Friday, December 31, 2010

The Peak Decade

"In or about December, 1910,
human character changed".
Virginia Woolf
It's that time of year: a time for reflection and projection. Most seem content to look ahead to 2011 and pronounce on what they foresee. I propose going further, looking ahead not to 2011 but to the decade now about to commence: 2011-2020. It may be a typically human conceit to imagine that our collective future can be determined in neat slots of years or decades, but such simplicities have their uses. And sometimes a year or a decade really does make a difference.

I believe that the decade ahead will be as momentous for humanity as the equivalent decade was in the twentieth century. Think back to December 1910. Who then foresaw the first World War; the disappearance of four empires (Germany, Austria-Hungary, Russia, Ottoman) and the emergence of the world's first communist society in the Soviet Union? Conflicts that resulted in the death of over ten million young men, most of them only children at the start of that fateful decade. And let's not forget all that happened in Ireland over the course of the same ten years: from Ulster's Covenant against Home Rule, to the Dublin Lockout to the 1916 Rising and on to the War of Independence.

So what can we expect in the decade ahead? It strikes me that we are witnessing the culmination of a number of trends. But by culmination I don't mean a unique configuration. Rather I mean the peak and subsequent decline or reversal of forces hereto thought to be unstoppable or irreversible. It is my contention that the coming decade will be 'the peak decade' as one force after another peaks and declines. It will be the defining decade of the 21st century. And the good news is that if we get through it with a functioning civilisation still intact then a magnificent era of human flourishing awaits us.

But first the not so good news. Here are a few of things I expect to peak in the decade that is about to commence - some more welcome than others - and some undoubtedly earlier in the decade rather than later:

Peak Europe: Claus Leggewie has written about The Seven Circles of European Memory, those seminal, shared experiences that have forged the European project - from war to the Holocaust to immigration. But history hasn't stopped and an 'eighth circle' of memory is now forming, namely the spectacular rise and fall of the euro and the economic schism it has created at the heart of Europe. This is the circle of European memory that will be most remembered in Ireland after the coming decade. As Bridgid Laffan observes about Ireland's situation, our new found dependency on the IMF/ECB will unleash levels of Euroscepticism and outright anti-EU hostility that the Irish elite will struggle to contain let alone channel. The euro may well survive The Peak Decade in a much reduced form, but Ireland's membership may not.

Peak Pensions: this one is already upon us (those of us who work in the private sector anyway). But it's coming to the public sector and soon. Take the extraordinary seizures of pensions now taking place across Europe. Here in Ireland, we have the appalling spectacle of the National Pension Reserve Fund being raided not to improve the wealth generating capacity of the country but rather to boost the balance sheets of our insolvent banks in order to pimp them to potential buyers. Nor is Europe an anomaly: local and state pension funds in the United States are being rapidly depleted, and some have simply run out of money. By the time The Peak Decade is over, expect to see the disappearance of statutory retirement ages for workforces in developed countries, the rapid reduction of state funded pension rates (in nominal and real terms), and a rapid return to widespread poverty in old age. The giant public sector ponzi schemes that have characterised a great deal of pensions provision in developed countries (especially those of public sector employees) will collapse just like their counterparts in the private sector.

Peak Government: this is one where the United States is well ahead of Europe, surprisingly enough. Niall Ferguson has written and spoken eloquently on the matter of imperial failure, driven inevitably by the rising cost of servicing public debts. The United States is the world's largest debtor nation by far, and the US Government is already paying enormous amounts of interest simply to service its debts (equal to 4.5 times what it spent on education last year). But the United States is a harbinger not an outlier. Here in Europe we have learned the wisdom of the adage that 'expecting today’s Western leaders to run fiscal surpluses is like expecting dogs to stockpile sausages'. The euro crisis simply accelerated what was going to happen anyway: a pervasive political Keynesianism, always with the stimulus, never with the surplus. But as debt/GDP ratios explode across Europe over the course of The Peak Decade (exponentially in Ireland's case) the unsustainable nature of spending by Europe's governments will become grimly apparent.

