Saturday, October 30, 2010

Nightmare on Main Street

Yesterday's retail sales data from the CSO confirms what we already know to be the case: Ireland's consumers are spooked and they have shut tight their purses and wallets until there is greater certainty about the future. We saw the same pattern this time last year: the media were full of stories about the impending horrors of the 2010 Budget, with the result that confidence and spending fell in lock-step. Fast forward 12 months and the media are full of stories about the impending horrors of the 2011 Budget...

Only this time there's a war-wariness about consumer sentiment that is more disturbing than a year ago. Three years into recession and the people who played a major part in causing it are still clueless as to how to end it - and even more clueless about how to communicate a convincing explanation of how we're going to get out of it. And a four year plan/budget/set of accounts won't do it.

My company's latest monthly Recovery Indicator tracker (see below) is one measure of the turbulence that has buffeted Irish consumers over the past 18 months. It isn't over yet.

Monday, October 25, 2010

The Wild East

Mike Soden recently proposed that Ireland should leave the EU and join the United States to become their 51st state. I think this is unimaginative. I've a better idea: why not leave the EU and join the People's Republic of China to become its 3rd Special Administrative Region? After all, we would be aligning ourselves with the long term outlook for the global economy.

Andrew Mold has recently calculated the impact of the financial crisis in the West on the shape of the global economy in 2030. Bottom line - China will be twice the size of the United States:

Nor should we forget that we would bring something special to the negotiations - something the Chinese would value much more than the United States: our relatively young population. A fascinating essay on global ageing trends in Foreign Policy notes that:
Those who predict a coming Asian Century have not come to terms with the region's approaching era of hyper-aging. Japan, whose "lost decade" began just as its labor force started to shrink in the late 1980s, now appears to be not an exception, but a vanguard of Asian demographics. South Korea and Taiwan, with some of the lowest birth rates of any major country, will be losing population within 15 years. Singapore's government is so worried about its birth dearth that it not only offers new mothers a "baby bonus" of up to about $3,000 each for the first or second child and about $4,500 for a third or fourth child, paid maternity leave, and other enticements to have children, it has even started sponsoring speed-dating events.

China, for now, continues to enjoy the economic benefits associated with the early phase of birth-rate decline, when a society has fewer children to support and more available female labor for the workforce. But with its stringent one-child policy and exceptionally low birth rate, China is rapidly evolving into what demographers call a "4-2-1" society, in which one child becomes responsible for supporting two parents and four grandparents.

As one of the few countries in Europe with a growing population that should make us even more appealing to would-be suitors. Ambitious Irish people are heading to the Wild East to make their fortunes - maybe the whole country should go there? Better to be on the side of history's winners...

Saturday, October 23, 2010

The Rare Ould Future

In the dark times
Will there also be singing?
Yes, there will also be singing.
About the dark times.
Bertolt Brecht

Are we on the threshold of a new renaissance in Irish creativity? I'd like to think so. Creativity (along with Commerce and Compassion) should form part of our national narrative for 2016 and beyond. It may seem perverse to suggest that creativity might flourish against a background of economic recession/depression. But not only has it done so before - often the two have seemed inexorably connected.

Mark Hudson, writing in today's Daily Telegraph, makes a similar, brave forecast in light of the UK government's recent cut backs in funding for the arts:

There have always been two kinds of artists: those who go out to the Bohemian edge on our behalf – from Shelley to William Burroughs – to those (probably always the majority) who exercise their imaginations from a position of bourgeois comfort. If the former kind of artist seems almost to have disappeared, the prestige and influence enjoyed by the latter steadily grows.

...Looking back on the products of some previous periods of adversity in this country – from the near-punitive candour of Orwell’s 'the Road to Wigan Pier’ in the Thirties to the eerie unease of the Specials’ 'Ghost Town’ and the savage social comedy of 'The Boys from the Blackstuff’ in the dark days of the early Thatcher period – you can hardly wait for a revival of that kind of mordant, acerbic vision to adminster a jolt to a culture bludgeoned into near imbecility by consumer-oriented television and money-driven pseudo art.

