Wednesday, September 30, 2009
Reading the Kickstarter FAQs it is interesting to see who is providing the back-engine financial platform for the initiative. It isn't Bank of America or Goldman Sachs, it's Amazon. Kickstarter doesn't go the whole capitalist hog and allow 'pledgers' to become shareholders - but it's an inevitable next step (similarly with Kiva in due course I'm sure).
So the free market - plus some web 2.0 apps - will ensure that Capitalism 2.0 will rise out of the ashes (or NAMA-burdened institutions) of Capitalism 1.0. And it looks like it will be fun.
(HT the inspiring Transcapitalist for the story about Kickstarter).
Tuesday, September 29, 2009
He explained the meaning of thrift post the banking crisis thus:
Literally, this word [thrift] means ‘prosperity’ or ‘well-being’, meanings encompassed in shalom, the Hebrew notion we encountered earlier that is broader than material wealth and is central to the scriptural theme of redemption. While short term measures had to be taken to save the banks from total collapse, it is hard to see how the crisis can be resolved, and further crises avoided, in the long-term, without the recovery of this virtue.Peter went on to use the Parable of the Talents to explain the virtues of enterprise, entrepreneurship, innovation and plain-old-fashioned capitalism: far removed from the leveraged, debt-fuelling financial engineering that got us where we are today. Mind you, it's never quite explained how exactly the good servants doubled the value of the talents entrusted to them by their master in so short a period of time ...
On the other hand, the poor old servant who stuck his money in a low-interest bearing deposit account/hole in the ground got severely punished we are told. Sort of sounds like a blessing on all speculators/curse on all savers sort-of-parable to me :-)
And yet the future belongs to the savers: to those who are thrifty in the conventional sense of the word. That said, savers are a) being blamed for getting us into a financial crisis by losing their thrifty habits during the boom (as argued in a recent Bank of England analysis); and b) are being singled out as the main culprits in prolonging Ireland's recession due to an over-reaction to rising unemployment (as argued in the latest Davy economic commentary). But there is no turning back the clock: a new generation of lifelong savers will emerge from this recession with profound long term consequences for Ireland's future growth path.
I recently added a question to my company's monthly omnibus (an online survey of 1,000 adults in the Republic of Ireland) about the issue of savings, debt etc. I posed the question: "If tomorrow you receive a tax free, windfall gain of €10,000, how much of this would you spend, save or use to repay debts?" The chart shows the responses: on average Irish consumers would save 41% of their windfall, spend 29% and use 31% of it to repay debts. I have also shown the responses by age group (there were no significant gender or social class differences). The people most like to save are the young (16-24 year olds); and those most likely to repay debts are those aged 35-44.
In the medium to long term, the population of 30- and 40-somethings is set to grow strongly in Ireland (as noted previously). If that translates into a combined generational/lifestage ethic of savings (and debt repayment), then the prospects for consumer spending returning to anything like the levels at the start of this century are weak indeed.
Ireland is not along in this regard. Despite an increasing stream of positive news stories about the US economy, Americans are stubbornly insisting on increasing their savings ratio to levels far in excess of those in recent times. Beyond short to medium term responses to the shock of the recession, it does appear that rising savings and constrained consumer spending are among the leading economic megatrends shaping all our futures.
It seems that Ireland's consumers - and the US and UK consumers - have indeed recovered the virtue of thrift as we end the first decade of the 21st century. Quite what impact that will subsequently have on the shape, speed and sustainability of the Recovery remains to be seen.
Monday, September 28, 2009
Saturday, September 26, 2009
Friday, September 25, 2009
In spite of major advances in networked information technology (IT), innovation still requires face-to-face contact in order to be successful, especially in its earliest stages. Survey respondents say brainstorming is the most popular innovation technique, while interviewees emphasise the value of face-to-face contact to build trust between potential collaborators, maintain the momentum of innovation efforts and invest each project with the passion necessary to bring it to fruition.The same point was made by Paul Graham, founder of y-combinator, in this fascinating interview about his experiences of launching tech start-ups in California (read his funding application criteria here, one condition is that you move your company to the Bay Area). The problem, of course, is that emigration means less opportunities for 'face time' with the key parties necessary to build collaborative trust for enterpreneurs and innovators based in Ireland. Virtual solutions help - to a degree. And maybe the McWilliams/Farmleigh Diaspora networking strategy can play a part too (in shortening the 'trust building' process - as noted in this excellent Ireland Fund report on diaspora strategies).
But the challenge is enormous. As we look ahead to 2016 and the centenary of the Easter Rising then we must avoid the loss off another generation to emigration. The chart below shows the change in the forecast numbers in each age group between 2009 and 2016. I've simply applied the CSO's M0F2 projections to the latest 2009 population estimates (taking my cue from Kevin Denny's comment on my last post). This shows what will happen if there is zero net migration - with immigrant numbers matching emigrant numbers. A switch to net emigration would make a bad situation (falling numbers of 20-somethings due to falling birth rates in the 1980s and 1990s) even worse.
The 2016 Generation deserves better.
