Sunday, August 31, 2008

Keep It Local

I got several negative responses to my idea of letting Irish people decide themselves how best to spend Irish Aid funding. I think the main concern is that Irish people don't know enough about the complex issues involved and might make inappropriate, short-term, emotion-driven decisions. I tend to give the Irish people more credit, but there you go.

Still, it's nice to see a supermarket empowering its customers to decide how best to spend funding for corporate social responsibility initiatives. Waitrose will shortly roll out a programme whereby each of its stores are given £1,000 to donate each month to three local community groups, schools or charities. Every time they shop there, customers get a token that can be inserted in any of three Perspex tubes at the front of the store - one for each of the selected charitable groups. At the end of the month, the pile of tokens donated to each organisation is weighed and the beneficiaries receive a corresponding proportion of the cash.

Maybe an enterprising Irish retailer or bank will try the same - and then those opposed to letting the people decide might come around to the idea of donor empowerment.

Saturday, August 30, 2008

Deflation Nation

We got new bedroom curtains the other day. I use the royal we of course. Personally I thought the ones we had were grand - sure, they were about 15 years old, and a little faded, but when you pulled them they kept the light out just the same. We decided to get new ones anyway ...

I got chatting to the man who was putting up the curtains, though he seemed very busy - fielding calls on his mobile from other customers wondering where he was. I told him I was amazed at how much demand there seemed to be for new curtains given all the talk about recessions etc. "God bless the women of Ireland" was his answer, "sure if it was up to the men they'd all be using black bin bags."

He has a point: it's the women of Ireland who do most of the shopping, and it on their demands and intentions that the fate of the economy rests for sure. Coming to the end of our 'summer of discontent' I see a few green shoots of potential recovery in consumer spending (sorry for the confusing seasonal metaphors there). The latest ESRI consumer confidence data reveals a more positive outlook about pricing trends and the current buying climate in August.

This is being driven by the increasingly intense competition between supermarkets, as evident in the latest round of newspaper advertisements. The image is from today's Irish Times - Superquinn are running a promotion selling selected stock at 1970's prices. Might not be long before we have deflation rather than inflation if that trend continues. Though I'm not so sure about the impact of 1970's imagery on the shopping public. Bear in mind, 44% of the Irish population weren't even born in the 1970s ...

It isn't just grocery prices experiencing deflationary pressure. The same issue of the Irish Times carries a story of a Northern Ireland builder who sold out a new development after running an advertisement stating: "We give in! We're finding it tough to sell. So let's cut to the chase with an offer you can't refuse." Some of the houses saw their prices cut by nearly a third.

Which just goes to show that the price mechanism works, and that consumers do respond to price incentives by spending their money. Schumpeter put it better:
The capitalist achievement does not typically consist in providing more silk stockings for queens but in bringing them within the reach of factory girls in return for steadily decreasing amounts of effort.
Same goes for curtains I guess. God bless the women of Ireland - including the factory girls.

Demography Isn't Destiny

The latest population forecasts from Eurostat (pdf) are fascinating. Though most of the headlines have focused on the projected 6.8 million people living in Ireland by 2060, it is the assumptions behind the forecasts that are most interesting. A 53% increase does seem like rather a lot, and naturally we wonder where they'll all fit in. The photo shows the 07.50 Adamstown to Heuston train circa 2058 ...

But of course the forecasts are only projections - little more than extrapolations of recent trends a long way into the future. I don't buy them: trying to call Ireland's demographic profile in 2060 is as challenging as forecasting today's population profile from way back in 1956. I doubt if the folks back then foresaw an Ireland with more native Polish and Mandarin Chinese speakers than fluent gaelgoirs. More to the point, even with a 50% increase in our population density we will still have one of the lowest densities in Europe.

What's more, the Eurostat projections assumes a further rise in immigration: over a third (36%) of the projected rise to 6.8 million is based on immigration (net) - exactly twice the projection for the EU27 as a whole (18%). Again, this is an economic projection more than a demographic one, and as Garret Fitzgerald points out in today's Irish Times, our own indigenous population growth will significantly reduce the need for immigration beyond 2030.

A far more pressing issue I suspect will be the growing demographic and economic imbalances at a regional level in Ireland. There you're talking politics, not just demographics.

Friday, August 29, 2008

Sophia's World

A friend gave me a copy of Capitalising on Culture, Competing on Difference by Finbarr Bradley and James J. Kennelly. The sub-title is 'Innovation, Learning and Sense of Place in a Globalising Ireland'. It's an ambitious book: it tries to argue for a sense of Irishness and Irish identity as a source of creative advantage in a global marketplace. I wish it were so - but I don't think it is. The conclusion to their book lapses into the by-now-standard-question-for-the-Leaving-Cert view that the Celtic Tiger made us sort of materially better off but we lost our Celtic souls along the way. Is there anyone working in Irish academia or media (or US in Kennelly's case) who actually thinks that the past decade or so have been a massively positive thing for Ireland?

Reading their book - which is very contemporary in its sources - leaves me feeling that I'm listening to a dialogue between 50-something academics and 40-something journalists. It's a dialogue I find interesting, and am happy to join in, but I sense all the time that the 'main event' is happening elsewhere. I think the ultimate problem with books like Bradley and Kennelly's is that they are compelled to reduce their analysis to a list of things the government should do. But as I've said before, innovation happens at the margins, in the spaces between the pillars of the status quo.

As an example of the wrong approach to innovation 'policy' just read the text of this etenders request from Enterprise Ireland. It's an incredibly linear, rational, by-the-book process that frankly would make it miraculous if it actually delivered anything remotely approaching true innovation. I rate EI by the way - but if this is the best policy makers can do in relation to innovation then Bradley and Kennelly's ambitions for a second Irish Revival are not going to happen. We might be better going Danish ...

My money isn't on the 40-somethings and 50-somethings (proud as I am to be among their ranks!), rather my money's on Ireland's first generation of Digital Natives who take for granted tools like social networking, blogging, IM, SMS, Google etc and are gleefully playing with them to create new Irish stories for the 21st Century. No better example is the fantastic Sophia's Story (I'm referring to the concept - I'm several decades too old to get the story). Created by Campbell Ryan Productions in Dun Laoghaire, it was launched on Bebo in March 2008 and had 5 million+ viewers in just two weeks. You can learn more about it from Tiona Campbell's presentation to the Institute of European Affairs here.

I think our advantage as Irish people is our openness - brought about by being a small nation crucially dependent on trade; our use of the English language and easy absorption of US culture (good and bad); and our 'catholic' values that make us comfortable dealing with most people in most parts of the world without a whole lot of baggage. All of which, of course, is a consequence of our Irish history and culture.

But here's a thought Bradley and Kennelly (and co) might appreciate: I suspect that my grandchildren's generation (yet to be born I hasten to add ;-) will readily embrace the Irish language, culture and traditions and facilitate a serious revival. If only to get up the noses of their parent's generation. I'll enjoy that ...

