Happy Slapping the ISEQ

Watching the ISEQ index for Irish stocks these days is a bit like watching one of those horrible happy slapping videos you get on YouTube. Its disgusting, nasty and unbelievable that that sort of thing happens these days. The combined value of Irish stocks is down 25% since the start of the year. Some stocks are lying on the ground being kicked by the market. Like I said, it's horrible to watch.

And just to put that 25% decline in perspective: the one and only time the Dow Jones experienced a first half decline of that magnitude or greater was in 1932 - they called it the Great Depression. They really ought to ban this sort of stuff ...

Schools Not Out

The Irish Times carries a report today on research by the Irish Primary Principals’ Network on what parents want from their schools. How nice of them to ask us. Their timing is interesting: they chose the last day of school to tell us what parents want. I guess if you beg to differ with the findings then you'll have to wait until September to tell them so.

And I do beg to differ: for it is the questions not asked that are more pertinent than the ones the IPPN did ask. Much is made of the findings that 70% of parents would prefer to see schools run by the State with equal status and opportunity for all religions. We are told that in excess of half of all adults would like to see some of the time now given to religion reallocated to other activities, principally physical education. Indeed, a lot of the reportage is about how parents would like to see their children's time at school used differently in relation to the teaching of religion.

Fair enough: the results are interesting though not especially enlightening. But here are the questions I would have liked a poll of parents of children in primary schools to have asked:

Q. how much extra tax would you be prepared to pay for all primary education to be provided by the state?

Q. do you consider the length of the school day to be adequate for the purpose of educating your child(ren), and if not - how much longer should the average school day be?

Q. do you consider the number of days holiday your child(ren) has/have because schools are closed to be about right, too few or too many? If too many, how many more days of schooling would you like your child(ren) to have?

Q. do you think it appropriate that your child's/children's schools are shut completely for two months over the summer and unavailable to those willing to organise events etc for children?

Q. how do you rate the quality of your child's/children's teachers? If a teacher's quality is too low do you think the school should have the right to send them on a remedial teacher training course and/or make them redundant?

Q. would you like your child's/children's school to be able to pay extra to attract teachers qualified to teach science and/or maths?

Q. would you like your child/children to spend less time learning Irish and more time learning another language such as French or Spanish? Or learning science and computing skills instead?

And the big one:

Q. do you think that the way we organise the education of our children is the very best way to prepare them for life as citizens of the 21st century - or would you rather see the death of education and the dawn of learning?

Somehow I suspect I'll be waiting a lot longer than the length of a school summer holiday before the IPPN ask these kind of questions. If you are a parent of children in primary school you might even have a few questions of your own you would like them to ask next time.

Speculating on Speculators

There has been a lot of talk recently about 'greedy speculators' driving up oil prices. It's nonsense of course: but it's an easier 'excuse' to grasp than the real reasons I guess. I've been a longtime subscriber to Gary North's superb (and free) eletter Reality Check. He makes the point in this week's eletter that it takes two to speculate, i.e.: you need someone willing to bet that the price (say of a barrel of oil) will be higher than the contract price at a future date ('going long' in the jargon) and someone willing to bet that the price will be lower than the contract price ('going short'). As Gary puts it:

"In what way do speculators drive up the price of oil?" For each speculator who is betting on an increase in the price of oil, there is another speculator betting on a decrease in the price of oil. There is still the same quantity of oil available for consumers to buy.

He's right of course. If you disagree then tell me: what will be the price of a barrel of oil this time next year? Are you willing to bet on that? According to The Sunday Times, analysts at Société Générale are forecasting $60 by the end of next year: those at Fortis are forecasting $172. It's currently at $142 (up 42% since the start of this year). Call it right and there's a fortune to be made (of the Paddy Power variety of investment), call it wrong and you'll lose your shirt. The oil will still be there, of course.

As for how I see it: the future course of the price of oil will be a drunken stagger from the brickwall of economic depression to the lamp post of oil supply shortages. But as I've said before, when it's easier to print money than to find oil, then there's really only one way for the price to go in the long term. But would I bet on it? I don't think so - that's a game for big boys and I wouldn't want to risk the children's allowance on it.

Reality Isn't Optional

Economics boils down to two, simple rules of thumb:

1. INCENTIVES ARE ALL THAT MATTER
2. THERE ARE ALWAYS UNFORESEEN CONSEQUENCES

Everything else is padding (including the macroeconomic stuff), and most of human history is really just a record of the interaction of these two rules. The reason economists are called dismal scientists is because we stress that reality isn't optional - human actions are motivated by incentives, and not all the consequences of those actions can be foreseen. It has been ever thus.

Some folk think that reality is optional: politicians, for example. But though they might promise to lead us into paradise on earth before the next election, economists tend to think 'but what about ...?'

The ESRI's gloomy missive last week has got me thinking a lot about incentives and consequences. Take public sector pay: what incentive do public sector workers have to accept a pay freeze as some have demanded? The answer is: none whatsoever. Very simply there are no economic consequences for public sector workers from refusing to moderate their expectations in relation to pay and conditions. So why should they? Their incentives are to maximise the economic gains they can achieve from a position as monopoly suppliers of labour to the Government, safe in the knowledge that they cannot be sacked if their services are no longer required. Their economic behaviour is therefore entirely rational in light of the incentives and consequences they face (or think they face).

That is not to say there won't be consequences elsewhere in the economy. As Eilis O'Hanlon points out in today's Sunday Independent:

It's not public sector workers who'll be forced back into emigration, if the ESRI predictions turn out to be correct, after all; or public sector workers who'll be rejoining the dole queues. The security that comes from having the State pick up the tab is what allows public sector workers to get bolshie at the talk of tightening belts when workers in the private sector are just trying to keep their heads down and weather the storm.