I have similarly fond memories of Dublin in the 1980s: from Roddy Doyle to The Commitments to, em, U2. That cultural energy played some part in the economic revival that caught fire in the 1990s.

So let that be some consolation in the dark times ahead: I predict that the light of Irish creativity will soon shine brighter than it has in recent decades. And it too will energise the next chapter in our national story.

Friday, October 22, 2010

Peak Academia

The shake up of third level education in the UK (including a 40% cut in teaching budgets over the next 4 years) is a precursor of similar to come in Ireland. Third level fees will inevitably be part of the adjustment ahead (and a welcome one in my opinion - even with two children in third level!)

But there is something more profound under way. It's beginning to look like we have witnessed 'Peak Academia' - the passing of a golden age of rising student numbers, rising budgets, and rising investment in university-based research. Partly this is being driven by cuts in overall funding (and not just in Ireland and the UK). It will also be driven by the dawning realisation that - as third level fees rise - then the economic benefits of a third level education will diminish. It is estimated in the UK, for instance, that if tuition fees rise to £7000, then degrees in the arts, humanities and non-economics social sciences will be bad investments for men (though not for women). In other words, the cost of getting degrees will exceed the resultant uplift in future earnings.

But Peak Academia - and the downward curve we are now entering - will be driven by more than mere budgets. Bruno Frey (one of my favourite 'happiness economists') fears a Withering Academia. His take:
It has been argued that there are strong forces undermining the present-day academic system. The major forces identified are the rankings mania, the increased division of labor in research, the intense publication pressure, academic fraud, dilution of the concept of “university,” and the independence of scholars and students from particular universities. These forces are seen to lead to a meltdown of academia. In particular, the present university system is expected to radically change and thus a century old tradition to die.

Academia in the broader sense, that is, “the locus of seeking truth and learning through methodological inquiry,” will continue to subsist in different forms because it performs a vital function in society. The conclusion therefore is pessimistic only with respect to the academic system as it presently exists but not to scholarly endeavour as such. However, the transformation predicted is expected to be fundamental and to perhaps take place sooner than one might think.
Third level education will become multi-level in the near future, including the emergence of 21st century monasteries. If we're going to be smart about the smart economy then navigating the turbulent world of learning and research post-Peak Academia will challenge all of us. Parents included.

Wednesday, October 20, 2010

Economic Literacy

The Irish are the third most economically literate people in the world. No, seriously. That's according to a fascinating paper by Tullio Jappelli (ht Infectious Greed). And that isn't just the opinion of the Irish people, it's the opinion of a sample of top and middle managers in each country - native and expats - scoring the 'economic literacy among the population' on a scale of 0-10.

It probably goes to show why you should always take the results of any survey with a pinch of salt... Though in fairness to Jappelli, he does go on to show a remarkably strong correlation between the economic literacy score and various other, more objective macro-economic scores. His conclusion: in times of economic turbulence and future uncertainty everybody becomes more 'economically literate', whether they want to or not.

Guess we're going to top that global league soon.

Tuesday, October 19, 2010

Re-Entering History

I was discussing my book on 2016 as the guest of an interesting group last night. One of the big topics was the future of the nation state - especially in Europe. I shared my own view that the nation state is going to re-emerge as the dominant political (and even economic) force in Europe - though not in an entirely benign way.

Then this morning I read the latest analysis from Stratfor. It concerns the recent rejection of multiculturalism in Germany and its consequences. Here's the money quote as far as I'm concerned:
It is impossible for Germany to reconsider its position on multiculturalism without, at the same time, validating the principle of the German nation. Once the principle of the nation exists, so does the idea of a national interest. Once the national interest exists, Germany exists in the context of the European Union only as what Goethe termed an “elective affinity.” What was a certainty amid the Cold War now becomes an option. And if Europe becomes an option for Germany, then not only has Germany re-entered history, but given that Germany is the leading European power, the history of Europe begins anew again.
Like I've said before, the euro and the European Union have tied Ireland's fate to Germany, whether we like it or not. Though somehow I feel that our 'gallant allies in Europe' will not have our best interests at heart by 2016 (though come to think of it, they didn't in 1916 either). Fasten your seat belts: we are re-entering history and it's going to be a bumpy ride.

