Tuesday, September 2, 2014

The Wrong Side of Geography

It's a common refrain:

Against same sex marriage? You're on the wrong side of history.
Against globalisation? You're on the wrong side of history.
Against the singularity? You're on the wrong side of history.

Even poor old Vladimir Putin gets 'the wrong side' treatment from Lilia Shevtsova in her analysis of the new world disorder:
By attempting to shift Russia backward to an older civilizational model, Putin has already inflicted a deep strategic defeat on his country. His efforts to turn Russia back to the “Besieged Fortress” model will only rob Russia of its chance to become a modern society. Moreover, Putin has also unleashed forces he can’t hope to contain, thus accelerating the agonizing decay of his own regime. Nevertheless, though he has lost the battle with history, Putin has been moving from one tactical victory to the next by forcing the West to constantly react and try to accommodate his reckless behavior.
But Shevtsova's analysis suffers from the same problem as others who claim history's telos as their own: she's on the wrong side of geography. Mark Lila provides a masterful critique of the new world delusions that have gripped Western elites since history 'ended' 25 years ago:
Never since the end of World War II, and perhaps since the Russian Revolution, has political thinking in the West been so shallow and clueless. We all sense that ominous changes are taking place in our societies, and in other societies whose destinies will very much shape our own. Yet we lack adequate concepts or even a vocabulary for describing the world we find ourselves in. The connection between words and things has snapped. The end of ideology has not meant the lifting of clouds. It has brought a fog so thick that we can no longer read what is right before us. We find ourselves in an illegible age.
Not only did history end, ideology ended - to be replaced by a kind of dogmatic libertarianism:
It tells us that this is a libertarian age. That is not because democracy is on the march (it is regressing in many places), or because the bounty of the free market has reached everyone (we have a new class of paupers), or because we are now all free to do as we wish (since wishes inevitably conflict). No, ours is a libertarian age by default: whatever ideas or beliefs or feelings muted the demand for individual autonomy in the past have atrophied. There were no public debates on this and no votes were taken. Since the cold war ended we have simply found ourselves in a world in which every advance of the principle of freedom in one sphere advances it in the others, whether we wish it to or not. The only freedom we are losing is the freedom to choose our freedoms.
Geo-politically this has given rise to aimless (and often self-destructive) goals such as 'The European Project' in the case of the EU, and bringing democracy to the Middle East in the case of the United States. The former has undermined democracy, the latter is built on sand. For a time liberal democracy appeared to be on the right side of history, but not any more. As Lila notes:
Clearly, the big surprise in world politics since the cold war’s end is not the advance of liberal democracy but the reappearance of classic forms of non-democratic political rule in modern guises. The break-up of the Soviet empire and the “shock therapy” that followed it produced new oligarchies and kleptocracies that have at their disposal innovative tools of finance and communication; the advance of political Islam has placed millions of Muslims, who make up a quarter of the world’s population, under more restrictive theocratic rule; tribes, clans, and sectarian groups have become the most important actors in the post-colonial states of Africa and the Middle East; China has brought back despotic mercantilism. Each of these political formations has a distinctive nature that needs to be understood in its own terms, not as a lesser or greater form of democracy in potentia. The world of nations remains what it has always been: an aviary. 
The West's dogmatic libertarianism - where we are no longer free to choose our freedoms - means that our political elite is simply not prepared - perhaps not even capable - of defending our culture and our values. When our highest virtues nowadays are 'be nice, don't judge, offend no one' then the West, including Ireland, is clearly on the wrong side of geography. History is about to get interesting again.

Friday, August 29, 2014

It's Criminal

You know Europe's economy is in a bad way when even the mafia is a shadow of its former self.

The timing is terrible, of course, as some had hoped GDP would get a handy fillip from the inclusion of illegal activities.

Proof, if proof was necessary, that poor old Europe can't get a break these days...

Thursday, August 28, 2014

Every Assistance Short of Help

Is the ECB about to go QE? We await with breathless anticipation.

