Friday, November 30, 2007

Sex and Consumer Confidence

The sharp fall in the Irish consumer confidence index this month to a low of -18 from -12 in October is worrying. The last time confidence was this low was in September 2003, and before that you have to go right back to December 1993 to find similar low levels.

The European Commission's survey gives a useful breakdown of the different components of the index. The index is a composite of consumers' views about the outlook for the economy as well as their views about their own financial circumstances and prospects. Through most of 2007 a gradual weakening in consumer confidence has been driven mostly by more negative views about the economy; but the November decline is driven equally by negative views about the economy and about consumers' personal circumstances.

The Commission's analysis does not however separate out consumer confidence by gender. This is a pity, as new research shows that men are consistently more optimistic in consumer confidence surveys than women. So it may well be a decline in female consumer confidence that has lead to the sharp fall in November.

Does it matter? In the long run probably not (as more tangible economic variables like GDP growth, unemployment levels and inflation rates drive economic wellbeing). But in the short run it most definitely matters - especially in relation to retailing and the prospects for sales in the run up to Christmas (driven mostly by female consumers). There is one small comfort however: a recent study - 'Men Buy, Women Shop' - has found that women like to shop more than men do (yes, I didn't think this needed researching either when I read it). But the implication is: when the economic headlines are getting women down, then a bit of retail therapy may be what the doctor ordered. And the economists as well for that matter.

So the consumer confidence index may be weakening, but the urge to splurge remains as strong as ever - for now.

Tuesday, November 27, 2007

Good Day at Blackrock

I snapped this as I was leaving home this morning. Listening to Ben Harper singing 'Morning Yearning' on my iPod. Carlsberg don't do mornings, but if they did ...

Monday, November 26, 2007

Will They Stay or Will They Go?

The thought struck me the other day: what if all the immigrants who have come to Ireland in the past ten years just upped and left for better opportunities elsewhere? I actually found the thought quite disturbing - guess I'm getting used to our new diversity (and the friendly service at my local coffee shop).

What got me thinking was the latest report from the CSO on the Irish labour market and the statistics on non-Irish nationals entering the workforce (see Table A1). There was a recent furore in the UK over government data showing that more than half of all new jobs there had been taken by foreigners since 1997. In contrast, we are sanguine about the (CSO) fact that non-Irish nationals took 71.6% of new jobs created in the year to Q3 2007.

Intriguingly, the CSO admits that it really doesn't know how many non-Irish nationals are actually in the workforce at present, admitting that:

The nationality figures presented have been described as tentative as they have not been revised in line with the most recent Census of Population data. Initial analysis suggests that the QNHS under-estimates the foreign national population by approximately 20–25%.

Of course our sanguine response to such findings is simply a reflection of the fact that most Irish people see immigration as a relatively benign phenomenon in Ireland - with a few caveats about asylum seekers and illegal immigrants. In marked contrast, I recently heard the Maltese Minister for The Family & Social Solidarity (Dolores Cristina) talking about Malta's problems with illegal immigration from Africa. It made me realise that Ireland's 'problems' are in the ha'penny place by comparison.

Yet there is no doubt that attitudes towards immigrants (including legal migrants) is turning negative across Europe (including Ireland) - as highlighted in this week's Economist. I have written in a previous post about the negative consequences of a rapid increase in immigration on host communities.

Equally there is no doubt that immigration is generally a good thing for the migrants (and their families) themselves. Even their home countries benefit, judging by the value of migrants' remittances to their love ones back home. Perhaps this explains the success of Western Union, which has five times as many locations worldwide as McDonald’s, Starbucks, Burger King and Wal-Mart combined.

A recent report by Eurostat values remittances abroad by immigrant workers in Ireland at €0.5 billion in 2006. €0.4 billion of this was intra-EU 27. That is money out of after tax income. So if you apply a multiple of, say, x6.6 to get total after tax income (assuming a 15% 'remittance or savings rate'); and then apply a multiple of, say, x1.45 to get gross income before tax, that gives total earnings for (we suspect) mainly Eastern Europeans and remitters from developing countries of nearly €5 billion last year. Though this is likely to be an underestimate as not all immigrants remit money (or save for that matter).

