Saturday, May 31, 2008

When Technology Becomes Magic

Remember as a child when you and a friend would tied two tins together with string so you could talk to each other? The Telectroscope has just tied London and New York together and this time you can see each other. This is artistic genius: using technology to create magic and bring out our inner child again ...

Where would we put Dublin's Telectroscope: and who would we connect to ...?

Friday, May 30, 2008

Toxic Banking

The revelations in last night's Prime Time programme on RTE were shocking. We saw several banking officials advise an 82 year old woman to lock her savings up in 5-10 year bonds which would incur a penalty if she should happen to try and access the money sooner for nursing home expenses, for example. Something highly likely at her age.

But the issue wasn't just one of mis-selling financial products to an elderly saver. The wider issue was one of a banking and financial system struggling to get hold of resources, in the form of savings, simply to stay afloat as liquidity dries up. The fallout from the wrenching financial crisis that recently swept across the Atlantic from the United States is now being felt. Quite simply, Irish banks don't have the money to lend to their customers - even customers who were deemed credit worthy up to a few months ago.

How has this come to pass? Essentially, banks in Ireland as elsewhere participated in a merry-go-round of financial 'innovation' over the past 6-7 years that made loan sharks look like conservative pillars of the community. One such innovation was the NINA loan: in other words, a loan to home buyers which required no evidence of the borrower's ability to afford it, let alone meet repayments - literally 'no income, no assets'. Hundreds of thousands of these loans in the United States got bundled up into Collateralised Debt Obligations (CDOs) by Wall Street investment bankers which then magically gave them AAA credit worthiness. Naturally our own banks in Ireland (as everywhere else) bought these and similar innovations. For an outstanding description of how this came to pass, told through the experience of real people at every stage in the process, please do listen to this amazing broadcast by Chicago Public Radio.

Those in the know in the financial community have come to call these now worthless CDOs 'toxic waste'. But the toxin is now spreading throughout the body of the global financial sector - and nobody knows just how bad it's going to be. Meanwhile the banks, lemming-like as ever, are now asking for all their umbrellas back just as the rain starts.

The inevitable consequence of the toxic waste is that the banks are scared: they don't know yet how bad their exposure is, and they will do everything to protect their balance sheets and credit worthiness: including getting their hands on savings by every means possible ... and, for the most part, legal. But as the pressure from head office spreads down to branch level, don't be surprised if we hear more stories of elderly people (and others) being mis-advised to lock away their savings for 5 years and more. And don't be surprised if the pace of our economic recovery is held back by hair shirt bankers atoning for their credit-binging excesses of yester-year.

They have no shame.

Thursday, May 29, 2008

Britain's Energy Train Wreck

My very first job after graduating was working in a research centre run by Malcolm Wicks, now the UK's minister for energy. He's a good man who now finds himself with one of the most difficult political briefs. I was watching him on BBC2's Newsnight last night defending a recent announcement by Gordon Brown that the UK will be expanding its nuclear industry. As I listened to him he confirmed every concern I have about our energy future in Ireland, not just the UK.

Watching developments in Britain is like watching a train wreck in slow motion - horrible and fascinating at the same time. UK oil production in the North Sea peaked in 1999 and is now down 60% in terms of output. The problem is that everyone knows this but not enough has been done about it in the meantime. Large parts of England experienced a power cut on Tuesday as two power stations (one nuclear, one coal) went off grid at short notice. As one commentator on the Newsnight programme put it: the UK is a severe winter away from massive, regular power cuts as its ageing stock of nuclear and coal fired power stations struggle to keep up with demand.

Unfortunately we are not in the position in Ireland that we can simply observe developments in the UK with friendly concern but without worries about its impact on us. In fact, as the latest ESRI medium term review notes, we will be increasingly dependent on UK electricity through not one but up to three interconnectors that will be built over the next fifteen years or so. Ultimately the ESRI expects we will need to import 1,500 megawatt of electricity from the UK to fill the gap in our own generation capacity. And there's the problem: the UK isn't going to have 1,500 (or 1,000 or 500) mb of surplus capacity to sell us if things keep going the way they're going.

But right now, our energy 'strategy' has essentially outsourced a large part of our future electricity supply to the British. I've no doubt they are decent people who will help us out if they can: but if British households and businesses are left shivering in the dark due to shortfalls in their own capacity then I can't help feeling that we're going to be way down their list of priorities when things get really tight.

Maybe an interconnector with a nice, reliable French nuclear power station mightn't be such a bad idea by way of a fall back plan?

Wednesday, May 28, 2008

The Death of Education, The Dawn of Learning

This is hugely important - and we're not even aware we need to have this debate in Ireland, let alone started it. I love the statistic at the start: 55 industries in the US were ranked in terms of their use of IT, and education came 55th - after coal mining:

The key quote for me is from Ken Kay of e-Lumiate, 4 minutes and 9 seconds into the video:
So the coin of the realm is not memorising the facts that they’re going to need to know for the rest of their lives; the coin of realm will be do you know how to find information, do you know how to validate it, do you know how to synthesise it, do you know how to leverage it, do you know how to communicate it, do you know how to collaborate with it, do you know how to problem solve with it. That’s the new 21st century set of literacies – and it looks a lot different than the model most of us were raised under.
It's only 5 minutes 37 seconds long so watch the whole thing FGS!