Today's appointment of BlackRock to help the ECB design a programme to buy asset-backed securities (ABS to give it its full acronym) has been interpreted by many as a sign the eurozone will soon witness full blown quantitative easing. And needless to say, it's all being sold as really really good for Europe's small businesses still desperate for bank finance to help expand and create jobs. Why, I'm sure it'll even reduce our carbon footprint as well, come to think of it.

Of course, it's all BS (another acronym). Apparently, in order to get the banks to lend enough money to businesses (with a modest margin added for profit), the ECB has to (sharp intake of breath) get the banks to bundle existing loans into securities that are sold to fixed-income investors (in this case, the ECB) so that the banks will then have better balance sheets which in turn will enable them to raise low interest rate funds in order to be able to lend money to SMEs. Or at least I think that's the plan. The fact that the whole 'mortgage-backed securities'/QE thing has been tried and failed in Japan, the United States and the UK (from a lending to SMEs/sustainable growth point of view) should not in any way be considered a reason not to try it in Europe too.

Needless to say there are many people in favour of QE. Like the executives in charge of large corporations who have used QE to indulge a binge of share buybacks to boost the value of their own share options, which has in turn exacerbated the wealth inequalities many people seem vexed about. Apparently this is a much safer bet for the banks than taking their QE gains and, you know, actually lending money to businesses who need to it to grow.

A case, once again, of 'every assistance short of help' for Europe's small businesses.

Still, it's not too late to consider the alternative. Like giving the money directly to the people. Even Foreign Affairs thinks this might be worth trying. A sort of 'QE for the people'. As Mark Blyth and Eric Lonergan explain it:
Rather than trying to spur private-sector spending through asset purchases or interest-rate changes, central banks, such as the Fed, should hand consumers cash directly. In practice, this policy could take the form of giving central banks the ability to hand their countries’ tax-paying households a certain amount of money. The government could distribute cash equally to all households or, even better, aim for the bottom 80 percent of households in terms of income. Targeting those who earn the least would have two primary benefits. For one thing, lower-income households are more prone to consume, so they would provide a greater boost to spending. For another, the policy would offset rising income inequality.
But the problem in Ireland is that most of the money will simply go to paying off debt, with only a limited impact on spending and growth (which would help most SMEs dependent on the domestic market). Which means that QE for the people requires another, even more radical policy if the nation's debts are to be reduced. And there's only one way to do that: DF.

DF is an acronym that stands for the thing that will have to happen anyway in Ireland, the eurozone, the UK and the United States. And the sooner the better. DF stands for:

Debt Forgiveness

Though probably not before Europe's executives have enjoyed their own share buyback binge. Europe's small businesses will just have to wait their turn.

Wednesday, August 27, 2014

Stringing Up the Recovery

Like a lot of people I'm scratching my head at the conflicting statistics about Ireland's economic performance. On the one hand, the latest QNHS from the CSO tells us that the numbers in jobs were 1.7% higher in Q2 2014 than a year ago. On the other, the CSO also reports that average weekly wages were down 1.1% in Q2 2014 from last year. It's a wage-less recovery apparently.

There may be several explanations for what we are seeing - or there may be none. Such low percentage figures, based on survey data, are in turn vulnerable to margins of error that could leave one or both in reality close to zero. I used to think we witnessing a 'macro-recovery, micro-recession' - i.e.: improving headline numbers like GDP and exports, but weaker indicators at the level of firms and households. Now it seems the other way round, with the macro numbers remaining flat and the micro numbers (job creation/confidence) showing improvement.

I think these anomalies are further signs of our continuing balance sheet recession. In other words, despite a degree of pump priming by the authorities, and even some old fashioned boosterism by the media (and who can blame them), we're still coming to grips with what happens when you try to push on the monetary string. The number one financial priority for the majority of Irish adults is to reduce their exposure to debt. It's less of a priority for the very young and the very old, but then they tend to have both low debts and low incomes. Those with higher incomes - the 35-55 age cohort - are also more indebted, so any extra spending power/disposable income they get will only go one way.