Thursday, August 28, 2008

Eirnovation

To paraphrase Goebbels (or was it Göring?): every time I hear the phrase 'Ireland must become a knowledge economy' I reach for my sneer. I know, I shouldn't: sneering is very immature (however satisfying it might be at the time). But really: do these people get out much? Admittedly I'm in a bad mood - eircom 'announced' they were upgrading our office broadband service yesterday at 2 hours notice, saying our email and broadband would be disconnected for 3 hours (like it or lump it), and then 7 hours later they told us normal service won't be resumed for another five days. And here's the thing: our office is brand new, and built beside the National Digital Park: I'd find it funny if I wasn't so busy sneering ...

But this isn't a rant against eircom (okay, just a little). It's really about: how the hell are we going to build an economy for the 21st century that employs all those willing to work and provides everyone else with a standard of living that is appropriate, when we can't even provide reasonably priced, fairly reliable broadband services to the likes of companies like mine? Seriously, we're kidding ourselves if we think we are at the starting blocks never mind leading the pack. Reflect on just one example from my recent holiday in the United States: we took a ferry over to Martha's Vineyard off Cape Cod and en route the captain made the usual announcements about safety, life jackets etc etc and then added "we also have free wifi on the lower deck, the middle deck and the upper deck". I soon connected my Nokia N95 and was surfing online for free a kilometre out to sea at speeds (and more conveniently) than I could in central Dublin. I'm really trying not to sneer ...

So what do we do? Perhaps we do nothing. Or rather: we just leave it to today's youth to sort it out. For example, within a few hours of realising the mess eircom had left us in my younger colleagues at work had set up a company gmail account (amarachresearch (at) gmail (dot) com) using a mobile broadband connection and a laptop so key documents could be sent to and received from clients. It wasn't my idea - but I did feel rather proud of them for their inventiveness (and extremely grateful to Vodafone/Google).

It's that inventiveness and comfort with technology that bodes well for our future I feel. We just need to ramp it up a bit. Maybe we need an Irish solution to an Irish problem - not so much innovation as 'eirnovation'? And though it goes against every ideological cell in my libertarian body to say it: I'd even be open to something radical along the lines of the Government buying and floating a satellite over the country in order to provide 'free' all-you-can-eat broadband internet access to every wifi modem/mobile handset in the country. Whatever the hell it takes to get us over the crippling barriers to developing world-class digital businesses that we now face in Ireland.

Okay, that was a bit of rant - sorry: normal service will be resumed in, er, five days time ...

PS: the image is from an extraordinary photo journal called Invisible Journals by Oli Laurelle which visualises information about wifi networks on various trips by her around Europe - I wonder what the picture for Ireland would be like ...?

Healthy Inequality

Reading about the latest IPH/CPA report on health inequalities I couldn't help feeling that Brecht put it better:
The pain in our shoulder comes
You say, from the damp; and this is also the reason
For the stain on the wall of our flat.
So tell us:
Where does the damp come from?
A Worker's Speech to A Doctor
Up until about 10-15 years ago we knew what caused ill-health among poor people, namely: not enough money. After all money buys better housing, better nutrition and the education to choose a healthier lifestyle. If only it was that simple. For the first time in human history being fat is a sign of poverty, not wealth. As numerous studies of the problem of obesity have pointed out, it is choices that people make (about their values and behaviours) that is now the main source of ill-health rather than the choices they can't make. This is less true of older generations, of course, many of whom did indeed grow up with 'the stain on the wall' and who are now suffering the consequences of genuine poverty in the form of chronic ill-health.

The health arena may well be the final battle-ground between those who believe that 'tax and spend' is the solution and those who believe that 'freedom and choice' will deliver more efficiently and effectively. And yes, I'm in the latter camp - who couldn't be after seeing the 'benefits' of a 64% increase in real healthcare spending per capita in Ireland between 1999 and 2005. And some people think the solution is 'more' ...?

The health debate goes to the heart of the key issue of inequality. We're going to hear a lot more about inequality now that the economic cake isn't getting bigger. It's already becoming a major issue in the US Presidential election, with some angry at the huge increases in inequality experienced in recent decades, and those who see inequality as a consequence of rapid economic change and growth - but not an objective (nor necessarily a permanent feature).

We are all acutely sensitive to issues of fairness - as evident in The Ultimatum Game. Any parent with more than one child is intimately familiar with the dilemma. But our sensitivities mostly relate to those we interact with most - at home, at work, in our local community: not to the wider world as a whole (evolution didn't equip us with a capacity for global awareness). The joke goes that when Bill Gates goes into a pub everyone immediately becomes a millionaire on average. Inequality as a political issue in rich countries like Ireland is about relativities; and not about greed landowners evicting starving peasants. Of course many people are poor relative to a minority of wealthy people in Ireland - and we're all poor relative to Bill Gates. But I don't lose much sleep about my impoverished status relative to Bill myself I must admit ...

One other factor in the politics of inequality in Ireland will be the impact of immigration. It seems immigrants bring their cultural values about inequality with them (pdf) to their host countries (like the Irish did after the Famine). So if all those Eastern Europeans imbued by the socialist leanings of their predecessors vote with their parents' values I suspect that Labour will be in government next time round.

Finally (having barely skimmed the surface of the matter) I have one piece of advice for the poverty industry with regard to ending poverty and ill-health: call for the National Lottery to be banned. Do that and I might even support some of your other ideas.

Wednesday, August 27, 2008

Get Married, Be Happy

I was struck by some of the thoughts in Cardinal Seán Brady's recent talk to the Humbert Summer School last Sunday. Most of the subsequent coverage focused on his suggestion that the No vote in the recent Lisbon Referendum was partially due to growing disillusionment on the part of Catholics with the secular direction of the European Union project. I doubt that this is as significant a factor as the Cardinal suggests, though it would certainly be worth exploring further.

But there were other things in the Cardinal's speech that did strike a chord with me. One of the things he calls upon the leaders of Europe to do is "to pay attention to protect the family based on marriage, for these are the foundations on which our common European home rests." There I think he is on much firmer ground with his analysis. I've blogged before on the issues of marriage and family trends, and I certainly think it warrants the attention the Cardinal proposes.

Stepping back from political and theological perspectives - and applying a cold, socio-biological analysis - it would appear that monogamous marriage is a social institution invented by men (our feminist sisters fighting the Patriarchy were right in that regard), which provides most men with regular sex in return for being regular fathers. Oh, and there's a small spin-off benefit called 'Western Civilisation'. I know, not very romantic.

Like all 'invented' social institutions (e.g.: money, nationality, even language) it has proved to be a remarkably successful invention because it works. Married people are generally happier than those of other marital statuses (males and females), even in Ireland after a period of rapid social change (pdf). Though happiness levels in marriages change over time, both husbands and wives tend to end up equally happy eventually. And yes, married men do have more regular sex than single men.