Peak Feminism: this one you may be less familiar with, but it is tied to the previous peak. The first phase of feminism (equity feminism) in the twentieth century - securing for women the rights to vote, own property and to be paid the same rate for the same work - morphed in the second half of the century into a political ideology (gender feminism) intent on securing gains for women to the detriment of men, achieved through the capture of the state (both as an employer but also as a redistributor of income from men - who pay most taxes - to women, who receive most social welfare and pension payments). But as the glass ceiling is increasingly revealed as a chimera, the glass cellar that confines a growing number of men to educational, social and economic failure has become more apparent. Just as the tide of government is turning, so inevitably will the tide of gender feminism. Expect a great deal more attention to the glass cellar over the course of The Peak Decade, with men in developed countries demanding a return to real gender equity.

Peak Tolerance: this is a more dangerous one. The economic cake - in Ireland but in much of the rest of the developed world as well - will not get much bigger over the first half of The Peak Decade, and may even shrink. Much of what seemed like tolerance in Western Europe during the previous decade was the result of a bigger cake making it easier to accommodate more people to share it with. Though I don't buy the Eurabia scenario for Europe (for starters, it isn't what most European Muslims want), there can be little doubt that a continued threat from Islamic extremists, coupled with a failing generation of young Muslim men across Europe, will give rise to a more extreme political landscape.

Peak Peace: this is the most dangerous one. Sure we have had conflicts during the past decade, but The Peak Decade will see something far nastier. Firstly, deep recessions often trigger wars, and some - like Paul Krugman - have argued that war can end recessions, just as World War II ended the Great Depression. More than a few politicians will take that lesson to heart. We have been blessed here in Western Europe with a prolonged peace, but state-on-state violence has been a pervasive force not just throughout Europe's history, but also throughout all recorded history. It may be peace that is anomalous in this regard. The 'war to end all wars' that convulsed our continent during the second decade of the twentieth century is a reminder of war's capacity to surprise even its advocates with its violent speed and destructive power. As China, Russia and the United States jostle for power in their respective 'near abroads', faced as each is by economic, demographic and technological forces for sometimes unwelcome change, then the chances of war, directly or by proxy, will worsen as The Peak Decade proceeds. It's going to be ugly.

Those are the main forces shaping The Peak Decade in my opinion. There will be others, but some - like technology - have already made their impact felt (e.g.: most of the global gains from mobile and internet technologies have already been experienced during the decade now ending). Others, like climate change, will either impact on a much longer timescale than a decade, or will be characterised by even great uncertainty as 'extreme weather' becomes the new 'global warming'.

As for Ireland, we are the canary in the coal mine for some of these trends (Peak Europe, Peak Pensions, Peak Government), but we will spend much of the decade on the sidelines of much bigger, more global forces for change (especially Peak Peace). Not that there are any sidelines any more in our hyper-connected, hyper-dependent worlds. Though Peak Oil might change that.

It's December 1910 again. Only different. Fasten your seatbelts, there's a turbulent decade ahead...

Wednesday, December 29, 2010

Flipping the Iceberg

The recent snowfall was a salutary reminder that Irish society has depths of strength and fortitude not obvious from the headlines or from our 'leaders'. On more than a few occasions I found myself trying to negotiate an especially slippy incline or corner in my car, only to find two, three and more people appearing as if from nowhere to give me a push and keep me going. Similarly I would regularly be joined by strangers as we tried to help someone stuck in their own car in a drift of snow.

And so it was for hundreds of thousands of our fellow country men and women: clearing paths, pushing cars and keeping an eye on elderly neighbours. Civil society is alive and well in contemporary Ireland, but it remains hidden like the submerged mass of an iceberg. Alex Tabarrok recently commented on the Iceberg Economy over at Marginal Revolution. He was making the point that - in addition to the visible structures of government and commercial activities - there is a less visible sub-structure of family, community and charitable activities that are vitally important contributors to civil society.

It is only when the iceberg is flipped - such as during record-breaking cold weather - that the invisible becomes visible, and we are reminded of the true depths and strengths of Ireland and the Irish people. Moreover, I expect to see greater visibility for these hidden depths in months and years to come as we learn to apply the ubiquitous tools of social networking and peer-to-peer communications to helping solve one another's problems. Instead of waiting for the local authorities to show up. Check out Snowmageddon Cleanup to see how New Yorkers are responding to their own recent snowfall for a harbinger of our civil future here in Ireland.