Rule 2 doesn't say that each of us faces the consequences of our own actions - sometimes someone else suffers them instead. It would be wrong, nevertheless, to blame public sector workers for rising unemployment and emigration. Public sector pay, and the terms and conditions of public sector workers, are simply the consequence of decisions made - or not made - by those charged with running the public sector in recent years. We call them the Government.

There is though a closer alignment between incentives and consequences in the private sector. If a chief executive turns out to be not very good at his or her job (especially if they are on a massive pay package) then the board and shareholders (and even the other senior managers) are incented to replace him or her. Sometimes they leave it too late to take action - and pay the price in terms of falling profits or share prices or both. And therein lies a fundamental difference between the private sector and the public sector: a company that makes the wrong decision ends up smaller than it was previously; whereas a government that makes the wrong decision ends up larger than it was previously (as it spends money on tribunals, quangos and new policies designed to undo the damage caused by the previous ones).

The really interesting issue as we enter a recession will be how private sector workers will respond to a slowdown. Not only in terms of their economic behaviour (taking pay cuts, working harder, etc etc), but also in terms of their political behaviour. Back in the 1980s the PAYE tax payers of Ireland effectively revolted against the burden they were expected to carry on account of bad governance. The trade union movement was actually in the vanguard of this revolt if memory serves.

Private sector workers certainly have plenty of incentives to challenge a Government that expects them to bear all the cost of the economic adjustments we now face: and it's reasonable to assume that the consequences will be felt at the next election. Only it will be politicians who will face the unforeseen ones.

A Good Recession

I think Ireland is going to have a good recession. I don't mean good as in 'severe/good', but rather as in 'beneficial/good'. It might seem perverse to say there are positive aspects to a recession, but there is no doubt from an economics perspective that recessions can be 'helpful'. The main benefit is that a downturn acts like detox therapy for the economy. Lots of bad habits - and their consequences that have accumulated during the boom - effectively get purged during a recession. Like absurdly expensive property in not very convenient locations.

Tim Harford - The Undercover Economist - wryly points out that young people may well be the main beneficiaries of 'stagflation', or a recession accompanied by rising prices:

Despite being too young to know what stagflation is, they have perfectly positioned themselves to take advantage of it. The rising cost of fuel, food and services does not bother them: they do not pay for domestic heating or school fees, and they always borrow the car and leave the tank empty.

On the other hand, clothes, trainers, computer games, iPods, DVDs and even illegal drugs are all falling in price. Living at home is the perfect way to ensure a negative inflation rate, and by the time the little blighters leave, people will be giving houses away. It’s an ill wind, as they say.

Looking around, there are other examples of how different groups might benefit from the consequences of an economic downturn, e.g.: charities. One of the biggest issue facing charities in recent years has been getting volunteers, not getting money. Consider this: a lot of businesses and organisations are going to be negotiating early retirement for their most experienced but also most expensive staff in the months ahead. These will be talented, well connected people with the right levels of energy and financial comfort to consider a 'second career' - perhaps as social entrepreneurs.

Indeed they might do a better job of solving many of the social ills affecting individuals and communities in Ireland than the Government did when times were good. No surprise there of course. But a surprising and beneficial consequence of our first real recession in 25 years.

The Forward March of Europe Halted?

The latest Eurobarometer survey of citizens from all 27 EU countries provides some further insights into the No vote in the Lisbon Referendum earlier this month. The chart opposite (from page 28 of EB69) shows the Irish having the highest level of agreement with the statement that 'your country has on balance benefited from membership of the European Union'. Ireland has the second highest level of agreement that membership has been 'a good thing', and the second highest level of agreement that the European Union 'conjures up a positive image for you'.

The survey was done in April. Less than six weeks later the majority of voters said No to the Lisbon Treaty. Go figure. Actually the 'figures' might be in other parts of the same Eurobarometer survey. It shows, for instance, a bare majority (54%) of Irish people saying they 'tend to trust' the European Commission. The EU27 average was 47% by the way.

But I suspect a more powerful explanation lies elsewhere in the study, specifically in the section on attitudes to globalisation. This is the depressing bit for those of us who see globalisation as the best guarantee we have of a decent future for all humankind. For it is quite clear from the survey findings that the Irish are turning their backs on globalisation at a time when more than ever we need to re-engage with longer-term, global growth dynamics (i.e.: China and India, not apartment blocks in the countryside).

A slim majority (56%) of Irish people in the survey agree that 'globalisation is good for economic growth'. But even more (58%) agree with the statement that 'globalisation is profitable only for large companies, not for citizens'. More depressingly, when asked to choose 'which of the following two propositions is the one closest to your opinion with regard to globalisation?' namely:

1. Globalisation represents a good opportunity for Irish companies thanks to the opening-up of markets, or:
2. Globalisation represents a threat to employment and companies in Ireland

significantly more Irish people opt for proposition 2 (40%) than for proposition 1 (34%). A complete reversal of the responses to the same question in October 2006. Contrast the Irish response to the 78% of Danes opting for proposition 1 in the latest survey. Clearly RTE et al have done a good job scaring the natives.

Perhaps the real subtext of the No campaign wasn't "if in doubt, vote no" but rather "if afraid, vote no". Unfortunately the 'fear factor' is going to get worse rather than better for the foreseeable future. But this isn't just Ireland's problem: 43% of all EU27 citizens chose proposition 2 while only 39% chose proposition 1. Maybe we should let the Danes run the Yes campaign if there's another referendum?

Lefties of the World Unite!

After all the doom and gloom of recent days something more hopeful, at least for 10% of us. It seems there is a preponderance of left-handed people in positions of power - and it's about to increase. Both candidates in the US Presidential Election - Obama and McCain - are southpaws as the Americans would say. Or ciotogs to you and me. Ok to me and 1 in 10 of you. Five of the last six US Presidents have been left-handed. There's a great debate about the reasons and implications of this here.