Will Carbon Footprints get the Boot?

I was one of a panel of speakers at a conference on Carbon Footprinting organised by IBEC today. The thought struck me as I listened to a number of presentations on the measurement of carbon footprints (and what to do about them) that this may all become very academic in the very near future.

We are feeling the pain of a whiplash economy, with nearly every business person I've spoken to remarking on the sudden (negative) change in their individual markets at the end of March going into April. And usually in the same breath they remark this came after a stronger than expected start to the year through January and February. As one business man - who deals with a lot of foreign nationals - put it to me: 'the Poles all went home at Easter and didn't come back'.

Just how severe the deceleration in the Irish economy has been in the past few months is shown in today's economic commentary from Davy. They make George Lee look like a raging optimist with this latest missive. The chart from the report show the rate of change in the number of first-time mortgages approved in the first quarter of 2008: the number was down fifty percent on the same period last year.

Davy are penciling in growth rates for this year and next that are the lowest since the 1980s. And, needless to say, most (make that all) of the risks are on the downside. The scariest of which (though Davy don't say it) is a rise later this year in ECB interest rates to curb an oil-fueled inflationary spike. One of those scenarios you really only want to look at through your fingers from behind the couch. Make it the 1970s in that case ...

Hence my thoughts about carbon footprints and all of that. Consumers, both south and north of the border, are looking at huge increases in their energy costs over the rest of this year. Neither they, nor the companies trying to hold on to their diminishing spending power, will be worried about Kyoto targets, ETS schemes or CO2 emissions. Job security, the cost of living and mortgage rates will have their undivided attention.

Of course the issue of climate change will not wait for an economic recovery. I'm a climate agnostic rather than a climate skeptic, and I do think that we should respond to the risk of climate change e.g.: by introducing a moderate but rising carbon tax if oil prices start trending downwards. More importantly, I believe we should help those outside of Ireland most affected by climate change in the short term but least able to help themselves (e.g.: through Irish Aid).

Carbon footprints will get the boot in 2008-09, and it may be some time again before they are back on the agenda with consumers, businesses - or voters.

Tuesday, May 27, 2008

It's the Economy Again, Stupid

I remember the early 1990s when 'green marketing' was the buzz word and we were all told to imagine a world in which new styles of eco-living would come to pass. Then the price of oil headed to less than $10 a barrel and we swapped our hair shirts for SUVs.

I'm getting a sense of 'deja-vu all over again' about the current changes in consumer attitudes towards the environment. I'm a big fan of the research company YouGov, who have partnered with PoliticsHome to provide a fascinating daily stream of UK consumer sentiment called Phi5000. The chart is from their latest report and it shows a steady decline over the past few months in the percentage of citizens saying climate change and the environment is the most important issue facing the UK. The state of the economy (and inflation) are the fastest growing concerns.

I think the same is happening in Ireland - at least from the surveys, focus groups and one-to-one conversations I've seen or had from around the country. A recent European Commission survey showed that the Irish have the second lowest level of agreement of the EU27 countries with the statement that 'environmental protection must be given priority over the competitiveness of the economy' (51% agreed) - see table on page 112. Only Bulgaria agreed less.

I suspect that Brian Cowen is more of an 'old green' than 'new green' type - and will put the economic welfare of the Irish people ahead of self-inflicted eco-targets that nobody else (outside of Europe) is bothering with. At the end of the day, $135 oil (heading to $200) will do more to reduce people's carbon footprint than any amount of exhortations. Indeed OPEC may well end up doing more for the environment and climate change than the multi-billion euro funded NGOs intent on brow beating us into behaving ourselves. It has already.

Sunday, May 25, 2008

The Heart of Lightness

I am a long-time reader of the Lew Rockwell website - I love their slogan: anti-state, anti-war, pro-market. A sound enough recipe for freedom, peace and prosperity it seems to me. Lew has written a wonderful essay on the mystery of why so many people take the benefits of capitalism for granted and instead carp about perceived 'failings' - like income inequality.

He describes a scenario I'm familiar with myself - eating a meal, say, at a conference where some of the people at the table are giving out about the failings of capitalism oblivious the fact that the meal they are enjoying is only possible because of capitalism. As Lew puts it:
You are surrounded by the blessings of capitalism. The buffet table, which you and your lunch partners only had to walk into a building to find, has a greater variety of food at a cheaper price than that which was available to any living person — king, lord, duke, plutocrat, or pope — in almost all of the history of the world. Not even fifty years ago would this have been imaginable.

All of history has been defined by the struggle for food. And yet that struggle has been abolished, not just for the rich but for everyone living in developed economies. The ancients, peering into this scene, might have assumed it to be Elysium. Medieval man conjured up such scenes only in visions of Utopia. Even in the late 19th century, the most gilded palace of the richest industrialist required a vast staff and immense trouble to come anywhere near approximating it.

We owe this scene to capitalism.
And yet ... the folks at the table may argue they're not advocating communism - just a kinder, gentler, fairer sort of capitalism. One that still puts food on the table but somehow manages to solve all the world's other problems at the same time (poverty, starvation, climate change, inequality etc.) Which somehow are seen as a consequence of capitalism (exploiting third world countries and so on) despite the fact that a third world standard of living was the lot of all of humankind before the extraordinary emergence of free markets in the 19th and 20th centuries.

