Sunday, January 31, 2010

Trickle Down Employment

A man willing to work, and unable to find work, is perhaps the saddest sight that fortune’s inequality exhibits under this sun. Thomas Carlyle
Between now and 2016, male unemployment - especially that of young men - will be the defining issue for a Republic that guarantees 'the happiness and prosperity of the whole nation'. The Smart Economy strategy is part of the solution - but as Stephen Kinsella points out, this is merely a strategy of 'trickle down employment' that fails directly to address the most pressing problem. That problem is the large number of young men - unskilled or with the wrong skills - comprising a large part of our live register.

Solving that problem will require a combination of imagination and bravery. Stephen's idea for municipal bonds is one example of an imaginative solution. But we need to be brave as well. That will entail a bold attack on the barriers that prevent the employment of young people. The reality is that, as a nation, we do not want for tasks to gainfully employ our youth. Take Lew Rockwell's observations for the United States:

All this talk of unemployment is preposterous. Think of it. We live in a world with lots of imperfections, things that need to be done. It has always been so and always will be so. That means that there is always work to be done, and therefore, always jobs. The problem of unemployment is a problem of disconnect between those who would work and those who would hire.

What is the disconnect? It comes down to affordability. Businesses right now can't afford to hire new workers. They keep letting them go. Therefore, unemployment is high, in the double digits, approaching 17% or more. Among black men, it is 25%. Among youth, it is 30% or higher. And the problem will continue to spread so long as there are barriers to deal making between hirers and workers.

Again, it is not a lack of work to be done. It is too expensive to pay for the work to be done.
It's down to basic economics: if you want to increase the demand for something, lower its price. What are the things that influence the price of labour in Ireland right now? The first of these is the minimum wage. As I've explained before, the minimum wage is a barrier to entry that prevents small businesses from setting up in competition with larger, incumbent businesses and undermining their profits. The hilarious thing is that left wing champions of the minimum wage are actually championing higher profits for big business! At least, it would be hilarious if the consequences in terms of the wasted lives of so many young people were not so tragic.

But there are other, more pervasive and insidious costs that push up the price of labour - especially the price of unskilled labour. These include the disgrace of employer's PRSI: a tax that, as an employer, I must pay to the state - on top of employees' wages - simply for hiring people to work for me (8.5% in the case of the lower pay bands). It's a form of VAT on employment, and as our Minister for Finance discovered last year, when you increase VAT in the face of falling demand then you will find yourself losing rather more revenues than you thought you would gain. Then, of course, there are the many, many rules, regulations, laws and standards that employers are obliged to observe in the course of a) hiring and b) employing someone. As NERA reminds us, employees have rights but employers only have responsibilities.

Now all of this, of course, is designed to prevent a re-run of Strumpet City and the Dublin Lockout of 1913. Or something like that. Apparently if it wasn't for the NERAs of this world, the workers of Ireland would be back living in one-family-per-room tenements as the greedy employers lived the life of the faux gentry. Or maybe some imagine we'll end up back in the zero-sum economy of 1730 when Richard Cantillon explained:
If all the Labourers in a Village breed up several Sons to the same work there will be too many Labourers to cultivate the Lands belonging to the Village, and the surplus Adults must go to seek a livelihood elsewhere, which they generally do in Cities: if some remain with their Fathers, as they will not all find sufficient employment they will live in great poverty and will not marry for lack of means to bring up children, or if they marry, the children who come will soon die of starvation with their Parents.
Meanwhile back here in the 21st century employers face a very different reality. The same Richard Cantillon pointed out a long time ago that 'the entrepreneur is the person who buys at a known or certain price to sell at an unknown or uncertain price'. The same goes for the purchase of labour. The only certainty I face as an employer is the price I will have to pay my employees in the form of wages and salaries. What I will then be able to earn by employing them to meet the needs of my customers is highly uncertain. But every increase in the price of labour then increases the uncertainty that I and other employers face with regards the future. The window of success - wherein the price I charge exceeds the price I pay - gets narrowed to the point where hiring more staff is no longer merely risky but increasingly looks foolish.