All of this puts the recent debates about gay marriage and polygamy in perspective - for me anyway. Personally I don't have a problem with some kind of legal recognition for gay couples, not least in terms of tax treatments vis-a-vis inheritance etc. As for polygamy, it does seem that polygamous men are happier (big surprise there!), but the same studies don't report on the happiness or otherwise of the males denied wives as a result of 'crowding out'. Given the 50/50 ratio (approximately) of males and females in the population then there's always a danger that polygamy will leave us facing some of the same dilemmas as China with its surplus of 40-60 million young men. Actually, we'll probably be facing China's and India's problems directly ...

So the Cardinal is on the right path: monogamous, heterosexual marriage is truly the building block of peaceful, prosperous civilisation. And that's something we've all got to support.

Tuesday, August 26, 2008

The Price Is 0.99 Right

Pricing is one of the great mysteries of economics. As Russ Roberts puts it in the latest EconTalk podcast, the marketplace is a spontaneous order that emerge from the voluntary interactions of millions of people, all mediated (and made possible) by the pricing mechanism. It's the closest economists get to being mystical.

And we're still figuring out new things about prices and pricing all the time. Take the latest research into why retailers use price points like €9.99 rather than the more convenient (you would think) €10.00. That 1c difference can influence sales volumes of things like pizzas by 15%. And it isn't just the price of goods or services that is so responsive to small changes: so also is the price of labour aka wages and salaries. Just look at the experience of fruit pickers in England, for instance, who were subject to an experiment by local economists (with the consent of the farmer) that brought about a cumulative increase in productivity of 90%.

But if all this makes consumers look like sheep you couldn't be more wrong. It seems that the general public do as good as job at forecasting the price level (i.e.: the inflation rate) as professional economists. A finding that might do wonders for the productivity of all those economic pundits mind you ...

Monday, August 25, 2008

Virtual Sweatshop

I'm too old to get gaming, though I do get that it's big and increasingly important. But a recent story from the BBC left me feeling like I am on the slow boat at the back of the gaming convoy. It seems there are now 500,000 people employed in developing countries making virtual goods in online games to sell to online players in developed countries. Virtual sweatshops, if you will. It's already a half billion dollar market and growing ...

The world is flat all right: flat as the computer monitor you are looking at.

Sunday, August 24, 2008

Sun, Sea, Sand, Sculpture

Beyond Harmony

The foreign isn't foreign any more. That's what struck me this morning at the Global Village, part of the Dun Laoghaire Festival of World Cultures. There were people from all of the world moving from stall-to-stall buying and selling goods from all over the world. There was the Indian stall, the Kenyan Stall, the Slovakian Stall and so on. In this morning's sunshine it really did seem like world peace had settled on our tiny corner of south Dublin for a brief few hours. And what united us was free trade: people selling stuff from other countries in the hope of making a profit. Make trade not war, indeed. The way it should be.

But what also struck me was how difficult, if not impossible, it would be to organise a similar 'global village' in so many of the countries represented in Dun Laoghaire today. Tibet, Palestine, and Iran for example. The contrary thing about a 'festival of world cultures' is that it can only be held in a country that is not so hung up on its own culture to the exclusion of others. Like it used to be in Ireland not that long ago (think censorship). We have gotten used to things 'foreign' in our own midst. And I think we're better for it (as do most people I reckon).

The irony is that celebrating difference is in danger of leading us to enforce difference. I fear that the benign intentions of multiculturalism my well lead us down this route. As observed in this delightful essay from the superb Butterflies and Wheels website:
Modern multiculturalism seeks self-consciously to yoke people to their identity for their own good, the good of that culture and the good of society. ... An identity has become a bit like a private club. Once you join up, you have to abide by the rules. But unlike the Groucho or the Garrick it’s a private club you must join. Being black or gay, the philosopher Kwame Anthony Appiah suggests, requires one to follow certain ‘life-scripts’ because ‘Demanding respect for people as blacks and gays can go along with notably rigid strictures as to how one is to be an African American or a person with same-sex desires.’ There will be ‘proper modes of being black and gay: there will be demands that are made; expectations to be met; battle lines to be drawn.’ It is at this point, Appiah suggests, that ‘someone who takes autonomy seriously may worry whether we have replaced one kind of tyranny with another.’ An identity is supposed to be an expression of an individual’s authentic self. But it can too often seem like the denial of individual agency in the name of cultural authenticity.
There is a double irony here. The only people in the end free to be whatever they individually want are those from the 'dominant' culture: white, English-speaking Europeans in the case of Ireland and the UK. We get to shop the world. But the other irony is that it is the liberal tolerance of white Europeans that risks exposing those previously under the yolk of repressive cultures (gays and other previously 'outlawed' groups) to yet more repression. First they came for the Christians ...

So I take my cue from the name of one of the fringe events at the festival called Beyond Harmony. It's all about fusion of East and West etc. We have to move on from the 'United Colours of Benetton' wishful thinking to far more practical solutions to the tensions differences give rise to. Like I saw in the Global Village today.

Saturday, August 23, 2008

The Consumers Have Gone on Strike

Forget SIPTU serving notice of its intention to demand pay rises for its members. They represent a minority of a minority of private sector employees. Of far more concern to our collective economic future is the wildcat strike by Irish consumers evident in the retail sales data for June from the CSO (pdf). Most forecasts for the Irish economy this year and next have assumed that real consumer spending will be weak but positive - just not enough to offset the contraction in the construction sector and prevent us experiencing negative GDP growth.

But with retail spending making up about half of total consumer spending and showing the sharpest fall in volumes since January 1987 then we are clearly not in 'weak positive' territory: more like 'sharp negative' growth for 2008. The other half of spending is made up of services. Here we need to anticipate the consequences of diverging inflationary trends. The prices of goods are falling, including - for the first time - those of Irish industrial producers selling to the home market (pdf). But service prices are rising, driven by energy prices (year-on-year) and public services (health, education etc). So even as consumer spending on services holds up, the real level of spending will be weak due to price rises.

So where to next? Irish consumers are shaking off our traditional 'price insensitivity': more shopping around (by store and by channel - think ecommerce) is already evident. Manufacturers and retailers are already responding by cutting prices. That's good news: lower inflation increases real spending power even if wage growth is modest (despite SIPTU's best efforts). We appear to be experiencing a micro-economic recession rather than a macro-economic one at present: sure, unemployment is rising but is still well below the EU average and the levels experienced in previous recessions. Personal borrowing is still in positive territory as is government spending (too 'positive' perhaps in the case of the latter).

Reading the runes of consumer confidence indices my near term 'forecast' is for equally dismal retail sales data for July and August (the weather having done nothing for the nation's mood). This will combine with the first half to drag down the forecast for consumer spending in 2008 - so I expect real growth to be negative, unless there is a collapse in the inflation rate in the last third of the year: unlikely at this point. As for next year? I'm reminded by Stumbling & Mumbling that forecasting is the weakest aspect of the economics discipline, and that economists inevitably hold up a mirror to the past when forecasting rather than a crystal ball to the future.