Janet Daley put it well recently when she observed (in light of the demands for intervention in response to the recent financial turmoil) that:
The market itself is not malign or immoral or any of the anthropomorphic things that its enemies claim: it just is. It is what people want and what they do: it is a mirror of the best - the most creative, the most dynamic, the most resourceful - in human nature, and the worst - the most ruthless, the most selfish, the most crass.

That is why, unlike a true system such as communism, it will survive and recover from even the most seemingly disastrous crises. Because, like the human spirit, it is indomitable, and because it creates, willy-nilly, the greatest possible opportunity for individual potential to flourish, which is why the spread of free markets has brought about mass prosperity on a scale unprecedented in human history.

But I have to be realistic: anti-capitalist sentiment will always be with us. One reason is that politicians and academics live in a zero sum world (you win the election or you don't; you get tenure or the other guy gets it) - whereas those of us engaged in the marketplace live in a positive sum world (there is no limit to human creativity nor human imagination). That's what fuels the media's fascination with politics and disdain for business. Politics is a knockout contest like sport - and all the more entertaining a spectacle for that very reason.

But ultimately the market is more aligned with our human essence than politics or academia. That gives me hope for the future - and for where my next meal is going to come from.

Saturday, May 24, 2008

What If There Was No TV?

It's probably a scary thought for a lot of broadcasters (and advertisers), but it looks like TV's future isn't what it used to be. For fifty years we have experimented as a species with television, letting billions of people stare passively at a screen, with no say in the matter other than the option of changing the channel they stare at. The result - according to Clay Shirky, author of Here Comes Everybody - is that TV has become a sink for our cognitive energies: we consumed instead of creating. But all that's about to change ...

As he puts it in this presentation:

Here is what a four year old knows - a screen that ships without a mouse, ships broken. Media that’s targeted at you but doesn’t include you may not be worth sitting still for!

The result - we are only at the start of an amazing explosion in human creativity: only it is a creativity in which we are co-creators rather than passive consumers. For example there's this; and then there's this:

MUTO a wall-painted animation by BLU from blu on Vimeo.

Friday, May 23, 2008

It Isn't Fair

I had a heated conversation the other day about child labour. We were all parents and we were all agreed that it child labour was appalling. It was only when we got to the issue of what to do about it that things got strained. The consensus seemed to be to boycott products from companies that employ children. I begged to differ (I was in a minority of one at this point needless to say).

The way I see it the immediate alternatives to working for the estimated 191 million economically active children in the world are begging, crime, prostitution or becoming a soldier - more or less in that order. Or worse: slavery (for over 8 million children). All options that are even more appalling. The consensus naturally was that they should be educated and only then become workers. I would wish that too.

Of course schools are available for many of the children affected - access is not the (main) problem. Rather it is the economic cost to the child's family that is the main barrier to their becoming full time students. Only economic growth will change that - as it did for Ireland when we transitioned (over generations) from a country where most people finished their education after primary school to one where the majority go on to third level. It didn't happen overnight.

It isn't fair. We in the West quite rightly feel that - but here's P. J. O'Rourke on fairness (in a speech to American university graduates):
We all get confused about the contradictory messages that life and politics send.

Life sends the message, "I'd better not be poor. I'd better get rich. I'd better make more money than other people." Meanwhile, politics sends us the message, "Some people make more money than others. Some are rich while others are poor. We'd better close that 'income disparity gap.' It's not fair!"

Well, I am here to advocate for unfairness. I've got a 10-year-old at home. She's always saying, "That's not fair." When she says this, I say, "Honey, you're cute. That's not fair. Your family is pretty well off. That's not fair. You were born in America. That's not fair. Darling, you had better pray to God that things don't start getting fair for you." What we need is more income, even if it means a bigger income disparity gap.
It might seem harsh - but that's the way it is, for now. With growth, today's child labourers may grow up to be able to afford to send their children to secondary school and even to university. But it won't happen overnight. Though I do think it will happen sooner if we adopt the reality-based methods of entrepreneurs like Iqbal Quadir - developer of GrameenPhone. I really hope so - for all the children, including my own. I don't want them to grow up in a world where poverty continues to force hundreds of millions of parents to send their children to work. That would be appalling.

Thursday, May 22, 2008

Our Eurovision Future

I had a vision of Ireland's future on Tuesday evening. We last won the Eurovision Song Contest back in 1996 with, as I'm sure you remember, Eimear Quinn singing The Voice. That was twelve years ago. Back then we were the bright new things on the world's stage - too old to be seen as an overnight success, too young to realise it wouldn't last forever.

And it didn't. Now we're practically old money in a European context: GDP per capita in Ireland is more than four times that of Bulgaria. The Eurovision Song Contest belongs to the 'new arrivals' - who anyway tend to vote for one another on a bloc basis. Indeed it seems the former Soviet Union countries tend to vote for one another - but then again, so do the former British Empire countries (i.e.: ourselves and the UK).

This means in effect that Ireland will never win the Eurovision Song Contest again. Though judging by the not-quite-a-national-day-of-mourning that greeted Dustin's demise, I would guess we'll learn to live with that scenario.