The point is that most immigrants in Ireland have come here because it is economically advantageous for them to do so. If their economic circumstances change - or better opportunities arise elsewhere or back home - then many will move. Those receiving the remittances may insist on it. So it is a brave man (or government minister) who trys to predict the future of immigration in Ireland: our own migration experiences of one-way tickets to America or Australia may not be much of a guide to the future in an age of €10 Ryanair tickets to Bratislava.
Maybe we should ask Western Union for their prediction?

Sunday, November 25, 2007

Run, It's a Bear!

Apparently plunging stock prices ignite the same neurons that respond to a lion’s roar - or a bear's for that matter. According to the Telegraph, we respond within 12 milliseconds - or one-25th the time it takes you to blink your eye - to upsetting financial news; this is the time it takes to activate the amygdala, a structure in your brain that generates emotions like fear and anger.

Anyone who has been watching the slow motion car crash that is the Irish stock market lately (down nearly 40% since February, and almost 50% in the case of financial stocks) will probably have felt a primordial urge to run and climb the nearest tree. A completely understandable reaction in the circumstances.

The question now is whether it is safe to come down from the tree? Unfortunately in the short term the answer is no - and it may even be 'no' in the long term as well. It is estimated that the total value of securitised sub-prime loans was $1.2 trillion at the peak. The Federal Reserve Chairman Ben Bernanke has said recently that he expects $150 billion of these loans will be written off in the end. That's the optimistic view: the pessimists think the final write off will cost at least $400 billion. The problem is: 'only' $40 billion has been written off so far ...

And that, believe it or not, is the long term view for those of you clinging to the branches. The short term is very short term: tomorrow, Monday 26th November is the date set for the European Covered Bond Market to resume trading. No, I'd never heard of it either until last Wednesday, when the ECBC suspended inter-bank market making in covered bonds due to unprecedented volatility. Essentially, this is one of the key places the banks go to raise the money they need to provide mortgages and other long term loans. Both AIB and Bank of Ireland had to suspend issuing new mortgage-covered securities due to a lack of demand. If the market does not resume trading tomorrow then all sorts of problems could arise - a liquidity crunch for the Eurozone's banking sector potentially; or worse, the break up of the Eurozone itself?

Think I'll stay in the tree another while ...

Friday, November 23, 2007

In Praise of Mavericks

I had the great pleasure of hearing John Kearon, Chief Juicer at Brainjuicer, talking about innovation at The Persuaders Pudding Club in Dublin last night. John's (very funny) comments on the anti-creative practice that is brainstorming, and the oxymoron that is 'centralised innovation', certainly struck a chord with the audience.

I also found John's message surprisingly encouraging, i.e.: that real innovation 'happens at the edge', and is usually the result of mavericks working outside the system. I have written about innovation in a previous post, and I find myself in complete agreement with John. Certainly everything Brainjuicer are discovering about creativity, innovation and the true nature of genius supports the idea that - once you try to control or formalise innovation - you kill it.

Which is why I worry about our national approach to innovation: more 'command and control' than 'organic and fluid'. I think the recent initiative by eircom to provide seed capital for a range of potential web businesses may well deliver more value to the country in the long run.

Do check out the Brainjuicer Lab's for some great case studies and downloads on the subject - and do make sure you get along to the next Pudding Club: Irish marketing's real innovative edge.

Wednesday, November 21, 2007

Gone Nuclear

With the price of oil pushing $100 a barrel the nuclear debate is going to hot up. A new book 'Power to Save the World' by Gwyneth Cravens describes her conversion from nuclear sceptic to nuclear advocate. She's not the first and she won't be the last.

Her web site has an interesting guide to calculating your exposure to radiation - if you're reading this on a computer then you are currently being irradiated! Though not by as much as when you take a plane.

Like Cravens I have become convinced that nuclear should be part of our future energy mix in Ireland. As our energy security becomes increasingly vulnerable AND the share of renewables (mainly wind) in electricity generation increases, so we are going to need a clean, secure base load source of power. Coal and gas play that role now: nuclear could play that role in the future.

Will Ireland go nuclear? A Eurobarometer survey earlier this year showed that the majority of Irish people would consider nuclear power to protect our energy security and lower our dependence on oil (see page 8). So Irish voters will eventually be willing to go nuclear: it's just that when they do, we'll be at the end of a long queue of other countries who reached the same decision earlier. By which time it will probably be too late ...