It's enough to drive you to boxed wine ...

Friday, August 22, 2008

Creative Capitalists

Bill Gates has started an interesting discussion about the role of business with his talk at Davos earlier this year.

I've just been reading some of the posts at the Creative Capitalism blog inspired by Gate's talk (thanks to Stephen Kinsella for the link). The plan is to use the dialogue between contributors and commentators to ultimately produce a book on the subject.

There are some excellent contributions by a 'whose who' of economics - well worth a browse. I especially like Paul Ormerod's contribution citing Hayek. He notes:
First, I am an unequivocal enthusiast for both capitalism and liberal democracy. Second, like Professor Easterly, I regard Hayek as being, by some margin, the greatest social scientist of the 20th century. The research agenda for the 21st century is dominated by his insights.

But capitalism is not the same as unrestrained free markets, mediated neither by formal regulation nor by informal norms. And a key insight of Hayek is that we make progress not by the ‘rational’ analysis of the central planner, but by experiment and evolution.

I think this is how we should see Mr Gates’ suggestion. It is an idea which is intended to bring benefits. Like most things, it is likely to fail, but until it is tried we will not know.

The Hayekian view of the world is completely at odds with the view that we should never do anything which might interfere with the Platonic idea of markets found in economic theory. We experiment and see what works. Capitalism comes in different forms. Yes, America is the most successful, but the pinko Europeans in Germany, France, Sweden – each with its own particular variant of capitalism - have not done too badly either.

... I am sceptical about a lot of what goes on under the heading of corporate social responsibility. And I am particularly wary of the central planning mentality that often goes with it: the belief that sufficient data and sufficient research will enable us to guarantee the success of a particular measure - the triumph of hope over the experience of ages. But the Hayekian process of evolution will eventually find this wanting. We've known since Adam Smith that we do not have to intend good in order to achieve good. But in the meantime we might, just occasionally, want to intend good.
He's right, of course. The true essence of capitalism is a willingness to experiment, and a readiness to fail. The obverse of policy making unfortunately - which is usually more concerned with avoiding risk and demonstrating success (even in its absence). Which is why creative capitalists will raise the next billion out of poverty, as they have the last billion.

Grey-Tinted Glasses

I remember a cartoon during the last UK recession: it showed a man about to be shot by a firing squad. One onlooker turns to another and explains "they've decided to shoot an economist every day until the economy recovers ..."

The cartoon came to mind as I read a report in today's Irish Times quoting Cori's Seán Healy lament that economists have become “the ultimate authorities” in most policy areas and their views are given “the status of absolute truth”. This surprised me given the unfolding train wreck that is our mis-managed economy. It goes to show, as Fr. Seán should know, even ultimate authorities holding the absolute truth can be ignored by the faithful from time-to-time.

Of course, Cori's analysis of all that is wrong with Irish society is a classic case of seeing the world through grey-tinted glasses. Like the characters in Monty Python's Life of Brian, wondering "what have the Romans ever done for us", Cori begrudgingly acknowledges the 'paltry' benefits of the Celtic Tiger before segueing into a familiar dirge about all the awful consequences of growth, wealth and development. I don't have a copy of Seán's speech, but it does seem to be a re-hash of his paper (pdf) with Brigid Reynolds on the concept of a basic income (other interesting papers here).

So we're told that, sure, incomes have risen but so have the numbers with incomes below the poverty line (using the 'elastic ruler' of 60% of median incomes as a 'poverty' measure). We're told that, yes, many more people have paid jobs but that only makes people doing unpaid work feel inferior. We're also told by Cori that, yes, people have more jobs and money but they are 'time poor' on account of having to commute from more remote housing developments etc. I could go on but I think you get the gist. As I've said before, there's a real sense that Cori would be happier if it was the 1980s again.

Cori's world is a zero-sum world (as it is for most political activists): the rich have expropriated the poor; the North has expropriated the South; men have expropriated women; this generation has expropriated future generations and so on and so on. They are wrong - ironically locked into the mechanistic paradigm they disparage in their analysis. I believe on the other hand, as do most economists, that we live in a positive-sum world. What Cori and their ilk fail to understand is that economic growth improves society's social character because it gives people hope.

Mind you, in a positive-sum world, there's a lot less demand for ultimate authorities bearing absolute truths ...

Thursday, August 21, 2008

Growing Prospects

Where will growth come from to lift Ireland out of recession? It isn't obvious. Consumers are panicking, exporters are crippled by the euro, and the Government is looking for ways of cutting spending without upsetting anyone.

One source we may be overlooking is population growth. The CSO's Population and Migration Estimates April 2008 (pdf) make for fascinating reading. For example, natural population increases (births minus deaths) outstripped net migration for the first time since 2004. The excess of births in Ireland over deaths has increased nearly threefold since 1994. Ireland's total population has grown by 2% in the past year. This is hugely important because a) economic output is a function of the numbers working times their productivity and b) there is little prospect of population growth reversing any time soon due to the age profile of our population.

As a recent DB Research report points out, contrasting Spain with Germany, population growth is a key source of economic output growth over the long term in developed countries. Hence also the otherwise positive outlook for Ireland's medium term economic prospects in the ESRI's longer term outlook.

Of course productivity is not going to rise without an educated workforce. The ideas of endogenous growth theory tell us, among other things, that families investing in the education of their children will contribute to future economic growth in the long term. Robert Lucas has written much on this subject, and a paper of his recently makes the point that it is the global emergence of millions of educated people - scientists, engineers, other specialists - which is now creating its own endogenous momentum in terms of economic growth.

This is one reason why one billion people have been lifted out of poverty in the past 15 years. It will be the continuation of the work of the invisible hand in the 21st century - listen here to a fascinating talk by Deepak Lal on this subject - that will lift the next billion out of poverty. And in common with the BRIC economies (except maybe Russia) Ireland's population is growing and we have the wherewithal to produce educated and productive workers. So our future growth is in our hands and, eh, our maternity hospitals.

Wednesday, August 20, 2008

Educational Deform

It's that time of the year: yesterday we bought our daughter's school books for the new term about to start. Two things struck me: 1) the horrendous price of school books, and 2) the fact that we still rely on books at the primary content platform for education. The two are, of course, related: the school books industry is as close as you get to monopoly in the book business - so there's lots of vested interests in maintaining the status quo (as there is with most things in the educational sector it seems). Another concern is the effect of carrying so much weight on school children's bones and bodies: but I guess that's a health issue, not an educational one.

Still, it did get me thinking: with all the complaining (yet again) about poor maths and science results and our inability to produce enough science and IT graduates, then why-oh-why are relying on medieval technology to deliver a 21st century education service? We could solve the school book cost and health issues overnight if we wanted to. As well as leapfrogging 15th century (and 16th, 17th, 18th, 19th, 20th century) technologies in one go.