PS: make sure to add Stratfor to your RSS feed - their analyses are second-to-none.

Sunday, October 17, 2010

Cognitive Surplus At Work

I've mentioned Clay Shirky's idea of the cognitive surplus before. Here's a 120 slide presentation showing just how big it is already (ht Simoleon Sense).

The next wave of global growth is taking shape even as - here in Ireland - we wallow in the depths of economic depression. It's inspiring stuff, just when we need it most.

Emotional Correctness

The story of the Chilean miners will inspire us for years to come. Their courage and determination in the face of adversity is a timely reminder of the power of the human spirit.

And as Brendan O'Neill explains over at Spiked!, their story will also hopefully marks the death knell of the psychobabble culture of victimology that is surely one of the most disagreeable features of the 21st century. The miners didn't just overcome the terrible circumstances of their entrapment, they overcame the 'emotional correctness' that the so-called experts were using in an attempt to turn them into victims rather than heroes.

Solomon Burke knew all about the power of solidarity in the face of adversity, but sadly he died just a few days before the miners were freed. This is for the Chilean miners, with thanks:

Saturday, October 16, 2010

Banker vs Lawyer

Not since Godzilla vs King Kong - or even Alien vs Predator - has there been a contest like it. I'm referring, of course, to Foreclosure-Gate: the latest, Godzilla-sized financial scandal to hit the United States (and, shortly, the rest of the world). I was first alerted to it by Gonzalo Lira - he explains it thus:

Long story short (since this is the short version): A lot of the foreclosed properties might not have been foreclosed legally. The people evicted might still have a right to their old houses. The new buyers might not actually own the REO’s they bought off the banks. The banks could be on the hook for trillions of dollars, and in the sights of literally millions of lawsuits.
Do read the whole thing. It makes our own problems with NAMA and poor loan documentation pale into insignificance. Meanwhile, Charles Hugh Smith thinks the lawyers are in for the boom of a lifetime:
Real estate attorneys can rejoice: everyone will get sued, in every court in the land. Banks will get sued, title insurance companies will get sued, realtors will get sued, foreclosure mills will get sued, MERS will get sued, and so on. The attorneys general of the states will all sue the banks and mortgage mills, claiming billions in damages.
He forgot to add the pension funds who have been left owning now worthless Mortgage Backed Securities (okay, they were already 'depreciated' in value before this, but now it looks like they weren't worth anything to begin with). The problem is, with everyone suing everyone else then the US housing market, and with it the entire US financial industry will ground to a halt.

This is where the politicians have to step in to referee the coming celebrity deathmatch between (last count: 40) US Attorney Generals and Bank of America et al. Up until now, the Obama administration has bent over backwards to support the banks (even Paul Krugman is tiring of President Obama's pro-bank stance). Though Obama recently vetoed one attempt recently by the US Congress to force through a bank friendly piece of legislation that would have prevented out-of-state scrutiny of their fraudulent documentation practices.

Halloween is going to be scarier than usual for America this year. Let's hope the rest of us don't get caught up in the nightmare.

Friday, October 15, 2010

Too Smart to Fail

I went to see Enron last night. Easily the best theatre I have enjoyed in recent years (thanks Brian!) It's a Greek tragedy much like Icarus - from arrogant hubris to inevitable nemesis - and it happened less than ten years ago.

I'd guess there wasn't a person in the Gaiety Theatre last night who wasn't watching the performance and thinking 'Anglo-Irish Bank'. Though of course, if Enron had happened in Ireland, the company would have been nationalised and Jeffrey Skilling would have retired to the Bahamas (instead he was sentenced to 24 years and 4 months imprisonment). A lot of Americans were hurt by the collapse of Enron, but not the American taxpayer. That's one thing they can thank 'W' for.