Tuesday, December 21, 2010


Up close, or far out: everything has a context (even the Universe). Check it out: Scale of the Universe (ht Cafe Hayek).

Saturday, December 18, 2010

Where The Smart People Go

Warning: this is a self-indulgent post. Okay, more self-indulgent than usual.

Christopher Mims has a fascinating post on the 'reading level' of different web sites and blogs. You can now use Google's Advanced Search option to determine whether the content of a given blog or site has a reading level that is basic, intermediate or advanced. In the Reading Level menu select 'annotate results with reading level' and then enter the url of your preferred site in the 'search within a site or domain' box.

So I did: for some of my favourite sites and blogs. Starting with my own it appears that 76% of my posts have an intermediate reading level:

What about some others? for example has a higher share of basic reading content than my own blog:

The Irish Times is decidedly at the 'intermediate reading' level:

Whilst the excellent Irish Economy blog scores much more heavily than my own in terms of 'advanced reading' content:

And the brainiest Irish blog of them all? Why that's the Geary Behavioural Economics Blog, seriously advanced stuff:

Well done lads!

But the only problem with all of the above is that it's very hard to determine what exactly the different reading levels mean. It's a secret Google algorithm sort of thing. I even tried Googling it and all I got was this.

Meanwhile I think I'll stick to the middle lane.

Friday, December 17, 2010

Measuring Memes

The latest initiative from Google labs - the Books Ngram Viewer - is either another brilliant step forward in understanding the human condition... or another brilliant way to, er, waste a lot of time. You decide.

A team from Harvard have worked with Google on a project they are calling culturomics - a fusion of culture and genomics. An oddly clunky word for a project about words. It seems to me they're mostly studying memes - for which there is already an established term: memetics. Nevertheless, the latest output from the project is brilliant. Their Ngram Viewer enables the user to track the historical usage of 500 billion words from millions of books in different languages. According to the folks in Google:
Since 2004, Google has digitized more than 15 million books worldwide. The datasets we’re making available today to further humanities research are based on a subset of that corpus, weighing in at 500 billion words from 5.2 million books in Chinese, English, French, German, Russian, and Spanish. The datasets contain phrases of up to five words with counts of how often they occurred in each year.
In others words: hours of endless analysis - or distraction, depending on your viewpoint. Here are just a few I looked at. Firstly, look at the word 'Ireland':

1916 was our 'moment in the sun' in terms of the global zeitgeist, though there has been an interesting up-tick in the trend since the late 1990s.

On a more philosophical note, it is interesting to compare the cultural trend in the words 'Freedom' and 'Equality'. First from books in the English language:

Freedom has weighed more heavily in the English speaking world than Equality, though the former seems to have peaked in the 1960s, whilst equality has also been on a downward trend since the late 1990s. But let's not be culturally myopic. The next chart shows the trend for Freedom and Equality in Russian language books:

Spot the fall of the Iron Curtain. And note the collapse in references to both Freedom and Equality over the past decade. A certain disillusionment setting in perhaps?

What stories - and memes - will you discover?

Thursday, December 16, 2010

Tuesday, December 14, 2010

America's Ireland

My company - Amárach Research - has just completed a fascinating study of Irish Americans. We conducted it in partnership with

You can read Irish Central's Niall O'Dowd on the survey findings here.

And these are the main results:

In the Boston vs Berlin debate, I suspect we'll all be feeling closer to the former than to the latter over the next few years...

Saturday, December 11, 2010

Cultural Neoteny

Theodore Dalrymple blames the Catholic Church in Ireland for the recession. Or rather, it's demise:
The Irish are right to think that the crisis is more than economic, that it is existential; but they are wrong to think that it is specifically or mainly Irish. It is, in fact, a crisis of western man who cannot control his appetites, who wants today what only the labour of the future can supply, or supply honestly. Western man is, in effect, a child.

In my own country, for example, there has been a decisive shift in attitude to debt within my lifetime. The British people are now among the most incontinent and childish in the management of their own affairs of any people in the world, which is why they are so deeply indebted for what are, essentially, trifles...