But it says something else I think. We're no longer infatuated with Europe, and Europe is no longer infatuated with us. If anything we're in danger of being seen as 'rich and selfish', as I heard a concerned John Fitzgerald from the ESRI put it recently. He's probably right - at least as regards those in Europe who give us a second thought. But most obviously don't: nor we them.

I think we'll vote Yes in the referendum next month: more out of a sense of duty than out of any real passion or ambition. Still, we're a much better country now than we were back in 1996. As Brecht once put it: pity the land that needs heroes. I might add: pity the land that needs success at the Eurovision Song Contest. It is a measure of our success that we need neither heroes nor trophies to feel good about ourselves.

Still, it's a pity Dustin didn't even make it to the final ...

Tuesday, May 20, 2008

Ireland's Gross National Happiness

Every so often I read a reasoned critique of economist's obsession with measure such as GDP and GNP and I end up agreeing that we need something better. Which is why I am so interested in concepts like that of Gross National Happiness - it kind of cuts to the chase and puts the desired end state in the definition; rather than talking only about means. You can't eat GNP.

Arthur C. Brooks has written a fascinating book of the same name and he reaches some reassuring conclusions. Firstly, happiness and freedom are strongly connected - as illustrated in the chart (with Ireland positioned well up the rankings). He mainly writes from an American perspective (as often is the case), but we know from economists like Bruno Frey that countries like Switzerland, with their strong focus on local decision making, show a strong correlation between happiness and democracy.

Which is kind of reassuring really. As Gideon Rachman points out in a delightful commentary in the FT on Europe's place in the world:
Arguably, the EU has achieved a sort of nirvana. It is too strong to be attacked; and too weak to be asked to sort out the rest of the world’s problems. As Harry Lime might have pointed out, Europe has become a giant Switzerland.
Maybe the 'Yes' campaigners in the Lisbon Treaty Referendum need to start emphasizing Gross National Happiness over claptrap about 'being at the heart of Europe'?

Pangloss vs. Cassandra

I'm a big fan of The Long Now - consistently one of the most interesting organisations thinking about the future. They run a series of talks and debates, and this one is the best so far: historian Niall Ferguson (in the role of Cassandra, as if you couldn't guess) and futurist Peter Schwartz (very definitely a Panglossian optimist).

Seriously smart, entertaining and thought provoking stuff: especially Ferguson about the very nasty challenges facing China (not including the recent earthquake).

More of the same at (YouTube for grown ups ;-)

Monday, May 19, 2008

Earthquake in China

Let us suppose that the great empire of China, with all its myriads of inhabitants, was suddenly swallowed up by an earthquake, and let us consider how a man of humanity in Europe, who had no sort of connexion with that part of the world, would be affected upon receiving intelligence of this dreadful calamity.
That's from Adam Smith's Theory of Moral Sentiments, published in 1759 no less. Thanks to Cafe Hayek for the link and timely reminder.

Oxfam Ireland are raising funds for those affected by the earthquake in China - you can donate here.

Concern are raising funds for the victims of the typhoon in Myanmar - you can donate here.

Sunday, May 18, 2008

Fuel Tourism

One of the most welcome consequences of the new realities in Northern Ireland is the absence, for all practical purposes, of a border with the South. One of the less welcome consequences is that it has driven up the price of diesel for Southern drivers. At least that's my reckoning on the current spike in diesel prices relative to petrol that has got the AA so vexed.

The cross-border insight was prompted by the ESRI's latest Medium Term Review. Box 5.4 on page 110 - for those of you with access to the full report - features a commentary on the issue of Fuel Tourism, i.e.: Northern Irish drivers crossing the border to fill up their cars and lorries in the South. Here's what they have to say:
In this Medium-Term Review we estimate that in 2005 between 5 and 9 per cent of total petrol sales in Ireland were consumed abroad. The figure for diesel is 15 to 20 per cent.
Is it any wonder then that diesel prices have been rising so much faster - even with an appreciating euro? Ireland is not unique in having big price differences between petrol and diesel - though I was struck by how much cheaper diesel was in France relative to petrol (about 10c a litre). Like it used to be here.

I'm not saying we put the border back, mind - I'm from Tyrone after all! Though as someone about to switch from a petrol to diesel car for both economic and environmental reasons I wouldn't mind things getting back to 'normal'. Whatever that is in today's 'whiplash' energy sector.

Saturday, May 17, 2008

Saturday is the New Sunday

I was chatting to a client yesterday who observed that 'Saturday is the new Sunday'. I think he's absolutely right. Sitting in Café Java in Blackrock this morning with my wife - catching up on the working week just ended - we were surrounded by couples, parents and kids 'decompressing' at the start of the weekend.

With shops and shopping centres open seven days a week (24/7 in some instances) there is no longer the same rush to get things done on Saturday when they can be done on Sunday instead. Certainly for me Saturday is the least 'structured' day of the week, and usually Sunday's are when I get around to the things that can't be done on weekdays - like cutting the grass. Hence the reason, perhaps, why Saturday editions of newspapers have become much like the Sunday newspapers.