According to the website there are still a few tickets left for the remaining performances tonight and tomorrow. I urge you to go see it. Who knows, it might even inspire a budding playwright to explain our own recent history through the medium of theatre. 'Anglo' - it's a story that could fly. Just like Icarus.

Wednesday, October 13, 2010

Marriage and the Economy

Justin Wolfers has taken a Freakonomist look at the declining marriage rate in the United States. The marriage rate in the USA (as in the UK) is now at historically low levels. Some are blaming the recession: Wolfers doesn't - he thinks it's more to do with the emergence of 'hedonic marriages', i.e.: marriages based not on the economic benefits of playing specialized roles but on shared passions. In the past doctors married nurses, now they marry other doctors. But this arrangement has a knock on effect 'down the line', and it is less-educated women who are less likely to marry nowadays.

Ireland is defying the US/UK trend, for now. But as the recent civil partnership legislation confirms, Ireland's policy and law makers do seem intent on following much the same path as elsewhere, and we will no doubt witness many of the same consequences. Does it matter? From an economic perspective, the answer is unequivocally yes. As I've noted before, marriage means less demand on the resources of the state. But there's more than economics and public finances at issue.

One simple explanation for this is the nature of childcare. The family does it better, and cheaper, than the state. As usual, Whiskey's Place captures the zeitgeist brilliantly:
Child care is perhaps the most labor intensive function in human society. Successful citizens require almost 24/7 child care for the first 10 years of life, and considerable investment after that. This is why Plato's Republic scheme, where the state would raise children instead of the family, has always failed. Even Sparta, eventually fell, because they had few children, and many slaves, and lacked in the end enough manpower despite their martial prowess, to defend against their Greek city-state enemies. No people invested more in Plato's idea of the state raising children, and no nation fell more quickly once they lacked enough citizens to put in arms against their enemy.

Thus the future of the West, and of China, is the end of wealth creation and indeed preservation. Wealth creation on a broad, society wide scale, has only been accomplished by having a nuclear family society. Where families on their own accord, for their own interests, invest staggering sums of capital, labor, and time in producing wealth creating men and women of the next generation.
Though he's decidedly pessimistic about the United State's capacity to restore a healthy marriage culture. But it isn't just about economics. There's also the small matter of freedom. Allan Carlson gets to the heart of the matter:
More oddly, for the first time in human history, natural marriage has to justify itself in democratic countries before the court of public opinion. What had been obvious to most prior human societies, over the centuries and around the globe, is now “an issue.” The main reason for this, I think, is the modern superstition that the past has nothing to teach us: the assumption that our ancestors were all moral barbarians, ethical troglodytes full of prejudice and mainly devoted to attacks on human dignity and human differences. This might be called the arrogance of Presentism. For the same reason, religions resting on inherited dogma stand as particularly suspect.

Briefly put, marriage ― as conventionally understood ― is a bulwark of liberty... The telling reality is that every modern totalitarian movement ― every enemy of a free society ― has moved early and aggressively to disrupt or destroy the institution of natural marriage.
Someone once said that there are six interested parties to a marriage: the bride, the groom, their respective families, their unborn children, and society. Maybe we should add a seventh: the economy. Perhaps if the bond markets factored Ireland's relatively healthy family landscape into their calculations they might take a percent or two of the rates. Right now, our marriage statistics would suggest we're better long-term prospects to repay them than the United States. For now anyway.

Monday, October 11, 2010

Shorter Stories

Douglas Coupland got me thinking with A Radical Pessimist's Guide to the Next 10 Years. It's a slightly tongue-in-cheek list of things we'll all have to get used to in the future. Some of them more serious (and more likely) than others, to be sure. Though the one that got me thinking was item 28 on his list:
28) It will become harder to view your life as “a story”

The way we define our sense of self will continue to morph via new ways of socializing. The notion of your life needing to be a story will seem slightly corny and dated. Your life becomes however many friends you have online.