Wednesday, September 23, 2009
The real problem for Ireland is that we have fewer young people in 2009 than the last time we had persistent emigration. Which is one reason why the percentage of 15-24s, and to a lesser extent 25-44s (a much wider age band), has already reached the levels of the late 1980s even though the numbers emigrating are still much lower. I've charted this below:
This also means that the impact of a return to net emigration will be especially severe on the numbers of young people in Ireland - as their numbers are already declining anyway due the the collapse in the birth rate during the 1980s. I have used the latest 2009 population estimates by age group from the CSO, and prepared population projections for the next five years. The CSO published projections based on different assumptions for the level of migration over the next 20-40 years. However, all their projections assumed net immigration - and not a return to net emigration.
The table below shows my projections for the numbers in each age group in 2014 based on the CSO's M1 scenario (including F1 fertility assumptions). This assumes net immigration of 60,000 a year between 2006-2011, falling to 50,000 between 2012 and 2016.
Remember - the population of 20-29 year olds is declining anyway, hence the fall in numbers to 2014, despite - in this scenario - assumed immigration. Here's the table:
And there in lies the real threat posed by a return to emigration. As 20-29 year olds will be those most likely to leave, then the projections in the 'optimistic/net immigration' scenario will prove to be very optimistic indeed. Another generation lost to the Diaspora. It must be stopped.
Monday, September 21, 2009
Just as the women of Ireland brought down the first Lisbon Referendum, so I believe they will see the second one succeed this time round. That said, I do think both sides of the current campaign have somewhat failed to directly address the female voter.
Mind you, my essay 'went to press' before I snapped this poster in Booterstown. Very definitely aimed at the female voter. Though I can't help feeling it's a spoof - like something The Onion would produce - or a fiendish plot by the No campaign. It's produced by The Liberal Society, whose web site definitely looks like something from The Onion.
But how could it be fiendish? What if it's a clever attempt to turn all those men who've had to endure too many episodes of Sex in the City against Lisbon. I mean, there's only so much a man needs to know about Manolo Blahnik shoes (er, nothing?)
But I digress ...
The test takes a few minutes - and there are no 'don't know/neither/nor' options in the answers (which means it might take you longer). The chart shows the plot of my answers: I thought I might have been further down the Libertarian axis but there you go - a sign of conservative old age I guess!
They even have a handy chart plotting the main Irish political parties - dated from 2007. Hence the PDs are still on the map, so to speak. Mind you, by the time of their demise I would have put them rather more to the north of Fianna Fail.
The origins of the Political Compass are not very clear, and there are similar maps in use. But it's an interesting one nevertheless. I expect that by the time of the next election most parties will have moved considerably more towards the top left hand box.
NAMA and all that ...
Sunday, September 20, 2009
The first thing we do, let's kill all the lawyers.
Imagine my surprise when I came across an article on how the nanny state is turning parents into kids not in the G&T soaked columns of the Daily Telegraph but in The Guardian of all places. They've even got an entire section on their website called Liberty Central. What's going on?
It's beginning to look like our neighbours across the water have had enough of CCTVs and the prying state, and may, according to The Guardian, be turning Libertarian. It seems that four fifths of UK adults now agree that the state has too much say in what people can and cannot do. And not before time. The Nanny State that set out to 'nudge' us into behaving properly is increasingly not even giving us the choice. We have our own version of this in Ireland in the form of inane policies on alcohol.
Nor is it just the New Labour Left that is dis-illusioned with the Frankenstein monster of creeping statism that they have unleashed. It's also happening across the Atlantic among Democrats. As Walter Russell Mead observes in the wake of their recent healthcare furore:
But there is, I think, a cold dark fact at the heart of this that means trouble for incumbents of all kinds, but especially for Democrats. The fact is that the liberal society we've built since the New Deal looks less and less capable of honoring its promises. It's not just Medicare and Social Security; there are a lot of state governments out there that have no way of paying for all the pensions they've promised their workers over the years -- and no way to pay for all the services they've promised the voters. Private sector labor unions seem to drive jobs overseas or to saddle their employers with unpayable costs. Public sector unions drive state and local governments into fiscal dead ends as well. People look at public schools and the postal system and they don't see much sign that the old institutions work very well. ... And if liberal society can no longer deliver the goods, people don't want to pay its bills.And there's the rub. We are losing faith in experts - the 'know-it-alls' - our modern day equivalent of 'the lawyers'. Frank Ferudi has an insightful take on the tyranny of expertise:
It's not just the money and it's not just liberals who need to worry. As the promises of the liberal society look increasingly shaky, the experts and the professionals and the think tanks seem less and less worthy of respect. The 'experts' -- including me -- generally supported the war in Iraq. 'Experts' were confident about the New Economy being fail safe and bust-proof.
... It isn't a liberal or a conservative thing in the end. It's that the American people are losing faith not only in the promises of the liberal society but in the experts and the professionals who design, administer and explain it. Increasingly, the lower middle class and the middle middle class want to fire the snooty upper middle class know it alls who collectively have gotten the country into such a mess.