Though it's still a bit of mystery why ciotogs should predominate like this, this article has a stab:

Studies have shown that whereas righties favor the left hemisphere of their brain, which controls language, left-handers are more likely to have bilateral brain function, which could allow them to visualize problems more broadly and with more complexity. A higher percentage of mathematicians and scientists are left-handed, and the same is true for artists.

Being left-handed not only makes you a better scientist or artist, research also suggests it helps you be more successful at sport, and obviously at politics. I find the research strangely convincing ... ;-)

A Great Future Behind Us

Since the No vote on the Lisbon Treaty I've had that feeling in my stomach that you get when go over a humpback bridge a bit too fast. You know the one where you and the car part company with the road for a moment before coming back down. Except I don't feel we've come back down after Lisbon. If anything, after today's ESRI report, it's beginning to feel like the road's just taken a sharp turn left and we're gliding towards the ditch.

It seems we're now heading for a recession twenty five years after the last one - and it's almost entirely self-inflicted. Indeed the ESRI expects Ireland will be the only EU or OECD country to experience a recession in 2008. Some achievement.

The culprit is a collapse in the housing sector: with the ESRI forecasting a 41.4% decline in the value of housing construction this year. Enough to drag total gross fixed capital formation down by 15.1%: far too much to be offset by modest but positive forecast growth for exports and consumer spending. The speed (if not the scale) of the collapse has caught just about everyone by surprise (including me) - one of those 'several standard deviations outside the range of expected outcomes' that Nassim Taleb describes as Black Swans.

The consequences will be grim: rising unemployment, a return to emigration and a legacy of malinvestment unprecedented in the history of the state that will take the best part of a decade to unwind. Plus the sickening realisation that it didn't have to be this way. And with that realisation will come a search for someone to blame and, if we're lucky, the correct culprits will get the blame. To my mind the culprits are those politicians who introduced and promulgated a set of tax incentives for developers and land owners that gave them a carte blanche to build more houses and apartments than were actually needed. Not so much market-led as donation-led.

Sure the banks loaned the developers the money, but banks make lemmings look like rugged individualists and they were only doing what banks do. That is, following the herd to where they thought the easy money was. The banks took their cue from Government: with the builders making so much tax stimulated money from construction why wouldn't the banks lend to the developers and to the borrowers buying the houses and apartments they were building? And weren't the Government then coining it at the other end with vat and stamp duty paid by the buyers? A win-win-win situation - or so it seemed.

But now we have a lose-lose-lose situation: with Government, the banks and the construction industry hurting. And, as ever, the taxpayer will pick up the tab - just as the taxpayer paid for the boom. A tab that may well include the price of rescuing one or two of the same banks.

How's your stomach?

A Woman's Work is Overdone

If ever there was a case for shutting down The Equality Authority it was the nonsense that they published last week about Gender Inequalities in Time Use. They took some old, previously published time-use data and got the ESRI to re-write it with an appropriate 'gender equality' spin. The ESRI really should know better.

The report purports to be a statistically coherent, independent assessment of survey data regarding how men and women divide up their time commitments (such as work and childcare) between them. But it is fairly clear from the start that this is not the intention: rather we are subjected to a tired rehash of that old canard about how "a woman's work is never done". Oh dreary me.

Fortunately the authors do at least have the integrity to present (almost) all the data needed to evaluate their claims. And quite plainly their 'men are all selfish bastards' spin simply falls apart with any intelligent, objective assessment of the data they present. The primary claim in the report is that women do more than their fair share of work when 'work' is defined as encompassing all 'committed time' activities including paid work and unpaid work - with the latter including childcare, household chores etc. They find that men on average spend longer doing paid work; women on average spend longer doing unpaid work. Big surprise, eh?

But here's the thing, Table 4.3 on page 33 of the report shows the authors' own estimates of men and women's time per average day on the main committed activities and guess what: there is no statistically significant difference! Men dedicated 7 hours and 47 minutes to committed time activities each day, women commit 8 hours and 14 minutes, and the difference is not significant to any statistical level (n.s.).

By the way, for those interested in the nitty gritty, 'unpaid work' as defined by the authors includes shopping. The authors find - hold your breath - that women spend far more time shopping than men. Now at the risk of sounding like a knuckle-dragging Neanderthal, I'm not entirely convinced that shopping is actually a 'chore' for women right up there with, say, getting the train to work on a wet, Monday morning. Perhaps the authors should get out a bit more? In fairness though they do admit on page 25 that: "Shopping is normally treated as unpaid work in studies of time use, however some distinguish shopping for food and shopping for leisure. Our data does not allow us to make such a distinction." Pity really, if they had separated out the shopping for leisure from the data for women would we have found that men's committed time was actually statistically higher than women's? We shall never know ;-)

Nevertheless you might think the authors would have packed it in and gone on to more useful things at this stage but no, instead we're subjected to fifty more pages of tortured efforts to nail men as the font of all misery for womankind in page after page of twisted interpretations of data to support a hypothesis that is already dead and buried on page 33. Next they turn to look at the behaviour of couples to see how bad it is for the average Irish wife married to the average Irish husband. But once again their very own data belies the hypothesis they are so desperately trying to promote.

According to Table 5.2 husbands have 7 hours and 59 minutes of committed time on an average day, wives have 9 hours and 26 minutes. Women are therefore responsible for 55% of committed time by couples. So it's a fair cop, right? Men make up 50% of the partnership but only do 45% of the work. But what exactly accounts for this difference (apart, one presumes, from innate male sloth and selfishness of course)? Table 5.4 presents a simple linear regression with total committed time (minutes) as the dependent variable and a list of possible explanatory variables with their coefficients and statistical significant shown in three columns. The first two columns are for husbands and wives, and the third is for the 'Gender Gap' between the two. And guess what - there is only one statistically significant explanation for the gender gap and that is the presence of pre-school age children (though even then, the overall explanatory power of the model itself is a rather dire, adjusted R-squared of .11).