So things change; even the distinctions concerning weekdays and weekends. The concept of the seven day week is, of course, an entirely human construct - unlike, say, the month or year which have obvious astronomical correlates. But there is something just 'right' about the seven day week - or so it seems to most people, including me. Just as well then that the seven day week looks set to survive long into the future: unlike 'getting lost', 'lunch', and 'ugliness' according to the slightly tongue-in-cheek timeline in the graph. From tfia (again).

Friday, May 16, 2008

The pitch has been invaded

The always brilliant Econtalk has a delightful interview with Chris Anderson, editor of Wired magazine. Chris referred to two things he had discover recently which - and please forgive the hyperbole - completely blew my mind.

No. 1 Google are running a totally free, regular telephone directory inquiry service in the United States (called Goog441)- its purpose? To train its algorithms to understand the human voice.

No. 2 A young software entrepreneur pitched him a great idea recently - his plan? Turn a $3 billion industry into a $3 million industry using his software (you read that right).

As the marginal costs of providing a lot of services (mostly online, but not all) tend towards zero, a lot of businesses are giving it away for free. But it's not just about free stuff, it's also about the radical re-configuration of business economics in a world in which the fans invade the pitch and play the game themselves. And not just economics - it's happening to politics, education, democracy, culture and an awful lot of other stuff besides:

And I happen to think it's glorious ...

Thursday, May 15, 2008

Behave Yourself

Demos - a left-of-centre think tank in the UK - has brought out a fascinating report on The Politics of Public Behaviour. It will no doubt become mandatory reading for our local policy makers and advisers. The report succinctly summarises current thinking from the areas of behavioural economics and neuro-economics and their implications for public policy. Alongside a good introduction and conclusion it also presents opinion pieces from three politicians (Labour, Tory, LibDem) regarding their views on the key issue: the role of the state.

It's a good report - but ultimately I am not convinced by it's pro-interventionist leanings. A fundamental issue not addressed in the report is whether people should be allowed to make the 'wrong' decision - even if it ultimately proves harmful to their wellbeing. I think this is the point of demarcation between the 'statists' and the 'selfists'. The former say no, so limit people's choices for their own good - the latter say yes. Though in the case of the latter (my own position, surprise surprise) the sensible view is that the decision should be fully informed (so there is a role for, say, health warnings) and should not have consequences for others (so go ahead and get high on that drug if that's what you want; but not, say, if you are driving or caring for young children). And don't assume my approval.

But there is a perspective called Libertarian Paternalism that I have written about before which says that you can combine compulsion and choice, e.g.: 'opt out' rather than 'opt in' pension contributions for employees. These are delightfully summarised by the folks over at the Nudge blog - who give us daily reminders of how readily we can influence people's behaviours. Especially, er, men's (a recurring theme, by the way).

Nevertheless the Demos folk are right about one thing in particular: behaviour modification is the front line of politics in Western Societies right now, and will be for some time to come. Nor will all the issues be as straightforward as plastic bag taxes and smoking bans. Changing behaviour requires a judgement about what is acceptable behaviour - something that doesn't come easy to present day society. Changing behaviour is the new class struggle.

Wednesday, May 14, 2008

Achilles' Peak

The ESRI's latest Medium Term Review 2008-2015 was greeted with near jubilation today. I'm a big fan of the ESRI; on balance they've called it right more often than they've got it wrong since I started reading their reviews back in the 1980s.

But this time I'm not so sure. I'm no fan of the doom and gloom merchants, especially as regards the near term outlook. The ESRI expect a significant slowdown this year and next (but not a recession) - with recovery going into 2010. It's hard to disagree. It's their medium and longer term outlook that I have problems with. Their benchmark forecast beyond 2010 is base on a number of, frankly, heroic assumptions - Herculean even. The key assumption is a recovery in global economic performance which in turn drives an upturn in Irish exports.

Fair enough as assumptions go, but I'm just not sure we will see the type or scale of recovery that they anticipate in the global economy. The source of my doubts lies in their analysis of Energy, Environment and Transport in Chapter 5 of the Review. Take their assumptions for the price of oil over the forecast period. The ESRI simply adopt the International Energy Agency's forecasts which amount to a price of $73.9 a barrel in 2012, and $9o.5 in 2020. As of today, WTI oil costs $125.12 a barrel: I think the IEA/ESRI might just be a tad optimistic about the outlook for the oil price.

So where might the price of oil really go over the next few years? Goldman Sachs are forecasting anything up to $200 a barrel in the next 6-24 months, before falling back. CIBC bank are forecasting $225 a barrel in 2012 AND an actual fall in global output as production peaks in 2011. You can see why some of the Review's assumptions start to look Herculean.

In fairness to the ESRI there isn't a lot of benefit in departing from the IEA's oil forecasts since they amount to the scenario the Government is working from. And clearly the ESRI's intent in their Review is to persuade any objectively-minded observer that the Government's current targets for electricity generation (with a ludicrous dependence on wind) AND the Government's targets for CO2 emissions are simply unachievable. Here's what they have to say about the latter:
Even with a carbon tax that starts at €20/tonne of CO2 emissions in 2010 and grows over time, emissions from transport grow by more than 35 per cent between 2005 and 2020. This is notably higher than the 20 per cent decrease for the economy as a whole suggested by the EU climate change and renewable energy package currently being discussed in Brussels.
You don't say! I do like their line in gentle understatement.