While this professionalisation of everyday life has been a distinct trend from the outset of modernity, it has grown at a breathtaking pace since the 1960s, with professionals systematically expanding the range of personal issues that demand expert knowledge. Today, every aspect of life from birth through to school and career to marriage and mourning is subject professional counselling. We live in an age of personal trainers, mentors and facilitators. Until relatively recently, the professionalisation of everyday life was contained by the belief that the problems of the private sphere were best left to the informal solutions worked out by people in their communities. Although the claim that the expert knew best was rarely contested, the so-called helping professions had far less opportunity to colonise private life. They were free to encroach into the life of people on the edge of society but, until the 60s, professionals had little opportunity to encroach into the private world of "normal", especially middle-class, people. One of the most striking illustrations of the influence enjoyed by experts today is that they rarely feel restrained from lecturing people on how to conduct their lives. Nor do they confine themselves to the provision of advice. Expert advice is used to legitimise government policies that have a significant effect on people's lives.A complex, 21st century economy needs experts of course. But what we don't need is what Ferudi calls 'the manipulation of expert opinion as a smokescreen for political intervention, especially not in the private sphere.' So what is going on? In some respects the body politic is back again debating the core issues of liberty and the boundaries of the state in a free society. As John Stuart Mill observed during a period which saw the nation state - and the apparatus of the state - become the predominant political construct around the world:
Every function superadded to those already exercised by the government, causes its influence over hopes and fears to be more widely diffused, and converts, more and more, the active and ambitious part of the public into hangers-on of the government, or of some party which aims at becoming the government. ... if the employés of all these different enterprises were appointed and paid by the government, and looked to the government for every rise in life; not all the freedom of the press and popular constitution of the legislature would make this or any other country free otherwise than in name. And the evil would be greater, the more efficiently and scientifically the administrative machinery was constructed—the more skilful the arrangements for obtaining the best qualified hands and heads with which to work it.'The best qualified hands and heads' - the problem of the experts again. However, it seems increasingly like the forward march of the Nanny State will soon be halted by economic reality. Though it won't happen overnight. As Jacob Weisberg notes in yet another Liberal Democrat's attack on creeping state paternalism:
Paternalism is the method of government activism most amenable to an impoverished public sector.In other words it's cheaper to prevent people 'mis-behaving' than to treat the health (or illness) consequences of their choices in over-stretched hospitals.
So what is to be done? I'm inclined to let the organic, bottom-up intelligence of the free market (and the private citizens and businesses that comprise it) come up with better and cheaper solutions. If Walmart can provide a health service that's 30% cheaper than that provided by hospitals, then why not let Tesco run the HSE? And if what Colm McCarthy calls 'the racket' of medical professions object, then why not remove the need for medical credentials?
Let's kill all the experts ...
Saturday, September 19, 2009
I wish Cork well tomorrow: if they play as well against Kerry as against Tyrone then I think they'll take Sam home with them.
Mind you - those Kerry fans - a pitch invasion might be the least of everyone's worries:
ht: Slugger O'Toole
Friday, September 18, 2009
I just hope our property market isn't following a similar trajectory: 2030 seems an awful long way away. As far ahead in the future as 1988 is in the past. Gulp ...
(ht: Infectious Greed)
Thursday, September 17, 2009
So despite rising unemployment, NAMA, rising taxes, NAMA, business closures and, er, NAMA, it seems that the good people of Ireland are doing all right. We're grand thanks. All of which makes you wonder about reforming the measurement of economic peformance and social progress. The French have produced a fine report which argues the case for going beyond (or around) GDP. The authors - lead by Joe Stiglitz - have covered all the well rehearsed issues about the inadequacies of GDP as a measure of all the things that are important to a nation's citizens.
As the report notes:
To define what well-being means a multidimensional definition has to be used. Based on academic research and a number of concrete initiatives developed around the world, the Commission has identified the following key dimension that should be taken into account. At least in principle, these dimensions should be considered simultaneously:Sure - we all know from our day-to-day experiences that these and other 'simultaneous dimensions' have a bearing on our individual well-being. But the problem is, most of these indicators are highly correlated with one another. And almost all of them are correlated with GDP (in the long run and across countries). Worse, there is little or no consensus about how to measure these other dimensions: and most attempts amount to much ado about statistical noise.
i. Material living standards (income, consumption and wealth);
iv. Personal activities including work;
v. Political voice and governance;
vi. Social connections and relationships;
vii. Environment (present and future conditions);
viii. Insecurity, of an economic as well as a physical nature.
Ultimately we have to recognise that the key feature of subjective well being is that it is, well, subjective. As this delightful essay by Carabelli and Cedrini concludes - inspired by Keyne's Economic Possibilities for Our Grandchildren:
Economics should ensure the material preconditions for a happy life, not happiness itself; it should allow men the possibility to freely formulate and choose among alternative plans for one’s life.Making the right choices is the key: which is more the domain of philosophers than economists. Though even the philosophers are cautious about setting out too clear a path to happiness, as Jeff Mason observes:
Living a good life is a necessary but not a sufficient condition for happiness. In other words, it is possible to live a good life without being happy, but not happy without living a good life.You can't legislate for good luck or good judgement. But I'm not entirely against the Stiglitz initiative (my old tutor Tony Atkinson was involved and I'm a fan!). And I especially like Recommendation 10:
Measures of both objective and subjective well-being provide key information about people’s quality of life. Statistical offices should incorporate questions to capture people’s life evaluations, hedonic experiences and priorities in their own survey.And there's the rub. According to one recent survey of subject well-being (see above) the Irish are having a great time. President Sarkozy has been accused of trying to game the measurements of economic performance by including things like holiday entitlements (which the French happen to do well in compared with others). Even though the current gripes of the average French mec are economic ones ...