So that's it, apparently the only source of significant 'inequality' in committed time between husbands and wives relates to the presence of pre-school age children. Still there is hope after all because children, eh, grow up and go to school. So the 'problem' solves itself. Again one might have expected the authors to make their apologies and leave at this stage for having lead us down a long cul-de-sac but no, the denouement is a long monologue in the Conclusion about 'what needs to be done about this terrible state of affairs'. No doubt with their paymasters in mind.

Here's what they have to say about the policy implications:

We would expect that policies to reduce paid work by men and increase their involvement in care should increase equality in the domestic sphere. Such policies would include paid paternity and parental leave and more flexible work options in male-dominated occupations. State support for childcare may not directly redress inequality in unpaid labour, but in allowing women to engage in paid work, where they choose to do so, will reduce the burden of care which falls on women.

That's right - they want us to re-engineer the labour market and the economy in order to solve a temporary problem whereby married women with pre-school age children have an hour and 27 minutes more committed time a day. Plainly the authors must have realised by this point that they were on a hiding to nothing because they were finally reduced to inventing a nonsensical PR factoid for the press release. They 'estimate' that because of the 39 minutes per day of extra committed time experienced by women then they are contributing an extra month of committed time a year compared to men. Only one problem with the factoid (that I care to point out): according to table 4.3 the difference is 27 minutes. But why let the 'facts' spoil a good story, eh?

Still, talk about much ado about nothing. If our Finance Minister is looking for a quick money saving measure then I'd suggest he takes a look at The Equality Authority with a view to releasing their talents back into the workforce.

But that's enough for now, my turn to do the ironing ...

Masters of the Miniverse

If, like most normal people, you find the day-to-day machinations of the stock market mind-blowingly boring then you're probably not aware of the recent implosion of Irish banks. The index of Irish banking and financial stocks - ISEQ Financial - fell yesterday by 2.53% in a single day to below 7,000 at one point. The combined market value of financial stocks on the Irish Stock Exchange now stands at €23.8 billion. That might seem like a lot to you and me but not when you look at what they were worth at their peak on 21st February 2007: a massive €59.7 billion. In other words, the combined value of the banks most of us save with and borrow from is down over 60% in just sixteen months. Not so much Masters of the Universe as Masters of the Miniverse. Really, would you trust these people to invest your money?

That's a rhetorical question, by the way. Because if you're contributing to a pension fund (or you're a public sector worker banking on The National Pensions Reserve Fund) then it's more than likely that you are either contributing to a fund managed by an Irish financial institution - or your fund has invested in the self same financial institutions. Or probably both. And don't think all this is a bit academic if you are a civil servant - the Irish Examiner reported yesterday that the National Pensions Reserve Fund has lost over 5% of its value so far this year (it was down over 10% as recently as March). The Fund is meant to provide the money to meet the pension entitlements of hundreds of thousands of retiring civil servants over the next number of decades. Though even then it will barely cover 25% of the projected cost. Those of us not in the public sector will be expected to make up the difference through our taxes. Regardless, of course, of what has happened to our own pension funds in the mean time.

Guess we're all going to have to pay a lot more attention to this stock market stuff from now on.

Not Tonight Nicolas

The women of Ireland exercised their alienable right to say No and caused the Lisbon Treaty to collapse. For now anyway. That's the findings of the initial results of the European Commission's survey of Irish voters about the recent referendum. The majority of men (51%) said Yes, but the majority of women (56%) said no - as shown in the chart from the Eurobarometer report. And so the referendum was lost.

This is hugely important. Of course the chart shows that large majorities young people voted No as did the working class. But neither group makes up a majority of the population: women, on the other hand, do. Women in general tend to be more worried about their financial situation, more worried about the consequences of immigration, and - lest we forget - they do more of the housework. Though I suspect Lisbon wasn't lost on account of the ironing ...

Those currently working on Plan B (or Plan C surely?) need to focus on the female factor. The women of Ireland will have to be persuaded to change their mind. Good luck to whomever draws that particular short straw.

Groceries Disorder

With inflation heading the wrong way, there are some who will harbour fond memories for the days of prices controls. For nearly twenty years we had the Groceries Order, introduced in 1987 and finally abolished in March 2006. The Order essentially created a pricing floor beneath which the prices of certain goods could not fall. The expectation was that - once the Order was lifted - then these prices would fall due to competitive and other pressures.

Unfortunately for Irish consumers this has not come to pass. I have prepared a chart using data from the recent CSO CPI report: Table 17 to be precise. The CSO have helpfully set out a table showing the trend in prices for those goods that were subject to the Groceries Order and those that weren't. Sure enough, after the Groceries Order was abolished there was a period in which the prices of those goods covered by the Order fell or remained static (the red line in the graph), while those of the other goods rose sharply (the yellow line). But fast forward more than two years since the abolition and we find something completely different: the prices of goods previously covered by the Groceries Order are now rising at more than twice the rate of inflation among goods not previously covered. Go figure.

With the National Consumer Agency pointing out the large differences between supermarket prices north and south of the border (a subject I've blogged about recently myself) then we can expect a lot more attention being paid to groceries in the months and years ahead. Of course we still have price controls (or floors) in the form of the Common Agricultural Policy. And I don't see the farmers relinquishing that any time soon - even if all the rest of us continue to pay the price.