By the way: for the most intelligent critique of nuclear power see David Fleming's new paper (an update of a version previously published by Feasta). His argument seems to be 'keep it if you've got it (for now)', or get it quickly as there isn't enough uranium to go round. Another reason not to delay in my view: though obviously that's not the conclusion Fleming reaches!

Monday, November 19, 2007

Affordable Democracy

The recent furore over pay rises for politicians and senior civil servants raises a number of interesting questions about democracy in Ireland. One thought struck me while reading about an interesting experiment in the United States - what if, instead of paying the politicians, we paid the voters for their vote? It might be a lot cheaper - the going rate in the US is $1 million for life: but one in five would sell their vote for the price of an iPod Touch!

I am joking of course. Still we do have a fundamental problem in that we simply have too many politicians, according to a recent European study. So I was relieved when the Constituency Commission decided to leave the number of TDs unchanged at 166. What about a deal with our political representatives: we'll increase your salaries if you reduce your numbers?

Perhaps the most annoying thing about the recent pay rises has been the simple fact that our representatives are not doing a particularly good job. The World Bank's Governance Indicators for Ireland show that the efficiency of the Irish government has actually deteriorated in recent years. Pay more, get less indeed ...

A final thought on politics: new in from the field of neuroeconomics and psychology - first impressions matter in choosing our political leaders (as much as in choosing our mate and in choosing washing powder). In fact, the first quarter of a second (250 milliseconds to be precise) is the most important time to make a good impression. Though giving yourselves unjustifiable pay rises may just undo those initial, favourable impressions ...

Saturday, November 17, 2007

Smile Like You Mean It

Or for 0.5 seconds to be precise. Preferably with your head tilted in the same direction as the person you are smiling at.
And who said economists couldn't be romantic? More (lots more) on psychology, neuroeconomics and simply understanding folks better at the wonderful Psyblog website.

Friday, November 16, 2007

Elves Cause Rain

Continuing my stand against 'junk research' here is a recent article from Wharton on the perils and pitfalls of polls.

As the author concludes:
The thing to think about with polls is the confirmation bias, which is basically that we are always looking for more evidence for the things we already believe in. If you are told as a child that 'elves cause rain, then every time it rains there is more evidence of elves.' We all end up with some set of opinions, but once we have them, we look for more evidence to reinforce them.

Thursday, November 15, 2007

The Pseudo-Science of Happiness

It is impossible to live a pleasant life without living wisely and honorably and justly, and it is impossible to live wisely and honorably and justly without living pleasantly. Epicurus
We are lucky in Ireland to have been spared - so far - the attentions of politicians intent on making us happy. This struck me as I listened to the latest podcast in the BBC Radio 4 series More or Less (which I have referred to in a previous post).

It features an entertaining debate between Richard Layard and Paul Ormerod on whether 'the happiness of the nation' should be a legitimate policy objective of government. Lord Layard has written a new book on the science of happiness. Paul Ormerod has written a critique of many of the assumptions behind the book, as well as addressing the wider debate about policy and happiness.

I have to confess to more than a dispassionate interest in this debate as (the then) Richard Layard was my micro-economics tutor at the LSE back in the 1980s; and subsequently I was a colleague of Paul Ormerod's at the Henley Centre for Forecasting. I have also had the opportunity to work on a number of studies in relation to happiness in Ireland, so it is a subject I pay close attention to as an economist and researcher.

As for the result of the debate itself, my (hopefully unbiased) opinion is that Ormerod won it hands down. His commentary on the 'psuedo-science' of happiness research is spot on: and should be mandatory briefing material for any politician or cabinet minister intent on making us happy. There's hope yet.

Tuesday, November 13, 2007

2008: Year Zero for Consumers?

I'm increasingly nervous about the outlook for Irish consumer spending next year. The consensus is still for modest growth - even if the consensus on 2008's prospects has weakened in recent months (see chart which shows changes to 2008 forecasts through the course of 2007).

Curiously, the stockbrokers seems more pessimistic than public sector forecasters about the outlook for spending next year. Though Bank of Ireland have produced the most optimistic forecast by far in recent months.