I don't like his idea, but I get it intuitively. The power of story or narrative is something I've touched on before. The collapse of story in our lives may well be a longer term cultural consequence of the recession. A VoxEU paper on the long term effects of recession on values notes that:

  • First, the effects of a severe recession experienced are large when the individual is between the ages of 18 and 24 – the so-called formative age – during which social psychologists think most of social beliefs are formed; the effects are not so strong when the recession is experienced later in life.
  • Second, these effects are permanent because attitudes of recession-stricken individuals remain significantly altered many years after the severe recession ends.
  • Third, we control for individuals’ endowments such as income, level of education, and ownership of a house that could also have an impact on beliefs. We thus measure the direct effect of a recession on beliefs; this effect could be even bigger if we added also the indirect effect through the personal endowments, which are also affected by a recession.
  • Fourth, our estimation represents a lower bound of the effect of a recession on beliefs because our identification strategy relies only on regional shocks implicitly ignoring the effects of nationwide recessions.
So it is the current generation of young people that will bear the psychological scars of Ireland's uniquely severe recession (unique in OECD terms). And if one those scars is the inclination to postpone the future (renting not buying, cohabiting not marrying, jobs rather than careers), then it is easy to see how a story of a predictable life course might, indeed, seem corny and dated.

Sad really. Though there's one remarkable compensating factor. We appear, as a people, to be getting through this recession remarkably intact - emotionally speaking, that is. The latest Eurobarometer survey on Mental Health in Europe suggests that the Irish are amongst the most emotionally positive - scoring well above the EU average for happiness, calm and energy:

So there's hope yet. That's if hope doesn't smack to much of 'story'.

Sunday, October 10, 2010

2016 - The Prequel

I launched my book last week in the GPO. Appropriately enough. A big thanks to everyone who was there, and to the folks in An Post for hosting the event. And a special thanks to Oisin Fahy for recording the proceedings for posterity!

Here is my talk, with a brief introduction from my friend and colleague Michael McLoughlin, who was MC for the launch:

Friday, October 8, 2010

The Cuckoo Generation

Eddie Hobbs advice to parents of adult children is "24: out the door". Unfortunately it's looking more like 34 these days. The latest Eurostat data shows that Ireland has the largest 'cuckoo generation' in Europe, i.e.: those 18-34s living at home with their parents because they are unemployed. The unemployment rate is just over 16% for 18-34 year olds living with their parents in Ireland. Sweden is second highest.

In fact, over a third of 25-34 year old Irish men are living with their parents. Nearly twice the ratio of 25-34 year old women. Though that's about par with the EU average. The percentage for men rises to 48% in Italy and to 61% in Bulgaria. Mamma mia.

So there's another reason for Ireland's 'over-saving' 40 and 50-somethings to get spending in order to stimulate economic growth. If you don't it'll be "out the door at 44" - that's if you're lucky...

Only Connect

If a picture is worth a thousand words, is a map worth 6.5 billion? Human connectivity in context:


Thursday, October 7, 2010

Middle Class Anarchists

Chris Dillow thinks that the Middle Class are powerless:
The reason we don’t describe people on relatively high incomes as upper-class is that they lack something a true upper-class has - power. Many - most - people on around £50,000 a year lack control over their fate. They are vulnerable to the sack; they can’t choose how long they work (it’s a cliché that “middle class” women are frowned upon if they take time off to look after the kids); and presenteeism traps them into long commutes. In these respects quite high earners have more in common with minimum wage workers than they do with (some? many?) bosses. What we think of as the “middle class” is instead - to borrow Erik Olin Wright’s phrase - a contradictory class location. Such people score highly for incomes, but lowly for power.
He wonders why they are so placid. He may not have to wonder for much longer. Gonzalo Lira has just posted a magnificent piece on The Coming Middle Class Anarchy. Here's his take:
When the backbone of a country starts thinking that laws and rules are not worth following, it’s just a hop, skip and a jump to anarchy.