Everything that increases the cost of employing the young and the unskilled therefore guarantees that they will remain unemployed. And that is a tragedy. By preventing them from getting on the ladder of employment and job progression - with the prospect of higher wages and salaries that experience and training will bring - then we effectively deny them a future. That's not just a tragedy, it's a disgrace.

It is time for Cantillon's heirs - Irish academic economists - to be brave and to demand the removal of those 'taxes on jobs' that presently condemn a generation of young men to a fate no more rewarding than that of Cantillon's labourers and their sons.

POSTSCRIPT

I meant to add that the chart is from the latest Eurostat figures for unemployment in Europe. More disturbing is the table accompanying the chart on youth unemployment - which shows that Ireland has the second highest level in the eurozone and fourth highest in the European Union. Note also that Ireland has the highest gap in the EU in terms of male versus female unemployment - 17% vs. 9%. Hence my focus on male youth unemployment - just in case the feminist mutaween think I'm guilty of sexist thought crimes etc.

Thursday, January 28, 2010

Macro versus Micro

The macro versus micro story of Ireland's recession-recovery cycle continues. My company's latest AIB-Amárach Recovery Indicator for January 2010 shows signs of a sharp improvement in the main recovery indicator - the biggest jump since May last year. For the first time a majority of Irish people expect that 'Ireland will be through the worst of the recession in twelve months time'. It may be seasonal (a 'happy' start to the New Year and all that), we won't know until we've got another year plus of results under our belt.

On the other hand, people are no more relaxed about spending money than they were through most of 2009, and paying off debts is still the main financial priority. Though sentiment might be improving, behaviour will have to change too if 'hope' is to become reality.



More at AIB's website.

Wednesday, January 27, 2010

Vested Interests

I am more hopeful about the future of Ireland's middle class than David McWilliams. David frets in today's Irish Independent that:

Fianna Fail has placed the middle classes in a 'debtor's prison' and, what is more egregious, it has given the middle classes the bill for the mistakes of Fianna Fail's developer mates because it is obsessed with keeping the banks afloat in their present crippled state.

This 'debtor prison' approach to financial mistakes will bankrupt the middle classes. Today the average Irish family owes €132,000 to the banks. This huge debt overhang, taken together with tax increases and cuts in real wages plus the prospect of families supporting their unemployed children who are living at home, and what we are looking at is nothing less than the shattering of the Irish Dream.

The Irish Dream, like the American Dream, is based on the notion of a progressive conveyor belt of prosperity whereby each generation becomes better off than the generation that came before them. It is an idea rooted in the expectation of progress and the hope that aspirations can be translated into real results, traditionally with the help of increased family investment in education.

I think he overstates his case. Firstly, the average family's debt obligations are the equivalent of just 2.7 years of average household disposable income (€49,043 according to the CSO's SILC 2008 report). Sure, the average family could not afford to pay off its debts in one fell swoop - but who could? Most of their debts are long term mortgages. They will be paid off by the middle classes over time just as they always have been.

Nor is there anything in the current circumstances that severely hinders continuing investment in education. We already have the highest level of share of population in education of any country in the European Union (according to Eurostat), and our level of participation in education beyond the compulsory school age is also high (85% of Irish 18 year olds are still in education versus just 50% of British and German 18 year olds).