Research has shown that it is possible to collect meaningful and reliable data on subjective as well as objective well-being. Subjective well-being encompasses different aspects (cognitive evaluations of one’s life, happiness, satisfaction, positive emotions such as joy and pride, and negative emotions such as pain and worry): each of them should be measured separately to derive a more comprehensive appreciation of people’s lives. Quantitative measures of these subjective aspects hold the promise of delivering not just a good measure of quality of life per se, but also a better understanding of its determinants, reaching beyond people’s income and material conditions. Despite the persistence of many unresolved issues, these subjective measures provide important information about quality of life. Because of this, the types of question that have proved their value within small-scale and unofficial surveys should be included in larger-scale surveys undertaken by official statistical offices.
But maybe our political leaders should let him have his way - so long as 'life satisfaction' is included in the new 'Gross Domestic Happiness' measure. That way Ireland can once again resume its rightful place among the happiest of the nations ...
Tuesday, September 15, 2009
One of the 'four freedoms' of the Single Market is the free movement of goods. Member States may restrict the free movement of goods only in exceptional cases, for example when there is a risk resulting from issues such as public health, environment, or consumer protection.
The risks vary by product sector. Pharmaceuticals and construction products obviously present higher risks than office equipment or pasta for example. In order to minimise risks and ensure legal certainty across Member States, EU legislation harmonising technical regulations has been introduced in particular in the higher-risk product sectors.
I'm guessing milk and butter are closer to the pasta end of the risk spectrum.
A trade war in a global economy trying to escape from the worst downturn since the 1930s is the single event most likely to trigger a renewed collapse of global economic activity. The usual protectionist suspects in Europe (including, you guessed it, president Sarkozy of France) are already chomping at the bit to impose carbon tariffs on imports from China and India - an act that would be as close as you can get to open economic warfare short of blockading the ports of Mumbai and Shanghai.
Clearly, the qualities one needs to get elected to high office in western democracies are not qualities that are likely to be helpful once you have achieved high office and are expected to govern and lead. To survive the selection process to become president you have to be able to stitch together a coalition of special interests that can provide sufficient financial and sweat equity resources to win this grueling race to the top. Once you get there, you should shed the unfortunate baggage you accumulated on your way up and govern in the interest of all the people. Few can do that. Apparently Obama is not one of them.
People often lament we don't have an Obama in Irish politics. In light of this recent development it's probably just as well. Still, if only we had an Obamaesque minister responsible for the National Dairy Council who could put a stop to this nonsense right away. Hmmm, then again ...
Monday, September 14, 2009
We moved upwards in the international rankings: from number 10 in 2006 to number 7 in 2007 - the latest year for which sufficient comparative data is available for all the countries surveyed. Our neighbours across the water fell from number 5 to 9 in the same period.
The publishers of the Economic Freedom of the World (EFW) analyses - The Fraser Institute - defines economic freedom as comprising four components:
• personal choice
• voluntary exchange coordinated by markets
• freedom to enter and compete in markets
• protection of persons and their property from aggression by others.
As they note:
Put simply, institutions and policies are consistent with economic freedom when they provide an infrastructure for voluntary exchange and protect individuals and their property from aggressors. In order to achieve a high EFW rating, a country must provide secure protection of privately owned property, even-handed enforcement of contracts, and a stable monetary environment. It also must keep taxes low, refrain from creating barriers to both domestic and international trade, and rely more fully on markets rather than the political process to allocate goods and resources.Which is why reading their report I wonder about the prospects for economic freedom in Ireland post-NAMA. Many of the measures used to generate the EFW rankings - government debt and bank independence for example - will be adversely affected by NAMA.
The authors are obviously mindful of what has happened around the world during 2008 and 2009 in relation to the economic and financial crises. Hence an interesting chapter (pdf) in their report on how Norway and Sweden came through their financial and banking crises in the 1990s with their economic freedom relatively unscathed.
I hope the same will be said of Ireland in the decades ahead.
You get to meet God as a microbe, God as a Goddess, God as a fan of Mary Shelley ... and a great cast of others - including yourself ;-)
I cam across David in the course of a fascinating WNYC Radiolab podcast on the very subject of After Life. You can listen to some of his forty tales during the podcast. Or just read Great Expectations and Descent of the Species for a flavour of what I mean. And never, ever wish you were a horse ...
The genius of Sum is its simplicity - though perhaps simplicity is the essence of all genius. It's a glorious little book, one that leaves you thinking less about the after life and more about this life and how extraordinary it really is.
I must read it again soon.
Saturday, September 12, 2009
Whilst we don't have our own Ragnar Bengtsson in Ireland, we do have The Equality Authority: an organisation that keeps publishing studies which keep showing there isn't actually much inequality about (of the man-made variety - emphasis on 'man'). Their latest contribution to the burgeoning body of evidence why we don't need The Equality Authority is a report they commissioned by the ESRI on The Gender Wage Gap in Ireland: Evidence from the National Employment Survey 2003.