Comfort Binging

Apparently we've been binging on comfort according to Sustainable Energy Ireland. Their latest report - Energy in the Residential Sector - sets out a detailed analysis of people's use of energy in the home over the past 15 years or so and how it has risen. Naturally this has upset a lot of folk, who have accused the rest of us of being addicted to comfort - honestly. Paul Cullen in today's Irish Times says we are 'addicted to warmth'. It seems we have become a nation of wimps: too fond of our central heating and electric lighting for our own good. What will they accuse us of next: an addiction to running water and indoor toilets?

The primary drivers of our increased energy consumption have been population growth and income growth. We have chosen to spend a lot of our extra spending power on gadgets and the energy to power them. There is nothing wrong with that. The challenge is to maintain and improve our standard of living whilst making sustainable choices about how we achieve this. Table 18 of the SEI report shows electricity's share in meeting residential energy needs rising from just 22% in 2005 to 52% in 2020. The problem is that I don't know where the electricity is going to come from. As I've noted before, we are taking some huge risks with our future energy security by over-investing in an unproven level of renewables-based power generation, and on a UK inter-connection.

It isn't just about power generation of course. We have just been through a massive mis-investment in new houses and apartments built to dismally low standards for insulation and energy performance. Over the next few years, new houses will be built to better standards - but the damage is done in the short term. So we will go through a period of expensive 'retro-fitting' of better insulation etc to the existing housing stock. Government incentives to do just this will play a useful part. Warmer weather due to climate change will also help of course - no need to run the central heating as often, as long or as high. Though I don't expect that one to feature in any adverts about Change ;-)

In the end, economics will lead to changes in our behaviour - just as the benefits of economic growth drove our increased consumption. Much that is desired in terms of changes in response to climate change, such as to commuting habits etc are now happening as a result of rising fuel costs. But behavioural economics will also help: such as using signals to our neighbours about our energy consumption that make us more aware. Not so much smart meters as 'status meters'.

As ever, it will be the cumulative impact of private, voluntary decisions that will create the conditions for a better place to live for this generation and the next.

Hope for the Bottom Billion

Martin Wolf is currently hosting a fascinating debate on world poverty. He has invited contributions from thinkers such as Jeffery Sachs, Richard Easterly, and Paul Collier on the most important issue facing humanity: the outlook for a solution to world poverty. All other issues - climate change, energy, economic growth - depend on how successfully we address, or don't address, this singular problem.

I am inclined to agree with Easterly's observation about Sachs' call for action by the UN that:

Fortunately for the world’s poor and for all the rest of us, there are much more dynamic forces in the world than UN bureaucrats and their academic advocates. Private, political, and social entrepreneurs, creative scientists, technological innovators, and resourceful workers and farmers found a way to escape “poverty traps” - the world poverty rate has declined by half over the last 30 years - and to avoid the famines and growth crash predicted by Ehrlich and the Club of Rome in the 1960s and 1970s. It is never a sure thing to predict that future problems will be solved in a similar way, but this historical record gives one a lot more hope about these challenges than one can derive from yet more toothless international agreements.

As I've noted before, free trade not fair trade is the key to the eradication of poverty among the billion or so fellow human beings living on $1 or less per day. But creating the conditions for free trade requires political will. I also like Bill Gates' thinking about creative capitalism - harnessing the power of market forces to deliver the innovations (social and technological) that will best solve the immediate health and survival needs of the world's poorest:

The genius of capitalism lies in its ability to make self-interest serve the wider interest. The potential of a big financial return for innovation unleashes a broad set of talented people in pursuit of many different discoveries. This system driven by self-interest is responsible for the great innovations that have improved the lives of billions.

Put crudely, the poor have needs but no spending power. Increase their spending power and the market will deliver the goods: in the absence of the usual distortions of corruption etc that kill the incentive to run a business in too many parts of the world. But Gates is a self-described 'impatient optimist' and he gives some great examples of harnessing the regulatory power of government for good. For example, the US government has recently decreed that any drug company that comes up with an innovation related to major third world health problem such as malaria will have another of their drug innovations (for the affluent world) fast tracked through the approval process (subject to obvious constraints: like that it does what it claims to do).

I find these examples of market forces (and smart policies) meeting the needs of those too poor to be consumers quite inspiring. If we can solve the problems of the world's bottom billion then there's more hope for solving the problems of the world's other billions.

Dustin's Revenge

If only. If only Dustin had won the Eurovision song contest; if only Ireland had qualified for Euro 2008; if only Tyrone had beat Down last weekend. Okay, maybe not that last one. Still, it could have been so different: we would have gone into the Lisbon referendum buoyed up by a 'feel good' factor - instead we got a 'feel bad' factor which more or less guaranteed a win for the No campaign(s). In the end there were numerous reasons to vote No (some of them imaginary, others understandable); and an absence of one, compelling reason to vote Yes (assuming you weren't motivated by ridiculous appeals to guilt and gratitude).

The No campaigners are entitled to celebrate their victory: and all of us (even those of us who voted Yes) should all appreciate the extraordinary demonstration of democracy we have been through - I am glad to live in such a free country. Nevertheless, the 'feel bad' factor is going to give way to a 'feel worse' factor over the coming weeks and months. Our economic difficulties here in Ireland are going to compounded by an even greater degree of uncertainty about Europe's future. I don't mean this in a spirit of 'apres nous le deluge': avoiding uncertainty might have been a partial reason to vote Yes, but it was hardly a sufficient reason. As someone once said, a principle is only a principle if it costs to abide by that principle. But I fear we're going to pay a price for our principles.

Europe will, of course, keep going - just as it did after France and Holland rejected the European Constitution. The European Union will remain a peaceful, prosperous and free association of democratic states - with the eurozone continuing to be the primary economic engine. Brian Cowen will have a job to do explaining what has happened to his opposite numbers in Europe. A recent Irish Examiner piece by Steven King gives some excellent advice, and suggests Cowen tells them that:

We need a period of reflection. Concocting a text that was deliberately incomprehensible with the explicit purpose of befuddling citizens was the wrong approach. It was too high-handed by half. Instead, we must rekindle our idealism, draft a coherent text the man and woman in the street can understand, and politely ask them to rally round. Scaremongering, putting a gun to their heads doesn’t work. I know.