I think the Irish middle class are made of tougher stuff than David gives them credit for. They need to be, for they are the bulwark of freedom in any democratic society. James Poulos has it right I reckon:
For Aristotle, the presence of a middle class was essential to political liberty. The typical explanation of why focuses on the way that Aristotle’s middle class combined a bourgeois interest in stability with a rather upper-class property interest. Unfortunately, the typical explanation stops here; few bother to ask why middle-class people have these interests as a rule. What is the specific characteristic middle-class interest in stability and property, and what is driving it? I think the plain answer is that the middle class is defined by middle age — by those who are no longer young but not yet old ... I can’t conceive of a middle class defined by middle age whose particular interests in stability and property aren’t defined by the creation and/or continuance of family. The middle class, conceptually and in practice predominantly, is the class of people who are starting to have kids and raise them.
As it happens, Ireland is one of the few developed countries with a birth rate above replacement levels (the United States is another one), indicating a thriving middle class. We are producing plenty of the 'ultimate resource' - as Steven Malanga puts it - which means that we will have available the key resource in expanding productivity and prosperity in the years ahead. He quotes Greg Mankiw's observation that “Those who fear overpopulation share a simple insight: People use resources. The rebuttal to this argument is equally simple: People create resources.”

And so it goes with the Irish middle class: we create resources (including more members of the middle class). And in doing so we have a vested interest in liberty. Though I do agree with David on this: if we are wise we'll ensure we don't (continue to) elect politicians who then squander the wealth and resources we create.

By the way, here's one example of middle class creativity, from a time when people had rather fewer assets than we do today - happy birthday Wolfie!

Tuesday, January 26, 2010

Rapping On Recovery

A layman's guide to Hayek vs. Keynes - or make that the Snoop Dog/Ice T/gangsta guide:



via: Econstories.tv

Now I wonder if you did a version for Ireland who would it feature?

Monday, January 25, 2010

A Clever Plan

Recession, floods, snow, water shortages. But it could be worse. What if we were about to be invaded?

Seventy years ago - in 1940 - Ireland faced the prospect of invasion: and not just by the Germans. In his thought-provoking book What If? Alternative Views of Twentieth-Century Ireland Diarmaid Ferriter reminds us that Irish defence forces were so weak (no anti-aircraft weapons, no armoured vehicles and just 7,000 poorly armed soldiers) that the British government worried they might have to invade the Free State in order to 'protect' it from a German invasion. Going so far, Ferriter explains, as to issue tri-colour armlets to British soldiers based in Northern Ireland at the time.

But the Irish had a clever plan - as we are reminded by the delightful map above from Strange Maps - namely to dissuade any prospective invader by making the country seem so unattractive as to not be worth the bother of invading. And it worked, apparently. Which is why I'm free to write about it and you're free to read about it.

Puts our own problems in perspective, come to think of it.

(BTW: if you like alternative Irish history then you'll enjoy the RTE archive of 'What If?' lectures from recent years.)

Saturday, January 23, 2010

An Inquiry into Ignorance

The proposed banking inquiry (or rather, two reports preceding a Statutory Commission of Investigation) may well have therapeutic value. Blame will be allocated; the past will be put behind us; we'll move on.

But I'm not expecting much else. Certainly not more original and more accurate insights into what actually happened than we have already. Nor am I expecting the main players in the catastrophe - the bankers themselves - to shed any more light on the matter.

The usually brilliant Epicurean Dealmaker gives an insight into the nature of the people - bank CEOs in the main - at the centre of the financial storm in the United States in a recent post:
They are damn smart; scary smart, in fact. You don't get to the top of the greasy ladder of a major global investment bank's executive suite by being dull, incurious, or lethargic. People like that get sliced to ribbons and thrown into the chum bucket in my industry before they reach Managing Director, if they ever get inside in the first place. These guys got game, people. Serious game. You would be foolish to doubt it.

But they also have absolutely no interest whatsoever in the whys and wherefores of the financial crisis, the proper size and role of banks and investment banks in the domestic economy, or the moral imperatives inherent in stewarding the financial plumbing undergirding the daily lives and livelihoods of six billion people. For one thing, they don't have time to worry about such things. Most of a senior bank executive's time is consumed competing against other scary-smart investment bankers and executives at other firms, who are hell-bent on grinding his bones into dust beneath their bloody heels, while trying to prevent his own firm from flying apart under the internal stresses generated by thousands of egotistical prima donnas all scrapping for more than their fair share of the pie. There is too much going on, and unrelenting change comes too fast and furious to allow quiet contemplation of the order of things.