We should issue every primary and secondary school children with an Amazon Kindle (I'm sure they'd give us a good price) and simply update the content on the Kindle with new books at the start of each term. The current retail price is $359 or just over €240. We paid €200 for just some of the books for one year yesterday. Something tells me we could negotiate something lower from Amazon in return for a bulk order of a million or so Kindles ...

And that would just be the start. Recently in the United States, the education sector ranked 55th out of 55 industrial and services sectors (after coalmining) for its usage of IT. I suspect our own educational sector in Ireland might not perform that well. But we've leapfrogged technologies before (e.g.: our national phone system in the 1980s), and we can do it again. Only this time the focus should be on education and we can go much, much further. Robot teachers anyone?

Our Convivial Future

People are naturally gregarious: we like one another's company whether working or at leisure. Which is why it is more pleasurable to share experiences with others (eating, going to the cinema, holidays, business success) than on our own.

I was reminded of this whilst reading a fascinating new report about the cultural role of pubs - The Enduring Appeal of the Local - published by SIRC in the UK. Though focused on English pubs, most of what the report contains relates to Irish pubs as well. The essence of the pub of course is that it is a place for people to meet. We enjoy the convivial feeling of belonging to a community where the more constrained rules of work, family, church or class don't apply. Crucially, the pub is about participation, not spectating:
This idea of participation is crucial to understanding what pubs, and locals in particular, are all about – why people are attracted to them and why they endure as a focus for social networks even in the digital age of online communities, texting and other forms of 'instant' communication. We may go to the pub 'for a drink', but 'having a drink' (rather than just 'drinking') is essentially a social act surrounded by tacit rules – a special 'etiquette' that gives us a sense of inclusion and belonging that is independent of our status in the mainstream world. In this sense the pub is very much a social leveller – something that was apparent even in the Middle Ages. As Theodore Leinwand notes in his study of Shakespeare's plays, in the 15th century, alehouses, taverns and inns were " … sites … where people of disparate status mixed…[which] brought men, high born and low, into relation, fostering a propinquity that might secure, adjust or threaten hierarchies."
The SIRC study is a healthy antidote to the dreary binge blaming we are subject to day-in-day-out by the Nannyists in our midst who accuse us, wrongly, of being on a path of growing alcohol abuse. But the study does make one thing clear: much of the recent decline in the fortunes of Irish pubs is due to the drinks industry forgetting that people go to pubs to meet other people and share a few drinks: not to drink alcohol in the company of other people.

Still, I found the insights in the SIRC research encouraging, even in the age of Bebo we can look forward to a convivial future for our pubs. Or as they put it:
We may sign up to an online community to communicate with like-minded people who share our interests across the globe, or we may reveal selected aspects of ourselves on Facebook. These are, however, 'non-local' by definition. They are what the late urban planner Melvin Webber, predicting over thirty years ago the internet trends that we witness today, called 'community without propinquity'. They are, in a very significant sense, different. They may extend our social and professional lives and allow much wider patterns of interaction, but they do not replace the more traditional and timeless face-to-face activities that take place in the special social institutions created to facilitate them – central among them, the pub.
It's time to reconnect with our locals, though I'll probably stick to wine rather than beer as the former is better for my IQ it seems ...

Tuesday, August 19, 2008

The Technology Hype Cycle


This is from Gartner via PSFK. Looks like behavioural economics is only at the 'take-off' stage in the hype cycle. Though my favourite technology of the moment - location aware applications - are entering the nirvana of the plateau of productivity.

Monday, August 18, 2008

In a Twitter

I finally (finally) got around to joining twitter. More to figure out how it works and what it can do than anything else. I'm really interested in the potential for web and sms based services like twitter to capture 'real time' data from people in relation to their behaviour, feelings, attitudes, intentions, location etc etc.

My own business sector - market research - has only begun to think through the implications of web 2.0 tools for what we do: which is mostly capturing information from people and turning it into statistical insight. The 'capturing information' part has always been the killer: most of the industry in Ireland (and to a lesser extent the UK) uses the same methodology invented by George Gallup back in the 1930s. Namely:

- we print the questions on paper to create questionnaires
- we send the questionnaires to interviewers around the country
- they get people (the sample) to answer the questions
- the interviewers send back the completed questionnaires
- these are then entered into a data file for analysis
- tables are produced summarising the results.

It's still the best (only) way to ensure statistically representative results for, say, a sample of the total population. But the times they are a-changing: and when nearly 9 in 10 adults have mobile phones (and rising) then it won't be long before mobile (and ultimately web) surveys are as robust as face-to-face surveys. By "won't be long" I'm thinking 5-10 years tops ...

And the likes of twitter will get us there sooner rather than later.

Going for Ór

The Becker-Posner Blog has a nice post on what it takes to win medals in the Olympics. Using regression analysis of results since WWII, the answer is:

- a large population
- a high per capita income
- being the host country
- a dictatorship

This could explain Ireland's, er, lack of medals so far at the Beijing Olympics. Though I am hopeful for some of our boxers. But like all econometric analyses the explanation is only partial - there are always anomalies like New Zealand: similar to ourselves in most regards but already ranked number 21 in the medals league.

Still, if we apply the formula then we need to incentivise Irish women to have more babies, possibly annex Northern Ireland and Wales, and keep our economy growing. Of course, we'll need a dictatorship to ensure we can do all this in time for the London Olympics in 2012 ...

Sunday, August 17, 2008

Tooling Up for the Future

I was on the Marian Finucane Show yesterday, presented by Rachel English. I was a guest along with Stephen Kinsella from UL (do check out his blog), and futurologist Ray Hammond. Our brief was to discuss the Ireland our grandchildren will live in (inspired by Stephen's recent op ed piece in The Irish Times).

It was a very wide ranging discussion, and I had the opportunity to chat to Stephen afterwards. One thing we both agreed on: technology is going to be a hugely influential factor in our grandchildren's future, and we are only beginning to discern what some of those influences might actually be.

Though social change tends to follow technological change at a lag, sometimes it isn't always that way. Think of the speed with which text messaging was adopted, or social networking. Kevin Kelly (from the Long Now) has recently given an inspiring talk on the theme of The Next 5,000 Days (referring to the approximately age of the world wide web). He refers to things like the one trillion man- and women-hours of labour that have gone into creating the trillion page plus web we all use. And now that - what Clay Shirkey calls - the Cognitive Surplus has been unleashed then the next 5,000 days may bring even more extraordinary feats of creativity and innovation.

We are tooling up for a remarkable future: and our grandchildren (and their contemporaries all around the world) will inherit something extraordinary.

Friday, August 15, 2008

Weathering Climate Change

I'm beginning to worry about the wellbeing of the good folk in Met Eireann. Night after night they warn us of imminent 'Atlantic depressions', 'no end to bad weather in sight', 'no hope of a reprise in the weather' etc etc. If the Met Eireann website took Google Ads they would all be for Prozac.