CYNICISM only breeds cynicism. The majority of Irish voters did not believe there would be “dire consequences” arising from a no vote; nor did my senior ministers. Were the Danes isolated? Were the Swedes when they decided not to join the euro? On the contrary, Irish voters noticed that no votes in the recent past have delivered fundamental renegotiation.

So, there are questions, but there is not chaos. The damage done is not fatal. To listen to some colleagues’ rhetoric you would imagine another iron curtain had been drawn across our continent. Besides, enlargement has not gummed up our processes as some predicted. We need to listen more, not just go through the motions. We need a people’s Europe, not pretend it’s Europe v The People.

It's good advice, I hope he takes it. And, eh, maybe we don't send Dustin next year ...?

Siding with Sammy

There are a few milestones in everyone's life when you find yourself thinking or saying something you thought you never would. Like when you hear yourself sounding like your parents as you're talking to your children; or when you see Neil Diamond performing and you think 'some of those tunes aren't bad you know'. And the real killer: when you're listening to Sammy Wilson from the DUP and you find yourself in agreement. Oh Lord not this one, please, not this one ...

Sammy has just been appointed Northern Ireland's Environment Minister and he has already incurred the wrath of what he calls 'green fanatics' by suggesting that jobs and the economy are just as important as the environment. And no, he wasn't referring to Sinn Féin. Here he was speaking after his appointment earlier this week:

As minister for the environment I've got a duty to ensure that there's a good balance set between the need to develop our economy, to provide homes, factories, roads etc and at the same time to protect the environment.

I think he's right - there, I said it ...

He also reflects a wider groundswell of opinion among European politicians that maybe they need to be more balanced about the economy/environment debate. Witness the decision by Italy to re-start its nuclear programme, and Germany's to stop the closure of its facilities. Morever, the 'OPEC tax' is already having a bigger impact than any proposed 'carbon tax', as illustrated by a 20 percent decline in petrol sales in the UK over the past 12 months and the rise of the 'hypermiling' movement in the United States.

I don't think our own Environment Minister John Gormley will be siding with Sammy any time soon mind. Only this week he gave his imprimatur to yet another department funded study that took the most extreme assumptions about climate change to generate the most extreme projections for Ireland and then call them 'scientific predictions'. Sounds more convincing than 'scientific conjectures' I guess. At least the IPCC had the integrity to call them illustrative marker scenarios, not predictions: because real scientists don't do 'predictions' for 50 or 100 year's time. They leave predictions to astrologers, charlatans and, er, politicians.

But not Sammy ...

Morality 2.0

I got some interesting feedback, online and offline, about a post a while back on Business & Morality. In it I referred to a fascinating initiative by US-based Liberty Mutual called The Responsibility Project. Their intention is to get more people thinking and talking about responsibility as a simple, straightforward way to make the world a better place. I like it. Their method is to create and share video vignettes that challenge the viewer to ask his or herself: 'what would I do in the same situation?' But I don't want to make it sound 'worthy'. The actual quality of the videos is first class, and they are all totally engaging in their own way.

The people at The Responsibility Project recently got in touch to let me know that they have added a number of new videos - and I can report that they have maintained their high standards. Their new stories range from the emotionally powerful (Father's Day), to the quirky/funny (Table Guardians), to the cutesy (Mandy & Lester). Unfortunately due to 'licensing agreements' several other videos cannot be seen outside of North America, including one about an African boy starting school in Ireland. Still, there's plenty of content and thought-provoking material across the rest of the site.

I think that initiatives such as The Responsibility Project are part and parcel of a wider process of shaping a moral code for secular societies. Though the greater part of our individual and collective moral code in Ireland is Christian in origin (on balance, a positive thing); our cultural and societal momentum is taking us in a 'post-Christian' direction with regard to ethics and codes of behaviour. Where we end up, time will tell. The debate has only begun outside of Ireland let alone inside Ireland. For a sense of where the debate is going listen to this fascinating interview with Austin Dacey, author of The Secular Conscience (which I've just started reading).

The recent DCC debacle has highlighted the importance of morality in a business context. Increasingly I suspect business people will be judged not just in terms of their compliance with the letter of the law, but also in terms of the morality of what they do. Though I doubt that many business people are ready to engage in that dialogue just yet. But engage they must - and the example of Liberty Mutual shows one way it can be done.

Don't Panic, Don't Panic ...

Some of you may be old enough to remember Dad's Army, in particular Corporal Jones' stock phrase: "don't panic, don't panic". It's one of those phrases that comes to mind whenever I learn a bad piece of news that quickly gets spun into 'the-world-is-ending' kind of headlines.

I'm thinking of course about today's news that the Live Register of unemployed workers crossed the 200,000 level last month for the first time in nine years. This brings the unemployment rate to 5.4% - uncomfortable for those affected, but hardly a disaster in the scheme of things. Or to look at it another way, back in 1999 (when it was last at 200,000) there were almost half a million fewer people in paid employment than there are today - such has been the power of the economy to create jobs since the start of the decade.

The CSO slipped out another report today that didn't attract quite the same level of attention - their Measuring Ireland's Progress Report for 2007. It reinforces the point that the problems we face now are far, far more manageable today given our depth of economic wealth and productive capacity than at any other time in our history. We will of course face new and significant challenges in the months and years ahead (including energy and food shocks), but we are blessed to be so much better able to manage such shocks without the harm they would have caused even in our recent past. Don't panic, indeed.

Send in the Entrepreneurs

Just as economists are often accused of forecasting 8 out of the last 3 recessions, so also are they regularly guilty of forecasting recovery in the third half of the year. In other words, we don't experience recessions as often as feared; but when we do it usually takes much longer to finally get out of them than originally expected.