What had effected this change? I suspect that the decline of religion, both as a system of belief and a system of social control, has something to do with it. (Is it really a coincidence that the Irish crisis has struck at precisely the same time as the total evaporation of Catholicism’s influence in Ireland?) I say this as someone without religious belief. But where there is no belief that life has transcendent purpose, that there is in effect more to life than this life itself, it is hardly surprising that people – that is to say, many people - take as their philosophy ‘Apres nous, le deluge.’ The problem is that the deluge may not be apres nous.
It isn't just our attitude to debt that is childish. Our attitude to diet appears equally incontinent. Hence the news that we are the second most obese people in Europe after - you guessed it - the British. What appears to be happening is a form of cultural neoteny. Neoteny is a biological/evolutionary phenomenon, whereby adults of a given species evolve to retain physical features previously only associated with the juveniles of their species. Clive Bromhall wrote a fascinating book a few years back about human neoteny, called The Eternal Child.

But now it appears neoteny has jumped from human evolution to human culture. Hence the childlike inability of a growing number of adults to behave like, well, adults. But I doubt it's all the Catholic Church's fault. The phenomenon of cultural neoteny is too widespread throughout the developed world for that and related explanations to suffice. I suspect rather it is the profound re-engineering of the family, gathering pace over the past fifty years or so, that is a more significant contributor (though again, not the only one). Conservative blogger A Letter to The Times blames the now mandatory participation of mothers in the workforce (along with co-ed education interestingly enough), as she notes that:
Indeed, this notion that women need to be wage slaves in order to be fulfilled and that left without interference, the natural Rousseauan goodness of children were shine through, has led to the breakdown of one of the most fundamental elements of the social contract. The tacit agreement has always been, “I will train my children to be fit associates and spouses for your children, and you shall do the same for me.” Only a tiny fraction of people are currently doing this. And let it be said, those few parents who are trying must contend with literally millions of people who are laboring hard to thwart their efforts.
I'm not as pessimistic about the state of parenting in Ireland as she is about the UK. Or even about the impact of mothers in the workplace - most manage to fit work around their family rather than the other way round. But with the IMF now valuing paid employment for mothers ahead of unpaid parenting, and not just in Ireland, then our adventures in cultural neoteny look set to continue.

Friday, December 10, 2010

Beyond Blarney

Faced with adversity the English would famously display a stiff upper lip.What about the Irish? We used to turn adversity into blarney: World War II was just an 'Emergency' sort of thing. Sure it's bad, but it's not that bad.

But the English lost their stiff upper lip a long time ago (permanently, after the death of Princess Diana) and now the Irish have lost their blarney. Sometimes things really are that bad. As I observed recently, the Irish people's psychological connection with the future has been severed by adversity, and like all wounds it's going to take time to heal.

One measure of the wound comes from my company's latest report on the mood of the nation. The two charts below show the percentage of adults each month who experienced any of the listed feelings 'a lot of the day yesterday'. We've been tracking the answers since April 2009, and in the November 2010 wave the percentage experiencing stress exceeded the percentages experiencing enjoyment or happiness for the first time ever. All other negative emotions - including anger - reached their highest levels since we began measuring them.

The fieldwork for the November wave of research coincided with the IMF visitation, as well as the onset of the bad weather. Perhaps the results are not that surprising come to think of it.

But I wonder if something deeper is happening? After three years of recession, with the prospects for recovery disappearing over the horizon, have we just had our 'Princess Di' moment? And if things are no longer 'grand' then what are the consequences for our future? The danger as I see it is that we may be near (or even beyond) a tipping point in terms of 'contagious pessimism'. Once despair becomes endemic, it can quickly morph into even more harmful patterns of behaviour. Like the mass emigration of our young people even when there are options for (many of) them at home ('sure everyone is leaving').

If we are faced with contagious pessimism then we quickly need a countervailing epidemic of optimism. About which I will have more to say in a future post.

Image credit: Grand Grand Grand Grand

Thursday, December 9, 2010

Mutual Obscured Destruction

Could World War III be fought and won while the rest of us are asleep? It may seem an absurd suggestion, but that's one scenario put forward recently for the end of the American Century by 2025:

It’s 11:59 p.m. on Thanksgiving Thursday in 2025. While cyber-shoppers pound the portals of Best Buy for deep discounts on the latest home electronics from China, U.S. Air Force technicians at the Space Surveillance Telescope (SST) on Maui choke on their coffee as their panoramic screens suddenly blip to black. Thousands of miles away at the U.S. CyberCommand's operations center in Texas, cyberwarriors soon detect malicious binaries that, though fired anonymously, show the distinctive digital fingerprints of China's People's Liberation Army.