What gives me cause for concern is the latest Goodbody report on housing and the wider economy. Apart from a forecast of 3% growth in expenditure, which is at the lower end of expectations, two other things caught my attention:

1. Goodbody's are forecasting that the inflation rate will be greater than the volume rate of growth of consumer spending - the first time this has happened since 2001/2002. This means that most of the growth in spending next year will be driven by inflation, providing little real growth stimulation to the economy (and probably making consumers more price conscious and focused on value for money).

2. Goodbody's are also forecasting that real household disposable incomes will grow by only 0.1% in 2008 - in effect, zero growth in spending power (further reinforcing consumer awareness of value for money).

Of course, these are only forecasts - subject to revision like all the others. As with all impressions about the future, we must guard against 'projection bias' - our psychological inclination to assume that our experiences in the present are the best guide to the future.

Nevertheless, at this late stage in the year, it would be advisable to think again about any significant price increases you may have pencilled in for 2008. In a year that could see zero growth in spending power, your price increase might stick out like a sore thumb. Which would really hurt.

Sunday, November 11, 2007

Banks caught in a Prisoner's Dilemma

The case of solicitor Michael Lynn, whose practice has been shut down by the Law Society, is a powerful example of what economists call 'The Prisoner's Dilemma'. The 'prisoners' in this case are the banks that have loaned money to Mr. Lynn.

The Prisoner's Dilemma - or PD for short - goes like this (in the classical illustration from game theory):

Two suspects, A and B, are arrested by the police. The police have insufficient evidence for a conviction, and, having separated both prisoners, visit each of them to offer the same deal: if one testifies for the prosecution against the other and the other remains silent, the betrayer goes free and the silent accomplice receives the full 10-year sentence. If both stay silent, both prisoners are sentenced to only six months in jail for a minor charge. If each betrays the other, each receives a five-year sentence. Each prisoner must make the choice of whether to betray the other or to remain silent. However, neither prisoner knows for sure what choice the other prisoner will make. So this dilemma poses the question: How should the prisoners act?
You might just be wondering what this has to do with the banks in the Lynn debacle? Well, consider this from a recent RTÉ story on the case:

The financial institutions are now involved in what was described as a 'competition' to register the properties offered to them as security for loans they issued. Lawyers for Bank of Scotland Ireland asked Mr Justice Johnson to change his order to allow Mr Lynn to comply with the undertakings he gave to them. IIB Homeloans asked the High Court for permission to bring the same issue before the Commercial Court.

The two banks want Mr Lynn to sign the necessary documents to allow them to register mortgages on the properties he offered them as security. But many of the other financial institutions objected to this.

Lawyers for Irish Nationwide said this could allow banks to 'jump the queue' in terms of trying to get their money back. Many of the properties, the court was told, would be subject to competing claims from several financial institutions.
So there you have it: if one bank ('Prisoner A' in the PD example) 'jumps the queue' then the other banks have to do the same (playing the part of 'Prisoner B'). The result: they are probably all worse off than if they had 'co-operated' by doing the equivalent of 'remaining silent'.

This is another illustration of the power of neuroeconomics to guide our understanding of trends in business and marketing. By the way, you can put yourself in the interrogation room and play the Prisoner's Dilemma game for yourself here.

So what next? I expect to see the Prisoner's Dilemma played out on an even bigger scale with some of Ireland's largest property developers and financial institutions. If you are a non-Irish bank involved in small, syndicated loans to Irish developers who are struggling with their interest repayments, then why not pull the plug now and get the bad news out of the way; after all, other financial institutions globally are announcing major write downs of bad debts on a daily basis? Irish banks, on the other hand, might hesitate to pull the plug given the battering their share prices have already taken - but that's Prisoner B's problem, right?

There is though a small consolation for any financial institution caught in the Prisoner's Dilemma: pure economic theory predicts that each prisoner will always 'rat' on the other prisoner, 100% of the time - leaving them both worse off than if they had remained silent. But experimental economics shows that people caught in the prisoner's dilemma actually co-operate (stay silent) 40% of the time. The other 60% of the time one or both parties end up much worse off. I did say it was a small consolation.

Friday, November 9, 2007

In Praise of Consumerism

Consumerism gets a bad press. Consumerism (and by default, consumers) have been blamed for, among other things:

> Ruining the planet by using up scarce resources

> Encouraging a culture of selfish materialism

> Distracting people so they do not get restless and unhappy with their political leaders.