Of course the bad weather has proved to be something of a conundrum for Irish Climate Alarmists. Met Eireann have a report on their website called Ireland in a Warmer World which looks at different scenarios (not forecasts) for the possible evolution of Irish weather given different assumptions about the trend in global climate change etc. Here's what their analysis of the impact of climate change on Irish rainfall has to say (page 11, section on Precipitation):
Autumn and winter are becoming wetter: 5-10% increase in mid century, increasing 15-25% towards the end of the century. Summers are drier: 5-10% decrease for 2021-2060; 10-18% decrease towards the end of the century.
So we've just got to wait until 2021 for a good summer ...

I'm being unfair of course. One swallow does not make a summer, and one bad summer does not make a trend. Okay, two bad summers in a row make a trend but we'll let that go for now. It hasn't stopped some from nevertheless arguing that our current spell of wet weather is, naturally, due to climate change. Hence John Gibbons in yesterday's Irish Times suggesting that 'freak weather' is itself a sign of climate change, even if - as he admits himself - the climate change models all project drier summers, not wetter ones. Still, I agree with John on one thing: there's no doubt that much of our flooding problems of late are anthropogenic in nature: it's called bad planning.

I don't know how anyone can deduce any trend in our summer weather right now. Met Eireann's own data shows that the summers of 2005 and 2006 were drier than usual, and those of 2007 and 2008 have been wetter than usual (like you didn't know ...). In fact it points to a major problem for those still convinced that the IPCC got it wrong and who argue that things are going get a lot worse than in the IPCC's illustrative marker scenarios (hence the Climate Alarmist tag). Which reminds: how can the scientific debate on climate change be 'over' (the usual response to Climate Denialists) and yet the same people who say it's over then go on to say that the IPCC consensus is too conservative and therefore wrong?

I'm on the side of the Climate Agnostics: I believe our climate is changing (it always has) and that we need to prepare for the consequences (including recognising the role of human behaviour in causing and mitigating climate change). Though he's the bete noire of the Climate Alarmists, Bjorn Lomborg is right when he argues that the priority response to climate change should be to help those most at risk (the world's poor) get richer so they can handle change more effectively. And make a global commitment to R&D to develop mitigating technologies (such as non-carbon energy sources).

It is about keeping our options open in terms of being able to respond flexibly to whatever challenges climate change poses. As noted in this excellent essay from the Cato Institute:
In the face of massive uncertainty on multiple fronts the best strategy is almost always to hedge your bets and keep your options open. Wealth and technology are raw materials for options. The loss of economic and technological development that would be required to eliminate literally all theorized climate change risk would cripple our ability to deal with virtually every other foreseeable and unforeseeable risk, not to mention our ability to lead productive and interesting lives in the meantime. The precautionary principle is a bottomless well of anxieties, but our resources are finite — it’s possible to buy so much flood insurance that you can’t afford fire insurance.
The best response we can make in Ireland is to focus on energy related R&D to ensure that we play our part in developing the tools to respond to the climate change challenge. And use Irish Aid to help those least able to help themselves as a result of climate change - whatever it's causes.

It won't make much difference to the forecast from Met Eireann for the weekend unfortunately. But then you just have to remind yourself that other countries have climate, Ireland has weather ...

Wednesday, August 13, 2008

Do The Math

One of my favourite films of all time is Groundhog Day, starring Bill Murray. It's a delightful story of personal development and how it's never too late to learn; more importantly, it's very, very funny. I'm always reminded of it whenever the Leaving Cert results come out. You know the drill: girls doing better than boys; not enough students doing science; maths scores falling etc etc.

Not to dismiss the importance of the issues (the science and maths ones anyway). But it seems we hear the same, sad tale of woe every year, year after year (cue Sonny & Cher singing I Got You Babe in the background ...)

More important are the issues of whether we are getting the skilled workers we need from our education system; and whether we are funding our system efficiently to deliver the right skills. On the latter, the Geary Behaviour Centre have done a neat little calculation with regard to the third-level fees initiative. The upshot: the Government haven't done their math in relation to the net benefit of introducing means-testing at such a high income level (reportedly €100,000). The cost of running the scheme will probably outweigh the revenues, especially if fee payments are tax allowable (as they were before).

Then there's our education system's inability to produce the right number of graduates with the right skills. The bottom line: if students steer away from science and engineering because their parents reckon the real money is in law, finance and medicine (as it has been) then we get what we wish for. But there's more to it than just future earnings potential. Ireland is not alone in failing to produce enough scientists or engineers. The United States is grappling with the same problem. But as one observer has suggested: their problem (and by extension ours) is a function of the culture of self-esteem that has gripped our education systems over the past few decades. The result?

At least on the emotional level, contemporary American education sides with the obstacles. It begins by treating children as psychologically fragile beings who will fail to learn — and worse, fail to develop as "whole persons" — if not constantly praised. The self-esteem movement may have its merits, but preparing students for arduous intellectual ascents aren't among them. What the movement most commonly yields is a surfeit of college freshmen who "feel good" about themselves for no discernible reason and who grossly overrate their meager attainments.

It's an original (and pretty convincing) argument. And not the sort of thing any Education Minister (Irish or otherwise) is going to sign up to any time soon. So expect a few more Groundhog Days in the years ahead ...

Tuesday, August 12, 2008

The Coasean Demise of the Nation State

It's probably my age (and having a son old enough to fight in a war if ever we found ourselves in one) but I find myself increasingly disgusted by War in all its variations. Like most boys growing up I had a fascination with war, armies and weapons. Normal and harmless enough I reckon (even in the context of The Troubles in Northern Ireland as I experienced them).

But adulthood is meant to bring a sense of perspective, proportion and wisdom such that one leaves behind the things of childhood. Most of us do it seems except for that wretched species of vainglorious politicians who regularly inflict the misery of war on their fellow human beings from time-to-time. As is happening in Georgia right now. And here's the thing: countries don't attack each other any more than they compete with each other. In the case of the latter it is businesses that compete across borders. In the case of the former it is politicians in cahoots with cliques of military leaders that cajole and trick their fellow citizens into murdering citizens of other countries, and inevitably it is the citizens on both sides who suffer almost all the consequences. That's the way it has been for at least the past 10,000 years (pdf).

But things are changing. I have been listening to a brilliant podcast from Demos featuring a talk by Clay Shirkey (whom I mentioned in a previous post). Shirkey's thesis is that the new tools of connectivity (mobile, web) mean that we can organise without organisation. What he is arguing is that the traditional rationale for organisation - as the most effective and economic way to co-ordinate a complex range of tasks and people - is less and less relevant to how we live, work and create wealth.

Shirkey isn't saying that organisations will disappear overnight. He notes in his book Here Comes Everyone that the full consequences of the invention of the printing press weren't felt until four centuries later (with the ascension of the nation state). He thinks the current technological revolution will unfold over at least another fifty years, such is the lag between technological change and social change. I think he's being optimistic.

His talk and his book got me thinking not just about the future of businesses (as organisational entities) but also about the future of the nation state. Perhaps the greatest economic thinker about the nature of the firm is Ronald Coase (still working at the University of Chicago at the spritely age of 98!). Coase famously theorised that the reason people organise in firms (rather than each individually buying services in the marketplace for things like management skills, financial skills, operational skills etc) was that the transaction costs of the latter were too high.