The first overt strike is one nobody predicted. Chinese “malware” seizes control of the robotics aboard an unmanned solar-powered U.S. “Vulture” drone as it flies at 70,000 feet over the Tsushima Strait between Korea and Japan. It suddenly fires all the rocket pods beneath its enormous 400-foot wingspan, sending dozens of lethal missiles plunging harmlessly into the Yellow Sea, effectively disarming this formidable weapon.

Determined to fight fire with fire, the White House authorizes a retaliatory strike. Confident that its F-6 “Fractionated, Free-Flying” satellite system is impenetrable, Air Force commanders in California transmit robotic codes to the flotilla of X-37B space drones orbiting 250 miles above the Earth, ordering them to launch their “Triple Terminator” missiles at China's 35 satellites. Zero response. In near panic, the Air Force launches its Falcon Hypersonic Cruise Vehicle into an arc 100 miles above the Pacific Ocean and then, just 20 minutes later, sends the computer codes to fire missiles at seven Chinese satellites in nearby orbits. The launch codes are suddenly inoperative.

As the Chinese virus spreads uncontrollably through the F-6 satellite architecture, while those second-rate U.S. supercomputers fail to crack the malware's devilishly complex code, GPS signals crucial to the navigation of U.S. ships and aircraft worldwide are compromised. Carrier fleets begin steaming in circles in the mid-Pacific. Fighter squadrons are grounded. Reaper drones fly aimlessly toward the horizon, crashing when their fuel is exhausted. Suddenly, the United States loses what the U.S. Air Force has long called “the ultimate high ground”: space. Within hours, the military power that had dominated the globe for nearly a century has been defeated in World War III without a single human casualty.

All very exciting in a Halo 3/Call of Duty sort of way. But the less exciting, though equally dangerous reality of cyberwar in 2010 is getting a lot of attention right now. The latest dispatch from Stratfor has a fascinating piece on China and its double-edged cyber sword. It turns out that:

  • China has 40,000 police dedicated exclusively to monitoring Chinese internet traffic and websites.
  • China's PLA have separate divisions focused on cyberwar: one offensive, the other defensive - they are reckoned to be the best hackers in the world.
  • There are 400 million internet users in China.
  • The Chinese government encourages/indulges nationalist groups of Chinese hackers - 'hacktivists' - to target critics of China and its policies around the world.
There have been low profile 'skirmishes' in the obscure world of cyberwar/espionage recently, including the 'accidental' re-routing of 15% of the world's entire internet traffic through Chinese servers for over 15 minutes last April. And of course the Wikileaks saga has brought home to most governments (especially the United States) just how important net security is from a national security perspective.

Already China is a major internet power - for example, Tencent is much bigger than Facebook - though you likely haven't heard of the former (read more in another excellent analysis from Mary Meeker). But as Stratfor points out, it is a double-edged cyber sword. Turns out that China is the world's largest market for software piracy: 79% of all software sold in China last year was pirated it seems. And there's the other edge: vast tracts of China's economy, government and military are using unlicensed software (it's cheaper after all), with no security patches or updates (since only the licensed ones get those). So what? Here's what: apparently Stuxnet was able to penetrate Iran's nuclear facilities operating software because the Iranians were using unlicensed versions of Siemens software.

But the really scary thing - as illustrated in the scenario at the top - is that in cyber warfare, as in nuclear warfare, there is a real, strategic incentive to 'get your retaliation in first'. The first mover advantage can make you the last mover as well.

Bet that took your mind off the IMF and senior bondholders for a while. Sleep tight.

Tuesday, December 7, 2010

A Future We Can Believe In

Work as if you lived in the early days of a better nation.
Alasdair Gray
The Irish people's psychological connection with the future has been severed. Sure, the demise of the Celtic Tiger and its get-rich-quick promises was abrupt and precipitous. But that bereavement was waked and buried long ago. And yes, it has been a tough three years of recession, cut backs and uncertainty. But we've experienced worst (some of us several times). No, something else has happened and I'm not sure that there's a precedent in our recent history.