... For another thing—and because the volatile, high velocity nature of the business attracts such people—the people who go into the industry are not really interested in thinking deeply about why things are the way they are. You will almost never find an investment banker "sicklied o'er with the pale cast of thought." It's just not in their genetic makeup to be reflective, introspective, or speculative in an intellectual sense. Investment bankers have almost no interest in why things are the way they are. Rather, they spend all their considerable intellectual and psychological resources on understanding how they can take advantage of the way things are.
So there you have it. The banking inquiry will be an inquiry into ignorance - or 'known unkowns' if you prefer. In which case the results are a foregone conclusion, even before we find "an independent 'wise' man or woman with relevant expertise" to lift the veil.

Friday, January 22, 2010

In The Long Run

Sometimes you need to stop reading the headlines and start reading the trends. And one of the most significant trends affecting the human race is the steady reduction in levels of poverty, even as the human population increases. This chart is from a fascinating paper (by Maxim Pinkovskiy and Xavier Sala-i-Martin) over at VoxEU exploring long run trends in poverty and inequality.

As the authors note:
Although world population has increased by about 80% over this time (World Bank 2009), the number of people below the $1 a day poverty line has shrunk by nearly 64%, from 967 million in 1970 to 350 million in 2006. In the past 36 years, there has never been a moment with more than 1 billion people in poverty, and barring a catastrophe, there will never be such a moment in the future history of the world.
Something to celebrate surely? What's more, the authors point out that global income inequality is also declining, as it is in most EU countries, including Ireland. The main driver of this welcome trend is not income re-distribution but capitalism-induced economic growth. Just as it has been in Ireland - the Celtic Tiger made Ireland a more equal society, despite protestations to the contrary by the headline writers. The latest CSO SILC statistics confirm this:



In the long run we're all better off with capitalism. Though I'm not expecting to read that in the headlines any time soon ...

Wednesday, January 20, 2010

We Who Are Alive And Remain

These are not good times for freedom. This from Freedom in the World 2010:
In 2009, declines for freedom were registered in 40 countries, representing 20 percent of the world’s polities. In 22 of those countries, the problems were significant enough to merit downgrades in the numerical ratings for political rights or civil liberties. Six countries moved downward in their overall status designation, either from Free to Partly Free or from Partly Free to Not Free. The year also featured a drop in the number of electoral democracies from 119 to 116, the lowest figure since 1995.
So much for the 'end of history' (image via The Economist twitter feed). Still, it is gratifying that despite the economic shock we have experienced in Ireland we are still amongst the freest countries, in terms both of political rights and of civil liberties.

And to add some icing to the cake, we learn today that Ireland ranks 5th in The Index of Economic Freedom World Rankings. Curiously, 7 of the top 10 nations in the world rankings are former British colonies ... though the UK itself has fallen to a lowly 11th position. It isn't doing great on the civil liberties front either come to think of it.

Thomas Paine once observed that:
Those who expect to reap the benefits of freedom, must, like men, undergo the fatigue of supporting it.
Too often we forget this: we wear our freedom lightly and forget the price paid to obtain it. And I don't just mean the price paid by Irishmen in our country's past but also by others. For example by the men of Easy Company immortalised in the magnificent TV mini-series Band of Brothers (a far more compelling production than the disappointing Generation Kill). As the 'biographer to Easy Co' Marcus Brotherton put it:
I came to see soldiers as men willing to lay down their lives for the sake of others. They fight for themselves and the generation under immediate attack, but certainly they fight for the futures of free peoples. Decades beyond World War II, I am one who benefited. That I can vote in presidential elections and not bend my knee to Hirohito’s grandson is testament to the enduring work of veterans. That I can write books for a living instead of sweating in a Third Reich factory is a product of Allied triumph.
And, I might add, the freedom to write blog posts celebrating our freedom. May I never take it for granted.

