was going on in the construction and property sectors and the wider economy.
"The issue is that we didn't know what was going on in banking," she said. Instead, the ESRI relied on assurances from the Central Bank and the Financial Regulator that all was well with the banks.
"I think if we had had the resources we probably could have done a better job in coming in earlier and realising there was a problem. We knew there was a gap," she said.
Oh, come off it! This "resources" excuse is just a variation on the old "Give us 300pc of GDP and we will solve the health/education/crime/ unemployment problem" plea. In other words, no excuse at all.
Having been ESRI director since December 2006 most of these failings took place on her watch. The buck stops with Professor Ruane.
A native of Tuam, Co Galway, Professor Ruane is a career academic economist. After graduating from UCD with bachelor's and master's degrees in economics she went on to receive her doctorate from Nuffield College, Oxford.
After short stints at the IDA and the Central Bank, she joined the academic staff at Trinity in 1977, first as an economics lecturer and from 1991 as associate economics professor. As an economist she specialised in foreign direct investment, Irish economic development and labour market policy.
AS well as serving at the economics faculty at Trinity she found time to take up a wide variety of other roles, both inside and outside of academia.
These included stints as economics editor of the 'Economic and Social Review' and president of the Irish Economic Association, as well as spells on the boards of Bord Gais, the Abbey Theatre, the IDA, Forfas and Depfa, the German-owned, IFSC-based real estate bank which had to be bailed out in 2007.
As a well plugged-in economics insider, her appointment as director of the ESRI in succession to Brendan Whelan came as no great surprise. One of the members of the selection committee which recommended her appointment was Tom Considine, then secretary-general of the Department of Finance.
So what does the future hold for Ruane and the ESRI? There is no doubt that the organisation's previously stellar reputation has been tarnished by its recent forecasting failures. Has it allowed itself to become too close to the Department of Finance, which provides almost half of its annual income?
At it celebrates its 50th birthday, it is clear that the ESRI must do some serious soul-searching if it is to avoid repeating the errors which have contributed so greatly to its current predicament.