When I was 16 I requested an increase in my weekly allowance from my father on the basis of new inflation figures. I had a good argument and was successful. I saw my pocket money increase from £7 to £10. Fortunately my father was unaware of the dangers of wage/inflation spiral.

Of all economic concepts few are so easily understandable and have such a direct bearing on the every day life of the fearr on the street as Inflation. Inflation figures make the front page of tabloid papers. Trade deficits don't. Inflation is used by trade unions and social partners to calculate wage increases in partnership talks. It is used by governments in deciding upon social welfare increases. It is used by the ECB to determine to interest rates. Its crucial to economic policy and to our lives.

Therefore you would imagine the methods by which the all important figure is calculated would be off immense debate. You would imagine that up and down the country in bars and sports clubs the men and women of Ireland would be engaged in intense debate regarding the accuracy or otherwise of the latest CSO. At the very least you would expect some politicians and trade unionist to be discussing. They rarely do. The debate centers around how we can alter the figure (usually how we can make it lower) or what we need to do on account of the figure (usually increase wages/benefits) not around the correctness or appropriateness of application of the figure.

The figure we see in the media for in Inflation in Ireland is calculate by the CSO. They have a 'basket of goods' consumed by the average consumer. Each item in this basket is given a certain weighting. For example a loaf of bread is given a higher weighting than a packet of cigarettes as the price of bread effects almost everyone while only smokers are effected by the price of cigarettes. The prices in this basket are tracked month on month and the figure we see is the percentage change of the total cost of this basket compared to 12 months ago (currently 5.1%). But what is in this basket? What weighting are items given and can we extrapolate from this sample a reliable figure regarding the cost of living?

Well up until February a Walkman was still in this basket of goods. The good folk at the CSO decided it was time to remove the Walkman and instead track the change in the price of an I-pod. Other controversial items include cigarettes and a mortgage. The latter being unique to Ireland. Another measure of inflation is the EU harmonized index which does not include the cost of mortgage repayments. This figure tends to be a lot lower than the CSO figure, but is rarely reported and rarely used in political discourse. The difficulty with mortgage repayments is that it is effected by interest rates hikes. The interest rate hike is itself determined by inflation figures. So when inflation is high and the Central Bank decided to raise interest rates, mortgage repayments will go up and the reported rate of inflation will go – leaving the Central Bank with no option but raise rates again! All a bit silly.

Also we have to question the application of the figures. Lets say, like in recent months, the rate of inflation has been greatly affected by interest rate hikes and rise in the price of petrol. You, like me, do not own either a car and a mortgage. Is the rate of inflation applicable to you? Probably not. Is it applicable to pensioners? They tend not to own cars and those who do own their own houses are unlikely to be still repaying mortgages. Yet the annual pension increase are broadly kept in line with inflation. In the UK they are directly linked to inflation rises. At the moment pensioners are probably getting an increase above and beyond the actual rise in their cost of living. That might not be a bad thing. But lets say thing turned around a bit. Interest rates start to fall, petrol starts to fall. Now the inflation rate is unnaturally low and the pension cost of living may be higher than

One of the great myths about Irish society, and one which we are doomed to hear being over the coming election weeks, is that Ireland is becoming more and more more unequal. Those on the left in particular feel uncomfortable with economic development and the Irish Hare (see previous blog) and feel it necessary to criticise Ireland's economic expansion. This is akin to criticizing Christmas presents.

This readiness to criticize the economy is partly due to the success of Fianna Fail and the PD's in claiming ownership of the boom and party down to the oppositions lack of grace in acknowledging the areas in which the government has done well.

One of the biggest criticism you will hear is that the gap between the rich and the poor has got bigger. The two problems that I have with this are as follows: 1/ There are plenty of figures that show that this is not the case (e.g OCED's Economic Report on Ireland, 2006) and 2/ It is not necessarily a bad thing.

That second point might be tad controversial. How could I be in favour of inequality? Well consider the following example. 2 people live on an Island in the South Pacific, Enda and Bertie. Enda has €200 and Bertie has €100. Ship is wrecked off the coast of the island and and chest with and extra €100 washes ashore. The two men run down to the beach and try to salvage what they can. Enda manages to take €60 and Bertie takes €40. So now the rich man, Enda, has €260 and Bertie has €140. Both are now better off in absolute terms and are damm glad that the money washed ashore.

It is fair to say that Bertie is now worse off in relative terms and that the gap between the rich and the poor has widened. However would Bertie be better off had the money never washed ashore? Harldy. Also take in to account the marginal benefit received by both men from the shipwreck. Bertie is now 40% better off while Enda is only 30% better off as a result of the shipwreck.

Now, of course is would be nice to think that the two men could have exactly the same amount of money and that no gap existed. However in a capitalist system this is not going to happen – and even Socialist systems never produced identical levels of wealth. But to automatically assume that because the gap between rich and poor (presuming that two such groups can be clearly identified) has grown and that therefore the poor are worse off is erroneous. This point has been missed by many in the context of modern Irish society.

My new Spanish roommate asked me over a couple cans of beer outside Trinity College's Pav bar about the success of the Irish economy. He wondered where all the money came from when the sources of wealth were not apparent to him. Having lived in Kerry he felt that almost no industry existed and that the economy was relent upon Agriculture and Tourism. How could people in a small Kerry village own such nice cars? How could Ireland be the second richest country in Europe?

Its a good question. Its one that has preoccupied Irish and international economists over the past ten years. The Irish economic boom is a spectacular as it is puzzling. Initially people like Walsh and Holahan (2002) felt the Irish Tiger was merely period of rapid catching up (or more technically 'convergence') with the rest of the developed World. Ireland lagged behind economically since WW2 and eventually it had to catch up. Brendan Walsh felt a 'Celtic Tiger' was a misnomer and that the phrase 'The Irish Hare' was more appropriate. The Irish Hare never captured the public imagination, however. Celtic Cubs were always going to win out against Irish leverets.

While the economies performance up until 2001 could arguably be explained away as mere delayed converge, the post 2002 performance (or Celtic Tiger Part II) is less easy to explain. People have tended to forget the 18 month period in 2001/2002 when the economy was under serve pressure. Growth slowed sharply and unemployment began to creep up anomalously. Naturally the public purse suffered and Charlie McCreevy was forced to introduce spending cuts – or as as he famously described it 'moderations in the rates of increase'. It easy to forget just how pessimistic people were back then about the future of the economy. The Tiger was felt to be a flash in the pan. However 2003 saw a dramatic turnaround in the rate of Growth and stabilization the public finances. This turnaround had lasted up until the present day.

But what cased all of this? If we have passed out the people we were trying to catch surely we have to out the convergence argument to bed. The answer to the question is even more complex. The answer is: Lots of things. Its may be a disappointing and unsatisfactory answer for many people and it may not make for very lively conversation over a few can of Bavaria, but its the truth. Many many factors came into play to create the Tiger and it would be wrong and misleading to attribute any one factor as the silver bullet. Across the barstools of the country its is frequently contended that is is 'all got to do with' one of the following: Property, the European Union cohesion funds, American multinationals, low cooperation and personal taxes, the advent of the IFSC, the PDs and FF, peace in Northern Ireland and even Ireland's run to the quarter final in the 1990 World Cup!

The boring reality is however is that the boom was created by a combination of all these factors plus a few other that are not yet evident and will only become evident in the coming decades when the economic historians get a chance to few this remarkable period from a dispassionate distance. Until till then we will have to make do with economic urban myths. Just make sure you take it all with a pinch of salt.