Certainly most religious groups are wary of the perceived dangers of consumerism. Nevertheless, I think they are all missing something rather important - most people like being consumers because it makes them happy. Better still, the consumerism of others leads to my happiness - and yours. Of course, it all depends on your definition of consumerism. If you view shopping (the main manifestation of consumerism) as a vulgar outbreak of 'Affluenza', then naturally you will want to curb it.

If, on the other hand, you consider shopping to be a manifestation of our need to gather together and share communal experiences that make us happy, then shopping is something to be encouraged for the greater good (retail as therapy indeed). For me, the bottom line is that consumerism equates to the democratisation of luxury. It is just in the past 100 years or so that the mass of people in the developed world have enjoyed access to the choice and quality of goods previously only available to the ruling classes in times gone by. That is a good thing.

So if you are going shopping this weekend, don't think of it as a chore: think of it as a celebration of your hard earned status as the equal of everyone else - regardless of class, colour or creed. Enjoy.

Wednesday, November 7, 2007

Junk Research

"A survey reveals ... 22% of women know they're marrying the wrong man on their wedding day ... eight out of 10 children say their parents' choices of Christmas presents are a waste of money ... almost half of people living with home-assembled flat-pack furniture are in danger of falling out of bed."

This is from the opening script to a recent radio programme lamenting the dubious relationship between market research surveys and journalism. Now it might be a bit rich for someone like me working within the market research industry to fret about 'junk research', but this is an issue I've got to take a stand on. I genuinely worry about the long term consequences for both market research as a profession and journalism as a practice because of the growing abuse of surveys for PR purposes.

John Kay has written about this in the Financial Times, and his comments reflect my own views and concerns:

The difference between the bogus survey and real research is that real research has the objective of yielding new information, while bogus surveys are designed to generate publicity. ...

Public relations professionals understand these triggers, to such an extent that commissioning a bogus survey is now a standard element in the pitch they present to potential clients and conducting these surveys is an increasingly large part of the activity of market research organisations. ...

It is called “thought leadership”. That term illustrates the problem. It probably does not matter much that the bogus survey is used to generate spurious news. The danger is that opinion polls designed to produce eye-catching answers displace serious thought and analysis. ...

Newspapers, broadcasters and consultants will start to distinguish bogus surveys from substantive knowledge only when their audience demonstrates that it knows the difference. Academics and think-tanks need to be reminded that generating publicity is not a legitimate research objective.

It is perfectly legitimate for a business, working with its PR agency, to commission market research to explore a relevant issue or trend, and to publish the findings in the public domain as a report. Such a report should be clear about the methodology used, the size and validity of the sample, the statistical signficance of the main findings and only present conclusions that are reasonable given these constraints. This should not deny the PR agency an attention grabbing headline for their press release (that's why they want the research after all!) - but it should mean that any serious probing of the findings by a professional journalist will show that the research (and the headline) are legitimate.

For the record, my own company Amárach has worked on a number of such public domain studies in recent years, and we have found that a rigorous approach to research methodology actually enhances the PR value to the client.

What worries me most these days is the growing number of 'pseudo-surveys' ("a text poll of our listeners reveals ...") that usually amount to little more than a paragraph in a press release, with no substance behind them. Even more alarming is the manner in which many journalists and broadcasters religiously publish the same pseudo-research without any challenge or commentary.

Ultimately it is incumbent on people in the market research industry to do more to promote proper standards in market research, especially research that is published in the public domain. To that end, I would recommend any business or PR agency that wants to avoid the 'junk research' trap to only use legitimate market research agencies that are publically committed to objective quality standards. And in Ireland that means members of AIMRO (the Association of Irish Market Research Organisations). Take your pick (even one of my competitors!) but please lets stop the rot before it does irreparable damage to both market research and journalism.

Beautiful Words

This is just one of those delightful things you find on the internet from time to time: a kind of visual, 3D dictionary and thesaurus combined that shows you how different words and concepts are linked to one another.

It may sound dull but trust me - as our American cousins would say: it's awesome! In the chart I've used it to plot the word 'marketing' as an example.

It's called Visuwords, and I'm hooked already!

Tuesday, November 6, 2007

The Voluntary Boom

Ireland is about to experience a boom in volunteering - and it's all down to demographics.

The lastest analysis from the 2006 Census (Volume 11) shows that over half a million adults are involved in voluntary activities: mostly charities and religious or church groups. Still, this only adds up to a mere 16% of the population - hardly the basis for a boom?