But to add to the head scratching, the latest money supply statistics are enough to make your nearest and dearest wonder if you've picked up something contagious. The chart shows what is happening to the M1 and M2 measures of money supply in Ireland (data here). They tend to move together, but since the start of the year, M1 (currency in circulation and overnight deposits) has moved away significantly from M2 (M1 plus longer term deposits):

The source of the jump is the amount of currency in circulation (not overnight deposits, which are flat). In June 2014 there was €14.5bn in 'cash' circulating in the Irish economy, up 10% from a year ago to  reach the highest level on record. Sure looks like a lot of pump priming to me. The only question is: whose pump(s)?

It certainly isn't showing up in residential bank deposits, nor in wage packets for that matter. It may simply be more proof of the degree to which our financial system remains fractured and broken after the collapse six years ago. Or it may indicate that the wider economy is still very vulnerable and that recovery is still some way off for most of those seeking jobs, or waiting for pay rises for that matter. Despite an awful lot of pushing on string.

Saturday, August 16, 2014

Humans Need Not Apply

Worried about the impact of technology on your job security? You should be. This is worth the 15 minutes:

I love the background music, by the way, which is bad news for composers (as explained in the video). Like I've said before, a recession is when technology replaces your neighbour's job; a depression is when technology replaces your job. But maybe you don't do any of the 47% of jobs that will be affected?

Scott Alexander has been writing a lot about the impact of technology (and many other things). His latest post on Robin Williams (yes, there is a connection) states the following about the future impact of technology on our working lives:
This is also the basis of my support for a basic income guarantee. Imagine an employment waterline, gradually rising through higher and higher levels of competence. In the distant past, maybe you could be pretty dumb, have no emotional continence at all, and still live a pretty happy life. As the waterline rises, the skills necessary to support yourself comfortably become higher and higher. Right now most people in the US who can’t get college degrees – which are really hard to get! – are just barely hanging on, and that is absolutely a new development. Soon enough even some of the college-educated won’t be very useful to the system. And so on, until everyone is a burden. 
...By the time I am a burden – it’s possible that I am already, just because I can convince the system to give me money doesn’t mean the system is right to do so, but I expect I certainly will be one before I die – I would like there to be in place a crystal-clear understanding that we were here first and society doesn’t get to make us obsolete without owing us something in return.
By the way, that video was launched on YouTube just three days ago - it has been viewed 1.3 million times already. Looks like it struck a nerve with some folk.

Wednesday, July 30, 2014

An Asymmetry of Possibilities

The folks in Stratfor have given us the best strategic analysis of the Israel/Gaza conflict that I've read in a while:

There is accordingly an asymmetry of possibilities. It is difficult to imagine any evolution, technical, political or economic, that would materially improve Israel's already dominant position, but there are many things that could weaken Israel -- some substantially. Each may appear far-fetched at the moment, but everything in the future seems far-fetched. None is inconceivable. 
It is a rule of politics and business to bargain from strength. Israel is now as strong as it is going to be. ...Israel's major problem is that circumstances always change. Predicting the military capabilities of the Arab and Islamic worlds in 50 years is difficult. Most likely, they will not be weaker than they are today, and a strong argument can be made that at least several of their constituents will be stronger. If in 50 years some or all assume a hostile posture against Israel, Israel will be in trouble.  
Time is not on Israel's side. At some point, something will likely happen to weaken its position, while it is unlikely that anything will happen to strengthen its position. 
The other thing that might happen is that the fragmentation of the sovereign nation-state as the nexus for politics, economics and war will continue and possibly accelerate - even with or without a new Caliphate as envisaged by ISIS in their map pictured above. Henry Dampier worries about the ailing ability of the nation state to wage war:
The critical competitive advantage of the state was in the field of war. Because the state was capable of fielding a large, mass army of capable fighters on short notice, it was able to overwhelm small kingdoms, republics, and city-states that were not capable of doing such a thing reliably. This competitive atmosphere was generated in Europe in part by the continual weakening of the nobility and the papacy, combined with over a century of religious warfare between Christian factions. Consolidating war-making power within fewer hands was adaptive.
But in an age of asymmetric warfare:
Owing to its decline, the nation-state now asks for more in terms of material resources while providing less. Its statistics are becoming unreliable (or perhaps just less reliable than they have been in the past). Its standards provided for trade and finance are becoming antiquated, and too expensive to reform. Its critical advantage in warfare has eroded, and many states have become reliant on private security firms to provide physical security, intelligence, and logistics whereas before they were able to rely on nationalist zeal to provide all of those services at an unusually low price.
Israel isn't the only nation-state for whom circumstances will change in the coming years and decades. Ireland's moment of maximum strength may have passed, but it isn't too late to take our future security more seriously than we do at present.