I was at a conference last week in the UK where an old hand with experience of multiple recessions (this is his sixth, he observed) shared the idea that recessions usually last about 20 months. Mind you, he was talking "business recessions" not "decline in GDP growth over two consecutive quarters/economists' recessions". We are in a business recession in Ireland right now - one that began towards the end of Q1 this year. It won't show up in the macro-economic statistics probably, but anyone running a business will know what I mean.

Things will therefore get worse before they get better (some time around Q4 2009 if the UK model applies here). Not least because the banks don't have any money to lend, and because the current level of uncertainty about both domestic and global economic prospects leaves monetary authorities helpless to change things. Or as The Economist put it with its usual pithy insight:

If the theme of last year was turmoil in financial services, then 2008 could be the year when financial stress goes on to harm the economy. And it is not too fanciful to imagine a vicious circle: as the economic downturn causes more financial pain, so confidence will crumble further.

So what to do? The banks don't have any money to lend, and the Government is too cash strapped to stimulate things much. Indeed, if they raise taxes as Noel Whelan demanded in this weekend's Irish Times, then that Q4 2009 recovery might well recede like the end of a rainbow on a sunny day. The answer, as ever, is to let the private insights of individuals as to what is best for them translate into the public good that is economic growth and innovation. In other words: we need to encourage entrepreneurship like never before, even as the appetite for business start-ups is going into reverse.

A recent report on the culture of entrepreneurs found that among self-employed people "self-direction, stimulation and achievement are rated as more important, while security, conformity, and tradition are rated as less important" in comparison with employees. Such values are not exclusive to people starting up businesses, of course. Managers in existing businesses - and civil servants with a genuine commitment to public service - are all capable of being entrepreneurial. But it is an individualist mind-set by definition - one that grates against the constraints of the increasingly conservative, collectivist, don't-rock-the-boat mindset now seizing the national mood.

Depending on which mindset wins out will be the timing, speed and durability of Ireland's economic recovery. If the Americans can send in the marines, then I say we send in the entrepreneurs ...

Bridging The Distance

I had a couple of hours to kill before getting a flight back from London last week so I went to visit the Telectroscope, mentioned previously. You look in and there's folks in New York looking back at you, smiling and waving.

It is soooo cool: we gotta get one for Dublin. Say near the Ha'penny Bridge - with the Sydney Harbour Bridge connected at the other end? Failte Ireland please note - the real estate for this sort of thing is limited so getting moving on it ...

Save Our Cows

Under the radar of the Lisbon Referendum debate another, potentially more destabilizing debate has begun. It's the one about the Government's plans to meet our Kyoto target obligation by 2012. Or rather, it's about how we simply aren't going to meet the target and what it will mean.

Today's Irish Examiner carries a story not reported in any of the other national papers, namely that the Department of Finance are already saying that the 2012 target for emissions reductions will not be met - and that achieving the 2020 target looks even less likely. Indeed, one unforeseen consequence of a No vote next week may well be to create severe tensions between Fianna Fail and the Green Party: tensions that have been papered over somewhat in order to create a consensus on the Yes side of the referendum.

Minister John Gormley is already making noises about culling the national cow herd as a radical measure to meet our 2012 target. By about 50% according to some calculations. Something tells me this will not be an easy sell to the Irish Farmers' Association and the ICSFA. And it just might persuade some Fianna Fail backbenchers to push for Plan B: a coalition with Labour instead.

Where the Department of Finance might please the Green Party is through the introduction of a Carbon Tax. A recent paper from the ESRI sets out the case for such a tax, including how best to avoid any unforeseen consequences (like culling half the national herd). Though the ESRI doesn't see a carbon tax delivering the 2020 (let alone 2012) targets on its own, they do see one advantage for the Government: they might raise more taxes that way than through income taxes. They even suggest using the revenues from a carbon tax to reduce labour taxes - providing a net stimulus to economic growth. It's a well considered, mostly convincing argument.

There's only one major obstacle in the way of this happening, i.e.: reality. Introducing a tax that will raise energy prices when they are already rising at nearly ten times the rate of inflation would be a 'brave' thing to do politically. And that's the main problem: a carbon tax in Ireland will be an impossible sell for politicians, especially if no one else introduces it.

We could always ask the rest of the EU to join us in introducing a carbon tax: but should the No vote win next week I wouldn't count on a lot of warm feelings from our European peers for any tax ideas we might have. Indeed, they may well have a few ideas of their own about the taxes we pay.

A Matter of Distrust

I remember at the time of the first Nice referendum (June 2001) doing a survey which showed a massive jump in the previous two years of those agreeing that 'the pace of change in Irish society is much too fast'. At the time I pointed this out to several Yes campaigners as a sign that there would be a 'No' decision in the referendum. Funnily enough they didn't believe me at the time ...

Consumer confidence was plunging through the first half of 2001 as the dotcom bubble collapsed and people worried about their economic security. We were also coming out of a frenetic period of economic and social change that had taken everyone by surprise and left many people uneasy about the future direction of the country.

Fast forward seven years and we're heading in the same direction. Consumer confidence has collapsed, the economic storm clouds are gathering and we are coming to the end of a period of rapid social change, wrought especially by immigration. This I think is part and parcel of the recent surge in the No vote. As in 2001 the Don't Knows are the key group. Back then it turned out that a lot of the Don't Knows actually intended voting No, it was just that they didn't want to be seen to be flying in the face of the Political/Media consensus on the Yes side. As anyone who has ever done business in Ireland will know, nobody really likes to say 'no' - even when that's exactly what they mean. It's part of our psyche: we don't want to make the other side lose face in case we need them on our side some time in the future. And so it is in June 2008: people simply don't trust the way things are going, or where we'll end up.