The obvious intention of the study was to identify what part of the gap between men and women's pay is due to sex discrimination plain and simple. Except it isn't simple - not least because differences in pay are due to many, many factors - as made clear in the ESRI report. But if you torture a data set long enough it will confess to anything, and so the ESRI finds that:
... the overall wage gap in 2003 was almost 22 per cent. On average men have more years of work experience than women and - among the factors identified here - this is the single biggest contributor to the pay gap. Nevertheless differential experience only accounts for a 3.1 per cent pay gap, or just over 14 per cent of the total. Many other factors - such as a higher incidence of supervisory roles, longer tenure and higher trade union membership among men and a higher incidence of part-time work among women - also widen the gap. The combined effects of broad occupational and sectoral gender segregation contribute 2.8 per cent, accounting for 13 per cent of the overall wage gap. ... Finally, a gap of 7.8 per cent - one third of the total - cannot be attributed to any of the factors included in the analysis.So that's it: troglodyte employers discriminate against their female employees by underpaying them by 7.8% simply because they are women? Well no: the ESRI are at pains to point out that not all of this 7.8% should be attributed to malicious discrimination - it's just that the data couldn't explain that part of the difference between men and women's wages using the information available. As the authors note on page 39:
Not all wage determining characteristics that vary by gender will be observed by the researcher and this may result in at least some over-estimation of the proportion of the gap often attributed to discrimination. For instance, unobservable differences between males and females in areas such as motivation or commitment to work will impact wage levels. If we accept that, on average, females’ preferences towards the home will result in a lower general career attachment, then failure to observe such preferences may lead to an under-estimate of the explained component and an over-estimate of the discrimination component of the gender wage gap.In other words: 'we don't know'. Which is a perfectly reasonable conclusion to reach: human society is a richly complex phenomenon and cannot usually be reduced to simple econometric analyses.
However, one dissapointment I had with the study was that there was no analysis of wage differences by age. Age is actually left out of the econometric equations (though not age of children). I suspect that a comparison of wages/salaries by age would show no significant gender differences - and possibly even a higher average wage for females than males - among those in their twenties and working full time. As we are reminded every year: girls do better than boys at exams - so the growing number of jobs demanding qualifications should be to the advantage of female employees. And our increasingly credentialist society is indeed better suited to women than men in that regard.
None of this is explored in the report unfortunately, nor is there any acknowledgement of the small matter that 2003 was six years and a global economic crash ago. The latter very much to the detriment of men rather than women in the workforce: the number of males signing on the Live Register rose by 183,000 between August 2003 and August 2009; the number of females rose by some 72,000.
The lack of any definitive evidence for sex discrimination in the workforce doesn't unfortunately stop the authors from reaching conclusions about policies to make the problem go away. They conclude that:
These findings suggest that policies to reduce the gender wage gap could be most effective if they serve to increase continuity in women’s employment. These include parental and maternal leave and childcare provision, as well as employment practices designed to reconcile family and working life, although our findings in this study suggest that such policies would have to be carefully designed.I'm glad they used the word 'careful'. Making it more expensive to employ women or men who have children (e.g.: via paid parental leave), and increasing taxes to pay for state-funded child care facilities just might not be a good idea at the moment. And we should be grateful they stopped short of calling for mandatory male breastfeeding.
But as always with studies by The Equality Authority we are left with the distinct impression that there's an ideological agenda behind the research rather than an evidence-based policy agenda. Especially when they report differences that are not supported by their own research. So what is their agenda? I reckon it's one of gender feminism: one which denies any differences between women and men and which seeks to use the instruments of the state to re-construct a new society very much to the detriment of men. And, paradoxically, an agenda that is leading to increasing unhappiness among women.
The McCarthy report proposed reducing the allocation to equality organisations by €1 million. Money well saved in my opinion.
Friday, September 11, 2009
The assumption behind NAMA is that our newly solvent banks will start lending to businesses and to consumers, and the wheels of commerce will start moving again. I'm not so sure. Firstly - who wants to borrow when you're still paying down your debts? As I've said before, debt is fact and wealth is an opinion. Looking ahead to the early part of 2010, as the NAMA dust settles, it's still hard to see what will induce Irish businesses to borrow, let alone consumers. Sure, there may be some export-led growth (perhaps underway already), but domestic demand post December's budget will remain deflated, with only modest prospects for improvement towards the end of 2010.
Such has been the shock induced by this recession that I think anyone currently running a business in Ireland will remain 'scarred' by the experience for the rest of their careers. That means a far more cautious approach towards expansion - including recruitment and especially towards borrowing. Particularly expansion in Ireland. Those of my clients who have the choice of investing in Ireland or investing elsewhere (either through green field initiatives or M&A) are almost exclusively focused on opportunities abroad.
It isn't just Ireland that faces an uncertain path to recovery: some commentators are even talking about the prospects for 'low quality growth' in the United States. So on balance I'm not expecting Irish businesses to drive recovery any time soon. Irish consumers might still surprise us - if only because they didn't over-indulge in binge borrowing to the same extent as their US counterparts. Hence a peaking in unemployment early next year could trigger the release of some pent up demand (possibly good news for Ireland's depressed car dealers).
But NAMA, alas, will make little difference to any of this.
Wednesday, September 9, 2009
The logic of collective action teaches us that a small group of interested parties, each with much at stake, will run rings around large numbers of interested parties each one of which has much less at stake individually, even though their aggregate stake may well be larger. The organised lobbying bulldozer of Wall Street sweeps the floor with the US tax payer anytime. Willem Buiter
The report of the Commission on Taxation is a useful summary of the current state of the tax system in Ireland and options for its reform in the future. It is a technocratic document in the main - an appropriate sister to the McCarthy report on expenditure. What it doesn't provide - nor was it part of the terms of the Commission - is a considered justification for why we have any taxes in the first place.