This is where demographics comes in. I have analysed the data from the Census by age group, and this clearly shows that voluntary activity is mostly a middle-aged activity - peaking at 23% of all 45-54 year olds (male and female). The good news for Irish charities and voluntary groups is that our population age profile is shifting away from teenagers and twenty-somethings (who have the lowest incidence of participation in voluntary activity) to a more middle aged profile.

There are some benefits to an ageing population after all it would seem.

Monday, November 5, 2007

Advertising Does Your Head In

Not literally, of course. But recent studies of the emotional stimulation of the brain and subsequent decision making are hugely important for marketers and advertisers.

There is a growing body of literature on brain research that straddles pyschology and economics, promising to open up a new chapter in our understanding of advertising. Indeed, a new type of marketing professional - the neuromarketer - is leading the charge.

Some of the most interesting research, to my mind, is that into game theory and decision making. A recent paper on the current state of neuroscience and neuroeconomics refers to the Ultimatum Game (UG):

In the UG, two players must divide a sum of money, with the proposer specifying this division. The responder has the option of accepting or rejecting the offer. If the offer is accepted, the sum is divided as proposed. If it is rejected, neither player receives anything. If people are motivated purely by self-interest, the responder should accept any offer and, knowing this, the proposer will offer the smallest nonzero amount. However, this Nash equilibrium prediction is at odds with observed behavior, and the modal offer is a 50/50 split. Further, low offers of less than 20% of the total amount are rejected about half of the time. Thus, people's choices in the UG do not conform to a model in which decisions are driven by financial self-interest, and neuroscience has begun to offer clues as to the mechanisms underlying these decisions.
In other words: people don't behave the way economists predict - admittedly more of a surprise to economists than to marketers ...

Experiments like the Ultimatum Game give us insights into key marketing issues such as pricing. Markets are based on voluntary exchanges between consenting parties - and both expect to get something of value from the exchange. The Ultimatum Game (and similar experiments) has lessons for marketers when it comes to pricing. For example: sometimes what you think is a great deal for the consumer is to their eyes a bad deal (and you need to go further); on the other hand, sometimes what you offer is a great deal (and maybe you don't need to go as far as you propose).

Or as Warren Buffett once put it (rather more succinctly):

Price is what you pay, value is what you get.

Sunday, November 4, 2007

€1.67 a Litre of Petrol

That's how much we would be paying at the pump today if the dollar hadn't weakened from parity with the Euro in late 2002. As it is, we're only paying an average of €1.15 according to AA Roadwatch.

In the chart I show the course of a barrel of Brent Crude (the most relevant measure for Ireland, for now): in both US Dollars (as it is currently traded) and in Euro. The historical data for oil prices comes from the Energy Information Administration, and the exchange rate data from the European Central Bank. Data for November (as of last week) is from the BBC.

In just the past year, the oil price in dollars (Brent Crude) has risen by 55.7%. In euro the price has risen by 'only' 38.3%. That's still nearly ten times the current inflation rate in Ireland; so there's little comfort in 'only' this time round. Of course, the 64 trillion dollar question is 'where will oil prices go next'? The short answer is 'I haven't got a clue'. The more evasive answer is that I expect oil prices will fall back a bit, then they'll rise a bit, then they'll fall back a bit, then they'll rise ...

For an even longer answer check out the papers presented at the conference on 'Oil and Money' last week in London. In particular, the presentation by Sadad Ibrahim Al Husseini, former EVP at Saudi Aramco. The bottom line: when it becomes easier to print money than to find oil then there is only one direction that the price is going to go in the long term - whether measured in dollars or euro.

Friday, November 2, 2007

Vino-Futures 2015

Not to go on about alcohol, but I've come across a fascinating paper forecasting wine consumption in Ireland and a number of other countries to 2015.

The bad news first (from a health policy perspective): wine consumption per capita in Ireland is projected to rise from 17.8 to 19.5 litres per capita between 2005 and 2015 (though it will still be well below today's EU average).

The good news (from a wine drinkers perspective): most of the growth will result from a shift away from non-premium wines towards super premium wines. I'll drink a unit of Chianti Classico Riserva to that.