The key issue - from the perspective of Ireland's economic prospects - is whether we are near the peak in global oil production (2011-12 according to CIBC) and the consequences this will have for fuel prices (and much, much else besides). Peak Oil is the Achilles' Heel of any medium term economic outlook for Ireland, or anywhere else for that matter.

The question then becomes how will businesses and nations respond to a far higher oil price than that we're already experiencing? Martin Wolf has a handy summary of 'Do Nots' and 'Dos' in today's Financial Times. There's also an excellent paper published by the Vienna Institute for International Economic Studies (WIIW) just out on the subject of Economic and Trade Policy Impacts of Sustained High Oil Prices. The authors note the potential for Europe to respond to higher oil prices by reducing other costs facing energy users (including the non-fuel element of energy prices such as vat and duties). As well as insisting on our trading partners removing subsidies to fuel prices that then drive consumption higher than would otherwise be the case.

Unfortunately there is little we can do in the medium term to avert much of the adverse impact of Peak Oil and higher oil prices. As the ESRI rightly points out in its Review, our transport and accommodation choices are mostly given at this stage because of the long lead time for providing significant alternatives. But we won't be in recession this year or next: so now is the time to be making what adjustments we can (domestically and through lobbying in Brussels) to prepare for even greater challenges over the next ten years.

Tuesday, May 13, 2008

Whiplash Economy

When business people get together usually the first question they ask each other is: how's business? The answers tend to range from fine to grand to great - depending on what stage of the business cycle we're all at. Business people are congenital optimists (you have to be to start a business: 50% of new businesses in the EU fail in the first five years) but right now the optimists are having a hard time.

Instinctively, when times are uncertain, business folk look for signs and portents. The ancients had the entrails of sacrificial animals, we have confidence indicators. And the portents (at least according to the latter) are not good. What is really surprising is the speed and ferocity of the changes in sentiment indicators such as NCB's purchasing managers index for services. The fall in business activity in April was as sharp as that in October 2001 - immediately after 9/11. Enough to give the economy whiplash at that rate of deceleration.

Then again, there are some who think confidence or sentiment indicators and the like are not actually much better than reading entrails. Last week's More or Less programme featured a rather jaundiced review of the use and abuse of sentiment indices. There was much that I agree with but I have found measures such as consumer confidence to have some explanatory (and predictive) power for some markets.

Still, if some of the programme's contributors are right - that sentiment indices are lagging indicators rather than leading indicators - then we really might need to tighten those seat belts and adjust the head rests to avoid further damage to our financial health. The answer to how's business might soon be don't ask.

I wonder what the economic equivalent of a neck brace is?

Designer Futures

I'm afraid I'm turning into one of those slightly fanatical Mac users that goes on and on about how great the design is etc. And I'm an even bigger fan of Steve Jobs, who is one of the very few business leaders whose leadership actually makes a significant positive difference to the success of the businesses he runs. But what really inspires me about the guy is his passion for design, as the quote above suggests (from InspireUX). Jobs - and Apple - have turned this into a way of doing business that really does buck the trend. And for an inspiring insight into Jobs the man, see his famous commencement speech at Stanford.

Design is at the heart of innovation, and innovation will be at the heart of Ireland's future success. I hope we have a few home grown Steve Jobs delivering our designer future.

Postscript - yet another delightful example of the interface between technology, design and play (not from Apple!):

Multitouch Crayon Physics from multitouch-barcelona on Vimeo.

Monday, May 12, 2008

An Inconvenient Cooling

The recent spell of global warming peaked in 1998 - a full decade ago - with each year subsequently recording cooler temperatures (and in the case of the recent winter in the Northern Hemisphere, extremely cold). There is an interesting debate taking place (even though we're told 'the debate is over') which suggests, according to Don Easterbrook, that we may have entered a thirty year cycle of cooling (with the next cycle of warming due some time after 2020).

The BBC's More or Less programme has got in on it with a wager between two climate watchers about whether we'll see a year warmer than 1998 by 2011. If we do then it will be pretty clear that we are still in a warming phase (with all the implications for human involvement in global warming and responsibility for doing something about it). If we don't then it suggests that the global cooling proponents may have got it right (this time).

Of course there are those who don't think we have the luxury of waiting until 2011 to see which side is 'right' - James Hansen and Bill McKibben among them. Personally I think they sound like the lyrics of David Bowie's Five Years - inciting panic when panic is unwarranted. If anything it looks like we are tracking the least threatening of the IPCC's illustrative marker scenarios (see table SPM.3 on page 13). Some prudent preparations for a less benign scenario are called for in my opinion - not least because the main beneficial side effect I foresee is that we will solve the energy and food crisis before we face a real environmental crisis.

But if I was going to a 'Five Years' moment it would be about the prospect of us flipping into another ice age (the next one is 1,000 years overdue). A colder climate is far, far deadlier than a warmer climate - the former means starvation, the latter means longer growth seasons. Time, as always, will tell.

Sunday, May 11, 2008

It Won't Be So Bad

There's a nice post on PsyBlog about Impact Bias. This is:
our tendency to overestimate our emotional reaction to future events. Research shows that most of the time we don't feel as bad as we expect to when things go wrong. Similarly we usually don't get quite the high we expect when things go right for us.
We all suffer from impact bias of course, both in our private lives and sometimes in our public lives (think election manifestos). It also explains the wild fluctuations in business and consumer confidence indices which are based on what people expect for the economy and their own financial situation or business in the near future. Likewise, the bias can drive our capacity to think about the future, including the risks we face and the impact they could have.