There is something Coasean about the nation state in that regard. People formed nation states because it provided an efficient, sustainable organisational structure that could (theoretically at least) meet the needs of those resident in the state (its citizens). I realise, of course, that there were a few other factors in the emergence of the nation state as well.

Which brings me back to Shirkey: he floats the idea in his Demos talk that we may be about to witness a massive mushrooming of 'nation states' or new social groupings for the simple reason that it has never been easier to organise people around a common purpose or ambition. Think about it: all the things that central governments and their civil servants were established for - command and control: organisation in a word - can now be done for a tiny fraction of the outlay of human intellectual and political energy than was needed before. He may be right: but it probably means more South Ossetias and grandstanding by idiots like Mikhail Saakashvili. I really and truly hope not, for the sake of all our young men and women.

Evil Profits

Every so often you read a headline in a newspaper and you think the editor is merely exaggerating to get you to read the full article. Such as the lead story in today's Independent quoting the Minister for Finance, Brian Lenihan, as saying businesses should make less profits. Only it wasn't an exaggeration ...

Here's what Minister Lenihan has to say:
"One of the points that has come across in my discussions with other European finance ministers is the widespread concern about the very high levels of profit-taking and self-reward that is taking place at the higher echelons of the private sector."
Coming from a junior Minister hungry for a few column inches of fame during the silly season you could just about ignore it. Coming from the man responsible for the financial administration of the country it is, frankly, disturbing. If the Minister turns to his own Exchequer Statement for July 2008 he will see that the taxes from profits (Corporation Tax) were down €23 million in the first seven months of 2008 compared with the same period in 2007.

Generally I admire politicians who are not afraid to take on vested interests, but this sad parody of businesses as greedy capitalists in the mold of Mr Burns is plain wrong. And even though the Minister has never worked in business I think he ought to know better: the purpose of business is to make profit, it is from this motivation that jobs and wealth are created. And also the money to pay the taxes (on businesses and workers) that Mr Lenihan is so in need of right now.

Monday, August 11, 2008

Taxing Times

So the Government wants to bring back third-level fees. For wealthy people of course; not for the likes of you or me heaven forbid. Nor is this to be seen as a panic measure, perish the thought: rather we're to assume it's part of a visionary, joined-up, holistic, strategic programme designed to ensure we have the best education system in the world ... Yeah right.

Still, sometimes panic is good if it shakes people out of their complacency. But why stop at means-testing third level education (for that is what it amounts to)? After all, according to the Department of Finance's own Revised Estimates for Public Service Expenditure 2008 the total cost of grants to 3rd level institutions will be €1.4 billion this year. But spending on Child Benefit will be €2.5 billion this year - and not a cent of it will be means-tested. Just think what could be done to alleviate child poverty (or to provide proper care for those children whose parents can't cope) if that money was spent on those who need it. And not on middle-class people like, er, me who frankly don't need it (but will take it anyway since it's 'free money' from the Government and sure doesn't it grow on trees ... ;-)

We're going to hear a lot more talk about tax over the coming months and years. And it won't be idle chit chat either. We are living with the consequences of Binge Government, identified by the OECD last April, whereby those in power mistakenly (or naively) interpreted short term surpluses in tax revenues from the property sector as a permanent feature of the economic landscape. A bit like prison officers getting shirty because their overtime pay is threatened by new work practices: their lifestyles assumed that the overtime pay was their's indefinitely ...

Nor is it just national government (and taxes) that we need to worry about. I've speculated before that some of our local authorities could be in danger of going bankrupt due to the collapse of the construction sector. Like the Government, they got used to transitory spikes in taxes (in the form of development levies) and now these have more or less dried up. The result: their expenditure plans are somewhat out of kilter with their revenues. The Sunday Business Post reported yesterday, for example, that Kildare County Council have taken in only €7.5 million in levies so far this year against a 'budgeted' intake of €30 million for the year as a whole.

All of this means that we're going to have a lot of national and local politicians looking around and wondering where they can get their hands on some cash pronto. The answer, of course, will be from you and me. And not just personally but also commercially if you happen to work in a business that pays rates to any of our increasingly cash-strapped local authorities.

We will of course be invited to hand over our money for the greater good of the nation. Though as that eminent political economist Chris Rock once observed: "you don't pay taxes, they take them!". But here's a thought: new research shows that electorates trust politicians with 'extreme views' rather than middle-of-the-road muddle because it implies they've got strong values and can be relied on in times of uncertainty. Maybe there's a 'Signature Idea' out there around better value for taxpayers waiting for some adventurous politician to seize it?

Sunday, August 10, 2008

One Village At A Time

The Sunday Times published a short article by me today on Irish Aid. The more I think about the issues facing Africa the more it seems to me that local communities not national governments will deliver the necessary solutions. I recently watched an inspiring talk by George Ayittey, a Ghanaian economist. It is part of the excellent TED Talks series - YouTube for grown ups.

Ayittey distinguishes between 'Hippos' and 'Cheetahs'. The former, of course, are the ruling elites running their countries into the ground. His analogy is very apt, by the way, as I learned on holiday in South Africa last year: hippos kill more people than any other animal in Africa. The Cheetahs are the new generation of business leaders and social entrepreneurs using the tools of mobile and internet technology, among others, to re-energise traditional, de-centralised economic and market systems.

More and more it seems that Africa's problems are not ones of geography or even population. Rather it is the predations of what Ayittey calls the Vampire State that damages and delays the development of too many African nations. But Ayittey is an optimist and I agree with him. As the quiet revolution in African farming have shown, Africa can once again feed itself and feed the world, as it did right up to the 1960s.

Who knows, perhaps the emergence and convergence of new capabilities to 'organise without organisations' (Clay Shirkey's phrase in his superb book: Here Comes Everybody) may even enable Africa to leapfrog a stage or two on the way to a higher standard of living for all its people. Now there's something for Irish Aid to focus on.