Immigration is part of this - though not in a xenophobic sense (yet). The recent findings from the CSO that immigrants took up 90% of all the new jobs created in the past twelve months is truly extraordinary. I doubt that any other country in Europe would have greeted such an announcement with the indifference that greeted it here. On the one hand such indifference is a measure of our affluence, maturity and confidence such that we don't think it's a big deal: the cake has been getting bigger so there's plenty for everyone. I'm inclined to agree.

But the cake is about to get smaller (especially if the ECB pushes ahead with an interest rate rise). That I believe is behind the surging No vote. People are worried about the future as they were in June 2001, and worried about the direction society is moving in. Nobody is saying 'send the immigrants home', but more than a few I've spoken to in focus groups etc are saying 'we have enough now thank you'. Immigration is still the issue that 'dares not speak its name' in polite political circles. In the fallout from a No vote next week and an economy-wrecking interest rate rise next month I expect that all that will change. And it won't be pleasant, unfortunately.

Nor was the second half of 2001 come to think of it.

A Very Public Sacrifice

We're going to hear a lot more about sacrifice in the next few months; years even. The Government's increasingly dire situation regarding tax revenues (falling when they were budgeted to be rising) leaves two choices:

1. cut spending substantially (including public sector employment)
or
2. increase taxes (including income taxes)

A third option is to do both - if things get back enough. And they may well get bad enough. Despite the OECD painting a relatively positive picture for the Irish economy in its forecast this week, things are already turning much more negative than they anticipated. Take interest rates: every single economic forecaster (even the gloomiest) has been projecting a cut in interest rates by the end of the year. But now it seems the ECB may well increase its interest rate - as early as next month. The timing of this could not be worse. Ireland faces an exchange rate/interest rate squeeze that will make the UK's ERM difficulties back in the early 1990s look like a mere prelude. And we know how that ended ...

Hence the need for sacrifice. I think our new Taoiseach Brian Cowen is a man who will not be shy about demanding sacrifice. Just read what he had to say in his inaugural speech on becoming Taoiseach:

One of the challenges we face today is to temper a rising tendency towards individualism within Irish society. We have rightly encouraged a culture of the individual taking personal responsibility for their own well being. We have reaped benefits from the more confident Ireland as presented by its most successful people forging new opportunities at home and abroad.

Overdone this carries risks. Not correctly harnessed this can sap the energy from our sense of community which is still strong and visible in so many ways. What we must prioritise is to turn the benefits of individual flair to the benefit of the community as a whole.

This is what government wants. This is what government needs. Our responsibility is to fuel the engine of community – to lead the charge away from the promotion of exclusive self interest towards a superior value of a wider community interest. The pre-eminence of community and participation over self promotes social harmony and a better quality of life for all. This is what will allow us develop a society of social inclusion.

So can we expect a period of tension and strife in the public sector? I'm not so sure. A fascinating new paper from the University of Bristol on pro-social behaviour has found that workers in non-profit organisations (in sectors like healthcare and education) are more willing to do unpaid work than their equivalents in for-profit organisations. So maybe that is where Brian Cowen needs to look first as he demands sacrifice? Whether he will get it or not is an entirely different matter, of course.

Northerners are mean, Southerners are lazy

I had some relatives from the North visiting at the weekend. They were delighted to see Dublin looking well in the bank holiday sunshine - and appalled at the price of just about everything. Even allowing for the sterling/euro exchange rate (or maybe because of it these days).

It bore out a lot of what we have been hearing lately in the media about the raw deal (Southern) Irish consumers are getting. But what do we do about it? As Ann Fitzgerald from the National Consumer Agency put it to the Joint Committee on Enterprise, Trade & Employment last week: Irish consumers pay over the odds because we're willing to pay over the odds ...

How do you change an entire culture? Because that is the scale of what we are talking about here. The Northern culture, with its - er - Scottish influences, is one far more attentive to prices, value-for-money and budgeting in general. The Southern culture with its - you-would-nearly-think - Italian influences is generally far more relaxed about these things. I don't know whether it's because we in the South (I've long gone native, despite my Tyrone origins) are just less anxious about these things; or too 'snobbish' to be seen to be 'penny-pinching'; or we just think other things are more deserving of our attention. But whatever it is, we're paying a real and measurable price for it.

Still, I think there's a touch of horses-stable-bolted about the current agitation over rip off prices. Just look at what happened to the pubs when they got carried away with their 'price increase with every pint' approach to revenue maximization. Sales are down nearly 20% from their peak according to the CSO. Consumers may be slow to react, but they're not stupid. And nobody likes being treated like a fool.

Those retailers playing funny cross-border pricing games might just find themselves on the wrong side of the whiplash economy. As Habitat found out when IKEA opened at the other end of the M1. Even sheep have teeth.

A Matter of Priorities

The Copenhagen Consensus Centre have once again done us a big favour by bringing together a group of economists (including several Nobel prize winners) to agree the most effective measures to solve the world's problems. They have identified thirty different measures that - on a cost/benefit basis - can make the biggest, quickest contribution to alleviating suffering and poverty throughout the world - see image.

Simple things, like vitamin A and zinc supplements in children's diets, can make huge differences at relatively low costs. I like their approach: reason-based, compassionate economics. The folks in Irish Aid please take note.

And another thing: check out this brilliant initiative by Irish mobile application specialists Púca - just text the word AID to 57500 and your account will be debited €2.50 which will go (without tax or mobile network charges) directly to a group of Irish charities dealing with the crisis in Burma/Myanmar. Better still, when you make a donation you get a text message inviting you to invite a friend or friends to do the same with all the details in the message for you to forward. Exactly the kind of viral/web 2.0/participative aid involvement that I like and which will be a bigger part of the future for charities.

Get texting ...