TV has given us the illusion that anarchy is people rioting in the streets, smashing car windows and looting every store in sight. But there’s also the polite, quiet, far deadlier anarchy of the core citizenry—the upright citizenry—throwing in the towel and deciding it’s just not worth it any more.

If a big enough proportion of the populace decides that it’s just not worth following the rules any more, then that society’s days are numbered: Not even a police-state with an armed Marine at every corner with Shoot-to-Kill orders can stop such middle-class anarchy.
Here in Ireland we have a government bending over backwards to placate billionaire bond holders like Roman Abramovich. In the coming budget and subsequent ones they will tax and tax and then tax again the Irish Middle Class. Why? Because that's where the money is. And at some stage a 'largish chunk' will simply throw in the towel. Why? Chris Dillow has the answer: the more unfair a situation is perceived by people, then the less cooperative they become. Not riots in the street un-cooperative. More 'let's take a break from paying taxes, the mortgage and the bills' kind of un-cooperative.

It won't happen at once, of course. We're a law-abiding people in Ireland - in fact, we've gotten more so over the years. But there's a tipping point with every social phenomenon. Probably a reason why the true level of mortgage defaults is Ireland's best kept secret right now. Once the idea gets out there that 'everybody's doing it' (not paying their debts) then it doesn't take too long until everybody else wonders why they're not doing it too?

They say that civilisation is three meals away from anarchy. Make that three mortgage payments.

Wednesday, October 6, 2010

Running Out of Time

Literally. Some physicists at Berkeley think there's a 50/50 chance that time itself will end some time in the future. Something to do with the Big Bang and the laws of physics. Mind you, it won't be for another 3.7 billion years. Probably just as we make the last repayment on the Anglo bailout. Just our luck...

Nearer to the present, we can rest assured that there won't be a world government by 2025. That's according to the latest report from the National Intelligence Council. They're an American organisation by the way, not an Irish one. Though you probably guessed that. They think resource scarcities will divide nations rather than bring them together. It's happening already, of course. Trying buying wheat from Russia.

But there's a sweet spot between 2025 AD and 3,700,000,000 AD. Somewhere around 2100 AD, according to an engaging set of forecasts and speculations from the Future Timeline. Though it's pretty well downhill after 10,000 AD.

Though at least by then NAMA will have returned a profit to the Irish taxpayer...

Our New Masters

Nice to know how they see us from Germany:

From the weird world of Strange Maps

Monday, October 4, 2010

Caring for the World

Every week sees the publication of yet another report on Ireland's Smart Economy. That's fine as far as it goes: science, technology and engineering do all play a part in growth. But I'm more worried about the Stupid Economy: or, less bluntly, how are we going to employ all the people who don't have PhDs in bio-engineering?

Daniel Isenberg puts it another way - it isn't knowledge but ignorance that creates real economic value:
The interesting, value-adding aspects of economic activity are the ones that are based on ignorance, not knowledge. It is the ability and willingness to take action in the face of fundamental ignorance, in which uncertainty, ambiguity, and the unknown play dominant roles that will determine which economies, and ventures, succeed and fail. Good managers, leaders, and policy makers have evolved effective ways of dealing with such ignorance. Successful entrepreneurs have led the way in turning ignorance into opportunity; we can learn much from their behaviors. Entrepreneurs enter into the unknown, sometimes plunging headlong, more often than not creeping into it, toe after toe.
The good news is that ignorance - like knowledge - is widely dispersed and therefore we don't need any one expert, leader or policy paper to show us the way forward. Thousands and millions of people are feeling their way towards the future, toe after toe. In the age of the Internet, we are all Hayekians now.

But I still haven't answered my question: where will the jobs come from for the 'less-smart' workforce? Let me throw one big idea out there. It came to me at a discussion I was having at the Marketing Institute recently. Here goes.