Such questions go unasked because it assumed everybody knows the answer. Indeed, the question is left unasked because it seems silly - after all, without taxes we wouldn't be able to pay for schools, hospitals, policing and so on. If you assume the need to spend then of course, you assume the need to fund the spending ...
Still perhaps it is the wrong question. Perhaps a better question is: what do we want to get for our taxes? What are we buying? Recognising that like medieval serfs, we don't have much choice in the tithes we pay. With all that spending on health, education, social welfare and so on, what is it that we want to 'buy' by way of desirable outcomes from the taxes we use to pay for such goals or objectives?
I think there would be a minimal consensus around things like providing social welfare support for those unable to work (e.g.: the disabled or elderly), or caring for dependent others etc. This consensus would likely extend to support for those who have lost their jobs (ideally paid for out of some kind of unemployment insurance) and to other specific cases.
The thing is, of course, it is likely that the average taxpayer would be wholely unconvinced about the benefits to them as individuals or to the wider society in which they live of a great deal of public spending they are asked to pay for, sight unseen most of the time. The UK's revenue commissioners - HMRC - have an amusing 'Balancing Act' game on their web site (image above) where you get to accept or veto different spending proposals, and to select which taxes to increase or cut depending on whether you want the spending to go ahead or not. Once you've decided, by the way, you get presented with 3-4 irate citizens giving out about the madness of your proposed cuts/increases. I didn't have any bother ignoring almost all the special pleadings for expenditure myself, but then again, I wasn't seeking re-election ... See how you get on by going here - click on Citizenship then click on Game.
The Balancing Act brings home forcefully Willem Buiter's comment at the top about the power of lobby groups to always get one over on the tax payer. No doubt they are working overtime in response to both McCarthy and to the Commission as we speak. No doubt you and I will pay for any 'successes' they have - even if we don't want to 'buy' them.
Tuesday, September 8, 2009
The vision of Love Irish Food is to help shoppers to make informed choices about buying Irish manufactured food and drinks brands. We hope to achieve this through a public awareness campaign which it is hoped will help make shoppers aware of the positive consequences of buying Irish food and drink brands, and ultimately lead to a change in behavior and buying patterns.
In short we are asking people to consider buying just one more Irish brand in their grocery shop, as this one more will make all the difference in terms of helping to create a sustainable environment for food and drink manufacturing in Ireland.
There is nothing wrong with this per se - 'better informed choices' is the bedrock of most improvements in human welfare after all - but I have doubts about the assumptions behind the assertions. Firstly, I don't think it is wise for Irish food and drink manufacturers to bet their future on Irish consumers. Apart from there being too few of us, our spending power is under pressure from falling after-tax incomes (and falling numbers in jobs paying taxes). We've been in a single market/single currency zone for some time now: so any Irish manufacturer that hasn't adjusted to that reality (and to the sizeable opportunities it creates) is a little behind the curve, to put it kindly.
Moreover, taken to extremes we could end up in a 'little Irelander' mindset of sourcing everything indigenously - which would be disastrous in the medium to long run. As Aoife Hanley and Holger Gorg have recently pointed out: the more Irish companies purchase foreign inputs, the more profitable, innovative and successful they become.
I'm all for innovative Irish solutions to Irish problems - as explored in Capitalising on Culture, Competing on Difference by Finbarr Bradley and James J. Kennelly - but I think we have to be careful about a turning inwards of our analyses and our prescriptions. As today's WEF Global Competitiveness report 2009-2010 reminds us: the global competitiveness of Ireland as a place to do business is continuing to deteriorate.
Our future success will depend on anticipating, understanding and meeting the needs of the world's consumers - not just Irish ones.
Monday, September 7, 2009
The HSE report - A Standard Drink in Ireland: What Strength? - contains some of the most platitudinous statements on alcohol consumption that I've read in some time. Take this from page 8:
The second question is it easy for the consumer to know the amount of pure alcohol in the alcohol product on sale? While the alcohol content (ABV%) was displayed on the label as required by law, none of the alcohol products displayed the total quantity of pure alcohol (grams of alcohol). For example a large can of strong beer has twice the grams of alcohol as a small can of regular beer. This is important information because the more alcohol consumed the greater the risk of alcohol related harm, both in terms of a single drinking occasion as well as regular drinking over time. [emphasis added]You've got to wonder what kind of people they are writing this for? They obviously have in mind those people who have never drunk alcohol before in their lives and one day decide "what the heck, I'll give it a go". You can imagine the scene:
Ring of doorbell as customer enters off-licence ...
"Hello, I've been hearing a lot about alcohol lately and I know quite a few people who are drinking it so I thought I'd give it a go."
"Okay, now you know that alcohol has all sorts of side effects and that the more you of it you consume the more extreme the side effects become?"
"Oh really? I didn't know that. I just assumed from the advertising that I would make lots of friends, laugh a lot and meet beautiful members of the opposite sex".
"I was afraid of that. We get a lot of people coming in here with some of the same ideas. Look, I'm going to start you off gently: here's an alcohol free lager - once you get used to the taste we'll try you on a Bud Lite and see where we go from there ..."