Awareness of Impact Bias is kind of comforting: even if all the things that could go wrong do go wrong then it won't be so bad as we might fear. Then again, maybe not - especially when we think about global risks and threats. I recently read a remarkable essay by Peter Thiel, founder of PayPal and now a hedge fund president. Thiel places our current global uncertainties in a long run historical context, describing the ebb and flow of various 'heaves' towards globalisation over the past 500 years or so - of which the present one is perhaps the greatest and most likely the last.

He describes three 'bubbles' driving the current globalisation: the China Bubble, the Technology Bubble and the Hedge Fund Bubble. Likewise he brilliantly frames the context for much that challenges Ireland at present (though Ireland isn't mentioned) - including financial volatility, house price collapses and competition. As he says about China:
there is no good scenario for the world in which China fails.
Thiel describes the extraordinarily narrow path to the future we are now traversing: we either arrive at a globalisation that works (not just for the wealthy) or we fall off the path into failure and the last world war. It's sobering stuff, and the kind of impact we'll all be biased about.

Friday, May 9, 2008

Peace and War

Yesterday (8th May) was a public holiday here in France: Victory Day, commemorating the end of WWII. Today is Europe Day, when we celebrate Robert Schuman's vision of a European Union arising out of the ruins of the Second World War. Unfortunately there didn't seem to be much celebrating here in France; nor in Italy where the train drivers chose the occasion to go on strike.

I was only made aware of the latter when we went this morning to Monaco. SNCF were very apologetic about the difficulties the strike was causing (a lot of the train services round here are cross-border so if the trains don't leave Italy it does reduces the service somewhat). But they got us to Monaco eventually and it was well worth the visit (just to breath the free air of a land where there is no income tax!)

It did though get me thinking about the forthcoming referendum in Ireland. I do find the hectoring style of the 'Yes' camp annoying - a touch too much of what did the Romans do for us about it as we are reminded over and over again about how much Ireland has gained from EU membership. As if guilt should be a good enough reason to vote yes. To be sure the people of Europe are not exactly holding their breath in anticipation of our decision next month. The French will go ahead and do whatever it is they want to do anyway (militarily as well as taxation wise), and as for the Italians - well they'll just keep on being Italians I guess. Somehow I think Victory Day will always loom larger in the French psyche than Europe Day.

So I am undecided about which way to vote in June: if I was thinking strategically I would probably vote yes; if I was thinking tactically I would probably vote no. The former is simply a recognition that much of the Lisbon Treaty is sensible 'house keeping' for a venture as big as the EU; the latter is mostly about showing La Grande Republique that La Petite Republique doesn't take too well to Gallic condescension.

I guess I've time to make up my mind yet.

Thursday, May 8, 2008

Chien Méchant

As I noticed on my last visit to France, you don't meet many Eastern Europeans here. Okay, there are a few Russians but they seem to keep themselves to themselves in well protected villas with chien méchant notices on the gates ...

Of course this is due to France's decision not to allow the recent waves of countries joining the EU access to its labour market. It does mean that you meet French people in every restaurant and shop you visit - in marked contrast to Ireland. You would also expect it to mean that France has a low unemployment rate (if that was the intention of their decision) but it doesn't. The latest Eurostat data shows France having the fourth highest unemployment rate of the EU 27 countries, as shown in the chart. Incredibly, youth unemployment (under 25s) is also very high in France (18.1%) despite the availability of the kind of low skilled, entry level jobs 'exclusively' for French people.

Ireland and the UK chose a different path - allowing the first wave of Eastern European entrants free access to our labour markets. Though the jury is still out on whether there has been a net benefit to the host countries (and will be for at least another turn through the business cycle I reckon) we do not seem to have suffered the high youth unemployment in particular that the French obviously feared. Nor are we likely to: I'm with Brendan Keenan in today's Irish Independent when he suggests that even if Irish unemployment goes as high as 8% in the next year or two we'll still have fared much better than expected given the scale of the global economy's problems.

Still, I can't help noticing that France's unemployment rate is going in the right direction (down from 8.6% in March 2007 to 7.8% in March 2008), whilst our's is going in the wrong direction: from 4.6% to 5.6% over the same period. There's no Irish demand for the economic equivalent of the chien méchant just yet vis-a-vis immigrants: but don't be surprised if it nevertheless surfaces as a major issue in the next general election as we get closer to a French level of unemployment.

Wednesday, May 7, 2008

An Absence of Choice

I've been using the local train services here in Antibes to get about on trips to Cannes, Nice and Monaco. The trains are all electric and the services are both cheap and efficient, i.e.: they run on time every time. Interestingly the price of diesel and petrol locally is much higher than back in Dublin - at least €1.35-€1.40 a litre. An added incentive I guess to use the public transport system.

There is no doubt that the seemingly inexorable rise in the price of oil will act as a further curb on people's use of private transport. So also will plans to ban cars from city centres - as is now being proposed for Dublin and Cork. As illustrated for the German city of Münster in the photo, getting people out of cars and onto buses or bicycles does make a hugh difference to traffic congestion.