We Irish are 'people people'. We're actually curious about other folk. Nosey even. Whether we dealing with people face-to-face or on the phone - or even via instant messaging - our national character comes through. And that's an advantage that will help us enormously in the years ahead.

My idea is to turn that capacity or aptitude into a focus for a national strategy. One modestly entitled: 'caring for the world'. Allow me a Bono/Geldoff moment, for I think such a strategy could have three components all under the theme of caring:
  1. Customer care: we once were big in the call centre business here in Ireland - then it became less sexy during our little building binge. But I've been working with some Irish-based call centre operators lately and I'm struck by the potential. Some of the potential is tied to the trend in shared services - but I think it goes further. Businesses will want to outsource their customer care services to friendly, helpful suppliers employing friendly, helpful staff. And we don't have to beat the Indians on price - we can operate in the quality/emotionally intelligent end of the service range: where price is less of an issue.
  2. Telecare: one good thing we have going for us is that we are still relatively young compared to other European countries. As they respond to the rising demand for care of ageing populations they will seek to use intelligent, home-based rather than hospital-based services to look after those in need of assisted living support. Ireland can be a base for such services (there are already some operators doing just that) - see some of the reports on the technology of independent living at the Ageing Well Network's research wiki.
  3. So far so familiar - but there's a third angle to my caring for the world strategy that I would add and that is: Charity Care. Why not make Ireland a home for global NGOs and other charitable and philanthropic initiatives, kind of an IFSC for compassion? Some of the same tricks could apply - tax breaks, vat rebates etc - but others might work too: like using the resources of the Department of Foreign Affairs to leverage the global impact of new or early stage social entrepreneurs with global ambitions who are willing to relocate to Ireland (as well as our home grown ones, of course).
The nature of all of these components is that they are and will be people-intensive, and the labour skills required will be for emotional and social intelligences, not just cognitive intelligence. Sure let's not prevent a Smart Economy emerging, but let's also recognise the potential for a Caring Economy that fuses the potential of global communications technologies with indigenous people skills.

Like the Smart Economy, the Caring Economy will be more likely to succeed if the Government adopts a 'first do no harm' (don't get in the way) philosophy, letting the distributed intelligence (or is that ignorance?) of the marketplace feel its way towards a better future. One that is smart and compassionate perhaps.

Sunday, October 3, 2010

Economic Possibilianism

I'm a big fan of David Eagleman - I've mentioned him a few times before. He's a scientist with a poet's heart. Here he is in this week's New Scientist:
This is why I call myself a "possibilian". Possibilianism emphasises the active exploration of new, unconsidered notions. A possibilian is comfortable holding multiple ideas in mind and is not driven by the idea of fighting for a single, particular story. The key emphasis of possibilianism is to shine a flashlight around the possibility space. It is a plea not simply for open-mindedness, but for an active exploration of new ideas.
David is talking about the big issues of science and religion. I think we need to be economic possibilians here in Ireland right now. We need to engage with the future in a spirit of open-mindedness, rather than defaulting into a doom loop of despair (nor becoming blind optimists - though I haven't met too many of them lately).

Two things struck me in today's papers. The first is by Colm McCarthy in the Sunday Independent, who observes that:
In round numbers, three-quarters of the debt Ireland will owe when the figures finally come under control will relate to the accumulated budget deficits and just one quarter to the costs of the bank rescue...

The Central Bank Governor has insisted that the public finance adjustment is feasible, even with the appalling extra costs imposed by the banking collapse. There is a venerable football adage to the effect that 'you make your own luck'. With even average luck, which we have not enjoyed in this crisis to date, I agree with his assessment.
The other is by Liam Halligan in the Sunday Telegraph, who notes that:
These are absolutely ghastly numbers, of course. But guess what? The fact that they're now in the public domain, that the government forced the banking sector to "fess up" its losses, meant that Irish sovereign debt rallied after ministers made their move. That's right – borrowing costs fell, a lot, as the all-important bond market signalled its approval at Dublin's determination to impose "full disclosure".