We no longer have a shared narrative about our future as a nation - one that we tell one another about our lives, our communities and our country. In recent generations that binding narrative was about Europe. About our place in an evolving Union of peoples who shared a common desire to build a peaceful and prosperous Europe, as well as a desire to embrace other peoples willing to share the same ambitions.

But the European Project is dead. The shameful and shaming deal foisted on Ireland by the ECB/EU/IMF has killed the Irish romance with Europe. Sure it was a self-serving romance at times, but our enthusiasm for the euro and for most other manifestations of 'Europeaness' (from kilos to kilometres) suggested something more than calculated self-interest. We are a small country that has, in recent generations, embraced the fullest role possible for Ireland in the world. Europe was our chance for exaltation among the nations.

Worse, the very deal itself, with its offer-you-can't-refuse options, now locks Ireland into a programme for failure. By burdening the Irish taxpayer with the liabilities of the ECB and the bondholders in Irish banks then there is no, credible path to sustainable recovery for a country with even Ireland's productive capacity. Without that burden we could have regained the path - making the necessary adjustments to the size of the state along the way. But now the day of reckoning - be it default or debt forgiveness - has been postponed but not cancelled.

In a way, today's Budget 2011 is simply a distraction. The country is in receivership and the ECB appointed receiver is allowing the existing management team to continue trading so long as they expedite the repayment of all secured loans.

It doesn't have to be this way. Ireland is a sovereign nation (still) - not a company subject to the whim of court-appointed receivers. We need to look beyond an accountant's book-keeping exercise in the form of a four year 'recovery plan' and instead map out our nation's path to destiny. Put simply, there is only one duty that befalls each generation - to bequeath a better country than the one we inherited.

Dieter Helm has been writing about a new way of determining the programme of the state, of the nation and the people who comprise it. Here's what he says in a new essay:
The twentieth century has left us with states which have grown so much that they now account for around half the total economies of Europe. This growth has been in response to a combination of democratic preferences for ever greater transfers, and to the irresponsibility of Keynesians in respect of fiscal policy. Over time a greater and greater mortgage has been written on the future – on the mistaken Keynesian assumption that the long run would take care of itself, because economic growth - measured by GDP - would make future generations much better off than current ones. Borrowing from the future to boost current consumption is only desirable if sustainable growth is assumed to be high enough – after accounting for the state of the assets being transferred to the future.

The growth of the state has, since the beginning of the twentieth century, indirectly added significantly to that mortgage. ...Current consumption is not sustainable – or put another way – savings and investments are too low.

The task in reconsidering the economic borders of the state is to design the intergenerational bargain in a way which maintains sustainable consumption through time. A significant part of this bargain is to ensure that the physical and social infrastructure inherited by the next generation is at least as good as the one the current generation inherited. (my emphasis added)
There is next-to-nothing in today's Budget that signals any awareness of our obligations to the next generation. Yes, we have an obligation not to burden the next generation with intolerable debts (especially debts incurred to fuel conspicuous consumption and mal-investments). So paying down our debts (public and private) is economically necessary and morally imperative. But - instead of judiciously selecting those expenditures that will deliver on our bargain with the next generation - we get cuts to child benefit but not to pensions, and the protection of middle class university access whilst support for the educationally disadvantaged is slashed.

So what is to be done? We need to create a future we can believe in. We need leaders - political and non-political - to set out a compelling vision for our country in 2020 (I've put forward a few suggestions myself before) that delivers on our commitment to the next generation. And if that means replacing two year bonds held by senior bondholders with shiny new, low interest 50 year bonds with a balloon payment at the end for good behaviour, then so be it.

We need to heal our psychological connection with the future. And the best balm is that provided by story: especially one that paints a compelling picture of how these dark days can become the early days of a better nation. And our children and grandchildren will wonder at the amazing things we achieved in the face of such adversity.

What future will you bequeath?