Customer leaves, excited about the journey of discovery he has now embarked upon ...
Yes, I know, a tad sarcastic. But honestly, reading the HSE report (and all the similarly slanted and spun stuff they have reported before) you would think absolutely no one knew about the risks of alcohol abuse. Nor would you know from reading the HSE report that:
- alcohol consumption in Ireland peaked the best part of a decade ago
- the level of consumption in pubs is now back to levels last seen in the early 1990s
- a moderate consumption of alcohol is better for you than no consumption
Set a limit on the maximum container size for alcohol sales in the retail sector to reduce volume selling. Require that alcohol products be available for sale in unit size and not only in six packs.That's right - make it easier to buy one or two tins rather than the whole tray: the cash strapped youth of Ireland salute you HSE!
But back to my question at the start: where will it end? Fortunately the HSE's financial difficulties may dissuade them from their crusade to improve the morals of the nation and focus them on providing health services instead. But the price of freedom is eternal vigilance, and so we must be alert when times are better and the mission creep of the State resumes its relentless forward march to utopia, one regulation at a time.
Saturday, September 5, 2009
Their excuse - with reference to a UNICEF study that did not make the same fundamental error - is as follows (from Chapter 2):
The approach here contains the same number of dimensions as the UNICEF report. Four of the six dimensions are effectively the same. The “family and peer relationships” and “subjective well-being” dimensions included in the UNICEF report are omitted. The reason is not because they are unimportant for child well-being, but because this report has a strong policy focus. It is unclear how governments concerned with family and peer relationships and subjective well-being would go about designing policies to improve outcomes in these dimensions.That's the same OECD that published a paper less than two years ago examining how policies can boost birth rates ...
It seems to me the OECD's omission of the role of the family in children's well-being is disingenuous at best, and downright deceitful at worst. It can be considered disingenuous because most of the factors they do measure as influencing child well-being - child poverty, literacy, exposure to smoking, housing quality, and teen births - are crucially determined by family circumstances. But it gets worse: not only has the OECD excluded vital indicators explaining child well-being, they've includes some that are frankly ridiculous. Take the indicators comprising 'Quality of School Life'. Of course, educational indicators should be included - but which ones? You and I might think a few obvious ones might be average class size or educational spending per child. But no, the OECD has decided that the main educational/schooling influences on child well-being are 1. bullying and 2. 'liking school'. I kid you not.
It seems to me that an awful lot of comparative social studies like the OECD's - designed specifically to influence policy development - are more akin to phrenology than to science. Instead of measuring what matters we get these pseudo-scientific studies that are little better than feeling the equivalent of lumps on people's heads and drawing seemingly profound conclusions.
As for the accusation of deceitful, I would point to this extraordinary statement in Chapter 7:
There is considerable interest in the impact on child well-being of single-parent family structure, partly because these have been growing in importance across the OECD. The evidence that single-parent family structure causes reductions in child well-being compared to when the parents stay together is not overwhelming, but nor can it be neglected. If there is a causal effect on child well-being of being brought up in a single parent family, it is likely to be small.At this point you've got to wonder which planet the the authors have been studying. In the United States, 28% of single mothers and their children live in poverty. Substantially higher than the percentage of single fathers with dependent children, and of married couples with dependent children. Poverty, of course, is strongly associated with all of the indicators (environmental, health, educational, risk-related etc) that the OECD is so concerned to report as influencing child well-being. And there is a considerable body of research showing the links between marriage and child well-being that the OECD seems intent on ignoring.
So why would they make such a statement in the midst of a report that presents a great deal of otherwise considered analyses and comments? I can only presume it is ideological: we have now gotten to the stage where policy makers and their analysts would rather ignore reality for fear of being accused of advocating 'conservative' or 'illiberal' policies, in turn bringing down the wrath of the feminist jihad on their heads.
But perhaps I am being too harsh. The Economist commenting on the same report does point out that:
The OECD offers many insights into how and why child welfare varies, and what the state can do. It does not, however, settle the argument over what role the state should have in nurturing the young.That may be the more important point. If anything the OECD study points out just how little the state can really do that is effective in securing long term, sustainable improvements in child welfare. Research continues to reveal the importance of family life is in influencing the development of children - regardless of culture - including moral development. And moral development is crucial to the emergence of a functioning community and society regardless of the stage of economic development.
Despite its once dominant status as the orthodox explanation for human psychology, phrenology soon joined astrology as a redundant world view. Reality can only be denied for so long: and hopefully for not much longer in the case of social policy.
Thursday, September 3, 2009
But like all crazes there's usually some interesting, underlying drivers behind it all. The obvious one is social networking itself - 43% of Irish internet users have their own Facebook or Bebo page, and most young people under 2o don't even use email anymore as it's sooooo Web 1.0. And yes, Web 2.0 is changing business practices - but even McKinsey have to admit that a lot of businesses are still struggling to come up with any measurable benefits (though most are still committed to expanding practices like blogging and podcasts further).
But it seems to me that the biggest change has been to give a greater voice to the 'audience': which, if you are prepared to listen, can be a powerful source of customer intelligence (as PwC remind us) - and if you're not prepared to listen it can be a powerful source of customer defections (as United Airlines have discovered). For myself, I've been blogging here for two years (as of today in fact) and reader feedback both online via comments and offline has been one of the most rewarding aspects of the blogging experience.