...A lot of the reason Ireland's new headline fiscal numbers look so bad is that they're far more honest than equivalent data being presented elsewhere – in the UK, for instance.

...Ireland has a lot more to do. The losses that will now soon be imposed on junior creditors of its bombed-out banks should eventually spread to senior creditors too – so lightening the taxpayers' load. But, by revealing the banking sectors' vast losses and outlining a credible plan to fund them, the Irish have taken a step that others have not yet taken. Ultimately, they'll have to.
Both McCarthy and Halligan are highlighting our changed circumstances and a greater certainty about the path to recovery than we have had at any time in the past few years. In fact, by 'fessing up' we have at least recognised how far off course we are as an economy. That at least raises the possibility of changing course and heading in a new direction towards a better place.

What's more - we might even get there quicker than we think as the bond markets attention shifts elsewhere. Say to US Treasury bonds and the US government's binge borrowing. With a bit of luck and a fair wind the journey might not be as turbulent as we fear. At least, we should be open to the possibility.

Saturday, October 2, 2010

Hibernia Dreaming

Ireland is suffering from more than one type of deficit right now. There's the financial deficit of course, but there is also a 'hope deficit'. When we look to the future we do so through a prism of fear and despair. Worse, the pressing nature of short term developments is crowding out our capacity for longer term thinking. It is as if a surfeit of pessimism has drowned out any residual optimism.

That said, we have never been very good at thinking about the future in Ireland - in good times or bad - as I've noted before. The absence of an institutional capacity for foresight has undoubtedly contributed to the current impasse. As Robin Hanson has noted about most politicians and pundits talking about the future:
...few folks actually care much about the future except as a place to tell morality tales about who today is naughty vs. nice.
And so it is with the evolving debate about the Government's budget and plans to reduce the deficit by 2014. People will cling to the seeming certainty of tax and spending projections rather than face the extraordinary uncertainty of envisioning a better future for Ireland as a nation, and not just as an economy.

Fortunately we can look elsewhere for guidance as to how to envision such a future. The Institute for the Future has recently completed an exercise for California - called California Dreaming - that invited participants to map the future. It's a very relevant example, not least because California faces some of the same problems as Ireland (a massive government deficit and the inability to devalue its currency). The IFTF has mapped out four scenarios for California, elements of which apply to us.

But the bottom line - for California as well as for Ireland - will be finding a path to sustainable economic growth, one aligned with the new global realities unfolding over the next decade. Growth will stimulate the investment and job creation that will provide the taxes needed to fund both the debt and deficit. However, again just like in California, the capacity for government to be a source itself of either investment or job creation will be severely constrained. The onus then be on the Irish private sector - especially our exporters - to deliver growth.

The economy will only be part of the story of course (and I'll return to it in my next post). As a nation we will have to make decisions about how we govern ourselves (the sooner the better); about what we consider to be necessary public spending rather than just nice-to-have indulgences; and even about the values that distinguish us as a people (such as our capacity for compassion). But what we must avoid is assuming that all this is someone else's job, say, that of our politicians. I think they have clearly demonstrated that they are not up to that (or most any) job.

It will be over to each of us - in our families, communities, churches, clubs and workplaces - to figure out where we're going and how we're going to get there. And we must do so with confidence and without fear. We must dare to be optimistic in these dark times.

Friday, October 1, 2010

No Pressure

On the day the nation discovered just how indebted we're going to be for the next generation or so, Friends of the Earth were getting annoyed about the lack of progress on the Climate Change Bill. The one that wants our economy to regress to a kinder, cleaner, poorer stage of development. Though I would have thought we were well on the way there without the bill.

Still, desperate times require desperate measures, as advocated by the UK Government funded 10:10 Campaign. Mind you, there's something of the 'Final Solution' about it all. Or maybe that's just me being squeamish? (Not suitable for children, by the way). UK taxpayers' money at work:

ht Adam Smith Institute
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