Sunday, December 5, 2010

Hearts & Wallets

One thing is becoming clear as the next General Election approaches: the Irish have their hearts on the Left, but their wallets are on the Right. How else to explain the findings - in multiple polls - that the Irish electorate favour Labour's Eamon Gilmore among political leaders but want Fine Gael's proposed policy mix to address the budget deficit, i.e.: mostly spending cuts with just a few tax increases? And no, it's not just the 'Inda' factor. The Irish want a high minimum wage, generous state pensions for the elderly and a commitment to our overseas aid objectives. But we also want to tear up the Croke Park agreement, cut the wages of civil servants and get rid of all the quangos. In a nutshell: high spending, low taxes. A winning formula to be sure (it got Fianna Fail re-elected several times, come to think of it).

But now that the country is in receivership (at the behest of the ECB: Ireland's primary debenture holder), we can no longer get what we want - only what we can afford. And there's a large gap between the two, as the chart from True Economics makes clear. Tragically it has taken the advent of national receivership to bring about changes - including the dismantling of anti-competitive practices in the sheltered sectors of the economy (by Q3 2011 according to the memorandum signed by our negotiators) - that we should have been capable of delivering ourselves. Nevertheless, these changes will be welcomed, even if it is galling to have to report like parolees to the authorities every quarter on our progress towards rehabilitation.

Irish hearts will harden in the months and years ahead, especially as our wallets and purses feel emptier. But we will retain our innate compassion and capacity to support one another in our families, communities and voluntary organisations. Even if we are less empathetic towards our shrinking State.

The party that champions a credible combination of policies that appeal to Irish hearts and wallets will be the biggest winner at the next General Election. And the one after that.

Friday, December 3, 2010

Wait and See

It's just a thought: rather than sign the IMF/ECB/EU deal why not wait and see? After all, we kept being told we had sufficient funding until the middle of next year for day-to-day public expenditure purposes before the IMF came along with their take-it-or-take-it offer.

Irish ten year bond yields are falling (Spain's are down to 4.86% - source: Bloomberg), so why sign up to an ultimately unaffordable deal costing 5.83%?

Maybe we should, em, borrow from Spain?

In The Long Run

Sometimes, in the face of extreme uncertainty, it is important to step back in order to see the bigger, longer term picture. And it helps if you have the resources of the BBC at your disposal. This is both brilliant and inspiring:

ht Cafe Hayek

Wednesday, December 1, 2010

Global Cooling

I know the weather's bad, but this is ridiculous:


Deflate the Debt

Where's Bono when you need him? The man who railed against the bondage of immoral and unjust debts has been strangely silent about Ireland's own descent into debt bondage. Let's face it, we're going to need Bono and few more besides to make the case for debt forgiveness for Ireland. Unless we want to form a new category of 'formally developed' countries.

The scale of the task is immense. The table - from VoxEU today - shows Ireland to be an outlier once again. The Liability/GDP column is the authors' calculation of the potential losses arising from a banking shock in each country. Only in Ireland is the ratio bigger than that for national debt to GDP.

It is fairly clear: we have to deflate our debt, and our options are limited. Michael Pettis provides a useful summary:
Similarly any country whose debt levels are too high, so that it faces financial distress costs that will force a slowdown in growth and an unsustainable rise in debt, will have to improve it’s relative ability to repay. In that case there are also roughly three ways it can do so:
  • It can regain control of monetary policy by abandoning the euro in favor of a local currency, and then inflate the debt away.
  • It can default or threaten to default on the debt, and receive significant debt forgiveness.
  • It can regain fiscal credibility by raising consumption or value-added taxes, by raising income taxes, probably on businesses since it will be hard to raise income taxes on households, or by cutting expenditures sharply, probably social welfare expenses.
There is I guess a fourth way – the country can “grow out” of its debt burden – but although we will hear this fourth way invoked a lot, I think we can safely ignore it. High debt levels themselves prevent growth by encouraging disinvestment and altering the incentives for investors and creditors in ways that punish growth...
The ongoing collapse of borrowing by businesses and consumers clearly indicates that growth-preventing, debt-fuelled disinvestment is well under way in Ireland. It looks like we'll need all the help we can get to deflate the debt. Even from rock stars.

Sure I can see it now: the 'Deflate the Debt' gig in Phoenix Park. The greatest line up of Irish and international musical talent ever. It would even be something to look forward to next summer as we freeze our way through the winter.

So over to Bono (and Bob).
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