Where to next? I tried twitter for a few months a while back and gave up - too many tweets, too little time (though I take RSS feeds from my favourite tweeters such as Ireland's most web 2.0-enabled economist Stephen Kinsella). And in truth I'm more interested in how the web will affect the lives of people working real allotments rather than the virtual kind.
Looking at studies such as those by McKinseys and PwC it's still hard to see a precise role for Web 2.0 in a Recovery 2.0 - though I think it will play a significant part eventually (especially in terms of reducing costs and ultimately boosting productivity). And so maybe it will be a more robust and more sustainable recovery for all that.
And here's a nice YouTube video to remind us just how big Web 2.0 is already (with the by now mandatory Fat Boy Slim sound track :-)
Wednesday, September 2, 2009
I've charted the month-on-month increase in the Live Register since February 1967 using the CSO's Database Direct service - including today's latest numbers for August. What is striking about the chart is that even in the worst periods of the 1970s and 1980s the month-on-month increase (seasonally adjusted) rarely spiked above 5,000. Until, that is, late last year/early this year: when it reached a net increase of 31,400 in January. But it has plunged since - back down to 5,000 in August. That's bad of course, but it's right back to the longer run trend we've seen these past 40 years (and relatively better as the numbers in work are much higher than in previous decades).
So what's going on in the Irish workplace that has seen such a sudden fall back in new redundancies? It may be that we have adopted already to the 'New Normal'. Including reduced working hours and pay as alternatives to redundancies. Hence the emergence of the four day week for some, and that old thank God it's Thursday feeling. And perhaps if people are paying more and more of their marginal income over to Brian Lenihan then people might prefer extra leisure time to extra income.
As Fred Dent spells out in an inspiring presentation, we've been here before - and faced even worse crises. How? By letting businesses, workers and consumers figure out for themselves how best to navigate the uncertainties and choices that they face: that way recovery lies. Remember: recessions are mainly macroeconomic phenomena; recoveries are mainly microeconomic.
Tuesday, September 1, 2009
The future is unknowable, though not unimaginable.
At a very simple level, it is simply anti-intellectual to give credence to economic predictions. Economics is not predisposed towards generating robust forecasts and a host of compounding factors make the only attainable goal to be the “least worst” forecaster. The most difficult task for the economist right now is to resist the invitation to make predictions about the future state of the economy.Instead, Evans suggests that economists should tell stories (i.e.: scenarios) rather than present forecasts. And he has a go himself, starting with some entertaining 'counterfactuals' which amount to an historical 'what if' approach to the recent crisis and decisions that were made or not made. Which got me thinking: what if the Irish banks had not been rescued last September ... would we be worse off now as a result? Or better off?
And I think the thrust of his commentary is right: there are certain things economists know about how the world really works, and the challenge is to apply these lessons credibly to our thinking about the consequences of different decisions (private and public). And economists do know some things, as I was reminded by this great quote from the late Arthur Seldon:
Production takes place for consumption (derived from the Scot Adam Smith), not the other way round. Value is measured not as an average but at the margin (the Englishman W. S. Jevons, the Frenchman Leon Walras, and the Austrian Carl Menger). The cost of producing a commodity or service is not the labour required (the German Karl Marx) but the commodity or service thereby lost (the Austrian Friedrich von Wieser). The instinct of man is to “truck and barter” in markets (Adam Smith). He will find ways round, under, over or through restrictions created by government (the Austrian Eugen von Bohm-Bawerk). There is no such thing as absolute demand (for education, medicine or anything else) or supply (of labour or anything else) because both vary with price (the Englishmen Alfred Marshall, Lionel Robbins and many before and since). Not least, without the signalling device of price, man cannot spontaneously and voluntarily co-operate for prosperous co-existence (the Austrian Ludwig von Mises and the Austrian-born but voluntarily-British Friedrich Hayek).Think of it as a toolkit for economic thinking (and story telling). I find that, as a rule, it's easy to be optimistic about the long term - it's the short to medium term that always presents difficulties: when our capabilities might be overwhelmed by potential threats. Mike Treder has made a similar point - the chart is from a recent article in which he warns about the risks of overlooking mid-range dangers. As he puts it:
Maybe that's why we need to tell stories: to help us imagine the unknowable, and to be better prepared to deal with it when it comes. A task that should not be left to economists alone of course.
Let’s define the short term as the next five years. It’s almost certain we won’t have flying cars by then, or a colony on Mars, or a pill we can take to cure all diseases. Of course, we might be well on the way to having online access everywhere all the time, and that could be quite useful, but it’s unlikely that people will see anything within the next five years that will knock their socks off.
What about the long term — say from 50 to 100 years? How much technological, social, and political change should we expect to see in that time frame? Given the vast differences in the world today — in all three of those realms — as compared to the lives of people from early in the last century, it seems beyond argument that enormous changes are in store.... All of that is predicated, however, on our ability to get safely past the formidable barrier of the midrange — the period around five to twenty years from today. What happens during the mid-range is very likely to determine whether the remainder of this century will be one of unparalleled abundance, devastating war and destruction, of warming-induced ecological collapse and mass deaths, or perhaps some miserable but survivable combination thereof.