Thursday, November 1, 2007

The Abuse of Alcohol Statistics

Today saw the publication of a new report from the Health Research Board on alcohol abuse and its ill effects in Ireland.

The report prompted an editorial in The Irish Times demanding that the issues arising from alcohol abuse:

... must be tackled head on if policy is to be successful. Increases in taxation and excise duty are shown to have cut consumption levels of spirits and cider substantially in 2001 and 2003. Regulating the physical availability of alcohol has a similar effect here and internationally. So do drink-driving counter-measures. Informed briefings and targeted counselling of patients have proved particularly effective in hospitals.

So there's the answer: taxation, regulation, policing, re-education. A heavy mixture of measures designed to restrict people's freedom, for their own good of course. But before we go there (abandoning more rights and freedoms along the way), let's just ask what the issue is? The issue, according to the HRB report, is that we have an unhealthy pattern of alcohol consumption in Ireland, one that appears to have worsened in recent years, and that in turn is imposing massive costs on society, the economy, families and individuals.

The abuse of alcohol is indeed a terrible problem for many people and their families. Sadly it has been a prevalent problem in Ireland since long before the Celtic Tiger. But is the problem getting worse? Numerically, of course, the number of people indulging in harmful alcohol consumption has increased over the years - but then, so has the total number of people in Ireland. So to adjust for this, the HRB helpfully publishes a measure of alcohol consumption per capita from 1995 to 2006. But here's the interesting thing: according to the HRB's own statistics in their report, alcohol consumption per capita actually peaked in the year 2001, i.e.: six years ago. Indeed, alcohol consumption levels are now closer to where they were in 1998 - almost a decade ago.

But strangely, the HRB report makes no reference to this, nor does it seek to explain the decline. I would have thought that before we unleash the policy hounds of 'taxation, regulation, policing, and re-education' we might at least pause to consider whether the problem is already correcting itself, requiring a more proportionate policy response?

The turning point is illustrated in the chart above - I have plotted the HRB's own data against the CSO's data on the sales volumes of pubs, and sure enough they show broadly the same pattern of a peak at the start of the decade, and a return to lower levels in recent times (with the decline in pub volumes continuing through to September 2007 according to other CSO stats). You might then ask 'why is that?' - but the HRB report doesn't tell you. So I'll have a go instead; and two, complementary explanations seems plausible: economics and demographics.

In relation to economics, the straightforward explanation for the decline in alcohol consumption per capita and bar sales volumes in particular is that consumers got sick of being fleeced by publicans back in 2001 (which coincided with the introduction of euro currency). So they voted with their wallets and purses and went to the off licence instead. Indeed, there is a very strong (negative) correlation between the trend in bar sales volumes on the one hand, and that of the relative price of alcohol in pubs to that in off licences on the other.

The demographic explanation is even more straightforward: the share of 15-24 year olds in the total adult population (15+) fell to less than 20% in 2005/2006 bringing their share to a level lower than at any time since 1950. And as any criminologist, actuary and A&E consultant will tell you: older teenagers and younger adults are the main cause of crimes, premature deaths, and abuse of various substances. So as their share of the total population declines, so the incidence of various risk-taking activities will also decline.

But you won't read any of this in the HRB report. Indeed, Ireland is not alone in the growing problem of alcohol statistics abuse (and the moral panic and middle class guilt that normally ensues). For an amusing, surgical analysis of yet another over-hyped commentary on alcohol trends listen to Tim Harford's excellent programme More or Less on BBC Radio 4 to see how our cousins in the UK like to abuse alcohol statistics as well.

At the end of the day, we need to keep the problem of alcohol abuse in perspective. Abuse exists and it is a tragedy for all involved. But it remains (fortunately for the rest of us) very much a minority problem. Yes we need to behave sensibly and responsibly in relation to alcohol consumption: it is a powerful, mood-altering, behaviour affecting chemical substance after all. I for one, however, want an alcohol policy for grown ups in Ireland: one that allows me to exercise my choices and freedom as an adult, whilst informing me of the consequences of my behaviour so that I can weigh up the risks. Harford points to the example of new Australian guidelines on alcohol consumption, where they do seem to have adopted alcohol policies for grown ups.

By all means let’s tackle the problems of alcohol abuse that exist – but let’s not impose a new set of restrictions and restraints in response to a view of those problems that is increasingly out of date.
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