Saturday, August 9, 2008

The Future is What Artists Are

Oscar Wilde's essay on The Soul of Man Under Socialism is written in his usual literary, poetic style. I first read it years ago, and one of his lines struck me as radically prophetic:
But the past is of no importance. The present is of no importance. It is with the future that we have to deal. For the past is what man should not have been. The present is what man ought not to be. The future is what artists are.
At first glance his 'forecast' seems absurd: artists as the future. Really? I was reminded of Wilde's prophecy recently by a similarly poetic essay by Frederick Turner on Abundance and The Human Imagination. I urge you to read it. Turner's essay is simply one of the most inspiring commentaries on humanity and our future that I have come across in some time. His argument essentially is that much of the nihilism reflected in modernist art and culture was an artistic reaction to the deathly reductionism of 19th and 20th century science:
Artists rejected the fecundity and abundance of nature partly because, so it seemed, science had shown it to be a fraud and a cause of delusive hope. If the universe is on the whole a spring that is relaxing, an engine that is running down, a fire that is burning itself out, then the richness of living creativity is merely an eddy in the general current, a chance and temporary reversal in the fated descent into decay and mortality.
But, as Turner points out, 21st century science is framed by a very, very different paradigm:
Entropy has been entirely reconceived by information science. It now appears not to be a measure of decay and death, but rather a natural explorativeness of possible information-states that is happily used by living and non-living systems as a free computational device. Evolution uses entropy to explore possible new life-forms, just as markets use it to construct a pricing system and explore the viability of new technologies. Information—the stuff of our lives and experiences—does not die when it rushes away from us in the form of dead skin DNA, sound waves, gravitational vibrations and light; it is still there, fleeing outwards from the planet, to be collected perhaps by some black hole and preserved at the surface of its event-horizon until Brahman blinks, Gabriel blows his horn, the black hole evaporates and it all begins again.
His delightful play of science, philosophy and poetic prose certainly makes his point: physics, evolution, astronomy and even psychology tell us we live in a world, indeed an entire universe, characterised not by scarcity and loss but by abundance and recuperation. As Meg Wheatley puts it: life wants to happen ...

One last quote from Turner, which I couldn't resist, as he speculates about a future perceived as abundant:
In economics, we are recognizing the exponential power of markets to generate wealth. Now that we have a global economy, the wealth of the average individual person on this planet doubles every twenty years or so, and our average life-expectancy is now doubling every century. As old languages are forgotten, new ones are being created every year. The old metaphors of growth, birth, fecundity and abundance now seem to make more sense. The world is not a zero-sum game, but rather a great cascade of gifts; if we lack for anything it is because of a lack of knowledge, not an unavailability of goods. Our problems are those of cash flow, scheduling, bottlenecks and distribution, so to speak, not of the basic health of the balance sheet. We are threatened not by scarcity but glut. If we did not get in each others’ way by bad and over-controlling governments and ideas, we would all be rich.
Not bad for a Professor of Arts & Humanities.

So is the future what artists are? Certainly Turner expects a new, more positive, more glorious artistic turn as the new scientific memes work their way through society and culture. In one sense he anticipates a developmental shift in our cultural zeitgeist. It is as if we are progressing through Erik Erikson's Developmental Stages as a society, emerging into Middle Adulthood and the rich potential for what Erikson called Generativity that accompanies it.

More profoundly, both Turner's and Wilde's artistic outlook foretells a very different future for the ideological extremes of environmentalism. Wilde apparently thought that socialism would ultimately fail because it involved 'too many meetings'. Unfortunately the Marxist meme has now migrated into the environmental movement (read this dissapointing paean to Marxian environmentalism by Paul Gillespie in today's Irish Times to see what I mean). But to paraphrase Wilde, I think those Greens who would lead us back to some kind of bucolic, low carbon past (think Amish) will ultimately fail because life wants to happen ...

The artists will once again show us the future; one in which we each delight in this sweet, short moment of Be-ing and consciousness; alive in a universe abundant with all the means we need to live creative, generative lives. In short, to be fully human.

Friday, August 8, 2008

Will Savings Save Us?

The Irish are a nation of savers. Even during the boom times of credit profligacy we managed to keep saving. We have one of the highest savings ratios in Europe, if not the world. According to recent OECD analyses and forecasts the savings ratio of Irish households (what we don't spend out of the money we take home) will average 11% of disposable income this year and next. That's more than four times the savings rate in the UK and nearly ten times that of the United States.

A recent study by my own company for Halifax in Ireland shows that 59% of Irish adults are saving on a regular basis: up from 54% last year. The ESRI's Medium Term Review likewise projects a strongly positive savings ratio right out to 2015 (using a different definition, however, to the OECD) - see table A3.4 in the appendix to the full text.

In classical economic thinking about savings, there is a virtuous circle between savings, investment and growth. Households save their money in banks who then lend it to businesses wanting to invest in expansion. The businesses repay the banks out of the revenues they enjoy from expansion, and the banks then pay interest to the savers - keeping a margin for themselves of course. Consumers win, banks win, businesses win. Or so the theory goes ...

Of course, the problem for Irish banks at present is not how little Irish people are saving but rather how much the banks resorted to 'off-balance sheet' financial instruments to resource unsustainable lending to the construction sector in recent years. So even as the savings ratio rises in Ireland (consumers worried about rainy days etc), much of the inflow will go to help banks restore their damaged balance sheets. Only a trickle will flow on to businesses seeking to expand (assuming there are any brave enough and/or optimistic enough to see revenue growth in the face of a recession).

But until the banks have recovered from their bout of financial self-harm, the virtuous circle will be slow to gather momentum. Still, the banks do have to lend to somebody if they are going to make a margin to cover the interest they pay savers and their own operating expenses. As the Irish continue to save I expect that economic order will be restored eventually and a healthier outlook will emerge.

Thursday, August 7, 2008

Leave Happiness Alone

I often feel about economists talking about happiness the way I feel about nuns talking to schoolgirls about sex: I don't doubt they are well-intentioned, but I do doubt that they're the best qualified people on the subject ...

So I was kind of relieved when I read a delightful hatchet job by my old colleague Paul Omerod called The Unhappy Thing about Happiness Economics (pdf). He points out (with co-author Helen Johns) that the variation in historical trends in measured happiness in countries like the UK is mostly explained by statistical 'noise' due to the use of surveys (which are always subject to margins of error). In other words there has been no significant change in happiness measures over time - for good or bad. He therefore puts paid to all those social analysts and commentators who demand more state intervention to correct all the things that are allegedly making us unhappy. As Johns and Ormerod declare:
Our inexorable conclusion is therefore that society-wide happiness time series should be abandoned as they don’t tell the social scientist anything useful; in addition, the flatness of happiness time series most certainly cannot be pinned on the economic system, and neither do they point to some kind of social aberration in need of government correction.

Average happiness has shown demonstrably stubborn flatness despite vastly differing government styles and levels of inequality, and it is seriously misleading to argue that, armed with the ‘insights’ of time-series happiness research, government intervention is going to make society measurably happier.
Hopefully the National Competitiveness Council will take note.

But while I think the authors do a convincing job of destroying the nonsensical idea that happiness is some kind of social trend that can be measured consistently let alone 'managed', there are some aspects of happiness economics that I do think are worth exploring further. For example, economic research shows that:
  • Freer and richer countries are happier than poorer and/or unfree ones.
  • Immigrants coming to richer countries (like Ireland) are happier than their countrymen left behind.
  • There has been a decline in happiness inequality between social class and race groups in some countries such as the United States.
  • Unemployment affects happiness more in rich countries than in poor countries.
So I think the message is clear: leave happiness alone if you are a politician fantasizing about socially engineering us into a better frame of mind; but do bear in mind that politics can make us happier if it leaves people alone to improve their own lives and ultimately those of their fellow countrymen and women.
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