But getting from here to there (the presence of real transport options) is the tricky part. Dublin is neither Boston nor Berlin (both of which have excellent metro systems). Right now we have an absence of choice in relation to transport in Dublin relative to the needs of the population. Frankly if a lot more of us left our cars at home and took the bus, Dart, train or Luas the system couldn't handle it.

But the rising oil price will drive more and more consumers to seek alternatives, and they won't be waiting patiently for the Dublin metro to arrive. The logical (though politically unpalatable) thing to do is to end Dublin Bus' monopoly of a key element of the transport system; get rid of our ludicrous legislation from the 1930s controlling bus services; and let anyone with a licence and insurance provide a bus service. Then build the power stations that will allow us to migrate to a mainly electric transport system (private and public).

Lower prices, more choices, few carbon emissions. I would have thought that could be sold to the increasingly angry commuters of the Greater Dublin Area. Their counterparts in the Great Nice Area seem happy with the outcome.

Tuesday, May 6, 2008

Nuclear Holidays

Every year hundreds of thousands of Irish people holiday in France, as I am this week. And every year we experience the deep down dread in our Irish eco-souls as we lie awake in our gites wondering if the nuclear power station next door will explode. Actually, I made that last bit up. Let's face it, 99.9% of Irish holiday makers in France don't give a second thought to French nuclear power, blissfully ignorant of the risks they are taking. Myself, I'm here in Antibes, well within the fallout zone from not one but four nuclear power stations at Tricastin in idyllic Provence. Strange how you get used to things ...

Back in Ireland we are embarking on an 'energy first' of our own: ramping up the share of renewable energy (i.e.: wind, for all practical purposes) beyond anything tried anywhere else in the world. As the ESRI noted in a recent paper on the Government's energy and climate policies, the current target requires that wind delivers 20-25% of all our electricity generation by 2020, which is "a large multiple of the level of wind penetration actually achieved in any functioning power system with weak interconnection, and is also a multiple of targets enunciated in other countries."

Moreover, such a level of exposure to an intermittent power source demands a significant backup or baseload power generation resource. Nuclear is ideal for this purpose (regardless of its other limitations), so is gas. So maybe we need to build an interconnector to France before 2020; or outsource our electricity generation requirements to EdF? Of course, if the lights start going out over Ireland on a frosty, winter's day when the wind doesn't blow (as on February 16th this year) then we might all be happy to move to France to cuddle up to a nice nuclear power station ...

Monday, May 5, 2008

Dirigiste Economics

I'm in France this week on holiday so the posting frequency may be a bit low (especially if the sun keeps shining like it is ;-)

As always there's value in seeing Ireland as others see us - or don't. The first thing that strikes me is how well the public sector works in France. You can actually see where your taxes are spent. It costs €1 to get the bus from Antibes into Nice, a journey of about 15 kilometres. The train is €3. Both run on time for about 20 hours a day. Not quite your Dublin Bus/Irish Rail pricing structure (or service level).

This is upsetting to my libertarian instincts, but still I do admire value for money; whether it's from the private sector or the public sector. And no, I don't want to pay French levels of tax either. Which is why the recent OECD report on Ireland's public sector is so damning. Instead of focusing on a better, more efficient public sector, our political leaders have embarked on an act of national vandalism called decentralisation - carrying home entire government departments to their constituencies like some kind of hunting trophy. I think only the Khmer Rouge went further ...

So we get the worst of both worlds: high (and hidden) taxes; poor and inefficient public services. So should we go one way or the other: dirigisme ou laissez faire? By the way, there's a notice on the OECD's web site announcing that they are closed from 8th May to 12th May for the Victory Day and Pentecost holidays. While in France ...

Friday, May 2, 2008

Minor Emergencies

We got our copy of Preparing for Major Emergencies through the letterbox the other day. It would be easy to knock it as a communications exercise, so I will. There is simply no point to this so called handbook. We are treated to lightweight advice about a mish-mash of topics - from foot & mouth disease to flooding - with no obvious rationale for the selection.

The web site more or less replicates the booklet, with audio files for the visually impaired. But the reality is that in the event of a real emergency (say a serious leakage in a UK nuclear power plant) nobody is going to go looking for their handbook. We'll switch on the radio or television or computer to find out what's happening. Which really does beg the question: why did the Government go to the cost of distributing this booklet (half of it in Irish which doubles the expense)?

The depressing thought is that it simply an exercise in politicians making themselves seem important and indispensable. Focusing on scary things that frighten us sure gets our attention. Unfortunately we can expect a lot more of this sort of thing. As societies and individuals become more important they just don't need the clientelism that characterises political interactions in poorer countries. So politicians have to dream up even more fantastic reasons to get our attention and our taxes.

Still, it could be worse: they say Karl Rove dreamt up the invasion of Iraq as a midterm election strategy for George Bush back in 2003. Now that's what I call scary.

Thursday, May 1, 2008

A Beautiful Future

Arthur C. Clarke famously observed that a sufficiently advanced technology will look like magic. Now I think that a sufficiently advanced technology will look like art. As technology advances then form is compromised less and less for function.

See what I mean (from TFIA of course):

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