Monday, July 28, 2014

After Westphalia

With the centenary of the start of World War One upon us, many are noting the similarities and differences between then and now - especially in the context of increasingly violent conflicts in the Middle East and beyond. But to understand the present we might need to look further back - to the Treaty of Westphalia in 1648 - credited by many with the creation of the modern, sovereign state. Why so far back? Because in the age of ISIS, the modern, sovereign state might just be coming to an end. Here's Adrian Pabst on the subject:
The secular settlement of Westphalia is predicated on subsuming all institutions and practices under the absolute sovereignty of state coercion and market commodification. This relentless expansion of bureaucratic control and capitalist accumulation has produced an unprecedented centralisation of power and concentration of wealth, which has in turn created a twin crisis of identity and inequality. So instead of a utopia of infinite progress in the direction of democracy, what is already underway is a resurgence of populism, atavistic nationalism and fascism across large parts of Europe and elsewhere - notably, in Ukraine and in Russia. 
... Among the alternatives to the sovereign power of both national states and global markets are hybrid institutions, overlapping jurisdictions, polycentric authority and forms of multi-level government or governance, which are all marked by disperse and diffuse power structures and degrees of suzerainty that are not captured by modern paradigms of national sovereignty and balance of equal powers. This applies as much to the EU as it does to great powers and their neighbours such as Russia in relation to Ukraine, Belarus or Georgia.
Indeed, it is clear that the historically recent triumph of Liberal Democracy itself was the beneficiary of American idealism writ large as imperial ambition. But as America adjusts to the new realities of a post-Westphalian era, we can anticipate a far more fluid, less fixed world of shifting borders, alliances and power politics. ISIS is only the beginning.

As for Ireland, we might just need to get back in touch with the more atavistic, less politically correct views and ambitions of our own founding fathers if we are to find the ideas and values that will help us navigate the new global realities ahead.

Tuesday, July 22, 2014

All's Well

"Not only will politics certainly disappoint us, but even were it not to, the outcome would be a relatively pitiful one. Political transformation is ‘at best’ a re-ordering of primate dominance hierarchies, which everyone knows won’t actually be for the best — or anything close to it."            Outside In
There's nothing like a holiday abroad to give you a bit of perspective on things. Like, what a lucky place Ireland is compared to the rest of the world. The news abroad was all about Gaza, The Ukraine and Iraq; back home the headlines featured culchie rock stars and skobie seagulls. Oh yes, and a Cabinet re-shuffle. Yep, we're lucky.

Still, I can't help feeling that we won't remain immune from the global tide of events indefinitely - the fact that we are one of the most open economies in the world more or less guarantees that. But even if the headlines are just that - news for a day, of little import for the future - other forces will inevitably shape Ireland's destiny.

There's one I've been reading about a lot: the growing failure of 'post-recession' economies in the developed world to create jobs and provide adequate wages for those who want them - a big problem in Spain, where I was staying. A recent episode of the BBC's Analysis discussed whether we are witnessing 'the end of the pay rise'. The conclusion is fairly optimistic - technological innovation will eventually increase productivity per worker like it did before, with some of the benefits accruing to workers in the form of higher wages (and more jobs), like it did before.

Others are less optimistic: Thomas Wells thinks the rise of the Robot Economy means we need to institute a basic minimum income. Scott Alexander has even figured out a way to pay for it: take all the money wasted on educating people who graduate to unemployment by cutting to the chase and scrapping education, using the money instead to make us all 'trustifarians'. It's a tongue-in-cheek suggestion of course (I think), though his image of folks living in mountain cabins reading Aristotle is sort of appealing, if hopelessly utopian. Of course, the problem with the 'money for not working' solution is that we are currently running that experiment in the form of long-term unemployment and it isn't working all that well for either the unemployed or wider society. There might be a future in which something like Alexander's solution works, but it won't be a democratic future.

Anyway, my conservative leanings make me more inclined to look to the past for solutions rather than to the future. Perhaps we need to 'go medieval' if we want the work-life balance to be one that works for society as a whole, and not just for individuals? The average peasant in 14th century England worked just 150 days a year on account of all the holidays, feast days and week-long celebrations of births, weddings and funerals. I've suggested before that we should have a goal in Ireland of establishing the four day week as a norm, adding bank holidays - and holy days - to the calendar over, say, a 10 year period.

I'd suggest it for consideration to our local politicians only, well, they're on holiday - again. Maybe they've worked out a solution to jobless/wageless recovery and haven't got around to sharing it with us yet?

Image cred: ZH

Monday, June 23, 2014

The Disrupted Recovery

To paraphrase Ronald Reagan:

'A recession is when your neighbour loses his job to disruptive technology; a depression is when you lose your job to disruptive technology'.

The thought came to mind reading Jill Lepore's eloquent (and maybe a little unfair) put down of Clay Christensen's ideas on disruptive innovation. She essentially compares the advocates of disruptive innovation to the disruption caused by ISIS in Iraq. Like I said, a little over the top.

Still, she has a way with words:

Beginning in the eighteenth century, as the intellectual historian Dorothy Ross once pointed out, theories of history became secular; then they started something new—historicism, the idea “that all events in historical time can be explained by prior events in historical time.” Things began looking up. First, there was that, then there was this, and this is better than that. The eighteenth century embraced the idea of progress; the nineteenth century had evolution; the twentieth century had growth and then innovation. Our era has disruption, which, despite its futurism, is atavistic. It’s a theory of history founded on a profound anxiety about financial collapse, an apocalyptic fear of global devastation, and shaky evidence. ...The idea of innovation is the idea of progress stripped of the aspirations of the Enlightenment, scrubbed clean of the horrors of the twentieth century, and relieved of its critics. Disruptive innovation goes further, holding out the hope of salvation against the very damnation it describes: disrupt, and you will be saved.
As far as Lepore is concerned, our uncritical embrace of disruptive innovation is somewhat lacking in evidence or proof that it is, on balance, a good thing. Michael Hennigan (who linked to Lepore) has just finished a five part critique of Ireland's innovation strategy. Or lack thereof. It's a familiar refrain from Michael - our stated ambitions for innovation policy far exceed any real world outcomes (either in terms of indigenous, innovative firms or job creation).

In fairness to Christensen, he's well aware of the risks associated with disruption, and he sees the potential for technological malinvestment as much as for technological investment - especially in a world awash with capital. Nor do I think he would recommend Irish policy makers to put all their eggs in the innovation basket.

The real danger it seems to me is that digital disruption - as opposed to the old-fashioned process of replacing coal with oil, steam with electricity - happens much, much faster so that the 'gains' from disruption are dissipated by the next disruption before they have been embedded by the wider society. The theoretical process of disruption is illustrated below (source):

But what if the area under the curve described as 'Height of New Productivity Gain' is much flatter, quickly turning back below the line as losses return sooner than in the past?

The latest EY report on Ireland's economic prospects sets out some interesting forecasts for job creation to the end of the decade across different sectors. What surprised me was the number of new jobs they are forecasting for retailing. I don't think so. If somewhere like Blackrock is turning into a retail Potemkin Village - thanks mainly to the recession but also to disruptive technology - then the time to 'bank the gains' from innovation just might not be long enough any more.

Maybe we can take consolation from Lepore's conclusion that often it is the incumbents who gain most from technological innovation and not the disrupters:
Disruptive innovation is a theory about why businesses fail. It’s not more than that. It doesn’t explain change. It’s not a law of nature. It’s an artifact of history, an idea, forged in time; it’s the manufacture of a moment of upsetting and edgy uncertainty. Transfixed by change, it’s blind to continuity. It makes a very poor prophet.
We are all incumbents now.
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