Monday, January 18, 2010

The Mother of All Inventions

Sweet are the uses of adversity.
William Shakespeare
It’s being hailed as the best thing since Sellotape and Blu-tack. And it was invented by an Irish woman - Jane Ni Dhulchaointigh. I’m talking about Sugru of course, and I suspect we’ll all be talking about it before long. It’s one of those so-simple-it’s-ingenious inventions. The kind that makes the inventor rich and the rest of us better off because of the benefits the invention brings (even if we’re a little jealous for not having thought of it ourselves ;-)

It’s also a great example of how necessity inspires invention. I like Gerald Celente’s suggestion in his latest Trends Journal (subscription via Trends Research Institute) that the Great Recession will unleash a ‘mother of inventions’ explosion of invention and innovation, mostly by those outside of the shrinking ‘orthodox’ economy but with the 21st century tools to remake their own lives and communities.

Sugru’s strapline – Hack Things Better – captures that spirit perfectly I reckon.

Another Sarajevo?

The significance of an event is sometimes only obvious in hindsight, like the assassination of Archduke Franz Ferdinand on 28th June 1914. The story featured the next day on page seven of The Irish Times. Not only did it trigger World War 1 and the death of ten million men over the next four years (including 35,000 Irish men), it marked a high water mark for globalisation. Indeed, it wasn't until the end of the twentieth century that the same level of globalisation was once again attained.

This should remind us that there is nothing inevitable about globalisation. It should also remind us that events regularly refute 'destiny'. The recent spat between China and Google is just such an event. Not the start of a war, but maybe a rehearsal for one. If code is law then hacks are war as one commentator put it. Should Google leave China then it's the same as China 'leaving the world'. In other words, if China continues with its mercantilist economic strategy in combination with aggressive territorial posturing (Taiwan, Tibet for example) then code wars could quickly become cold wars and thence hot wars.

A big 'if' of course. And yet there is nothing in China's behaviour abroad that signals anything other that a 'China First' strategic intent. Maybe it's just the natural order of things - or rather a 250 year long, cyclical fate of empires. Their quarter-of-a-millenium-long 'day in the sun' is only just beginning. Ireland, of course, is tied into China's destiny as well. For example, the value of our imports from China is three times as large as our imports from Northern Ireland, and our exports are twice as large.

The Great Recession seems to have exacerbated global imbalances rather than 're-balanced' them. As Roger Bootle points out today, China's strategy seems guaranteed to raise protectionist demands in the United States. Such a move will be easy to defend politically, if not economically. The fact that we have so far avoided a trade war is one important sign of hope in the current crisis. But it is a fragile hope. Thomas Rustici pointed out in a recent EconTalk podcast, that the protectionist measures of Smoot-Hawley back in 1929-30 moved in lock-step with the collapse of the stock market and the onset of the Great Depression. In the end it was the decision of 16 putatively pro-free trade senators to 'switch sides' and approve Smoot-Hawley that brought on the Great Depression.

The recent WEF Global Risks 2010 report did identify the threat from protectionism as an important one, by either developed countries or developing countries:



It also mentions the risk from hacking, by the way (or Critical Information Infrastructure - CII - Breakdown, in the jargon). The tensions arising from the Google-China stand off may not amount to another Sarajevo, but it creates an environment in which small things - events - have the potential to turn the seemingly 'inevitable' (globalisation) into the well-nigh 'impossible' (peaceful re-balancing).

Just ask your grandparents.

Sunday, January 17, 2010

From Heaven to Hell

I didn't know this:
Haiti, the “Jewel of the Antilles”, was once the richest colony in the world, providing half of France’s gross national product in the 1750s.
From the excellent OECD Insights Blog.

Saturday, January 16, 2010

A Life Quite Extraordinary

It's an age thing I guess, but I find myself increasingly interested in biographies. So I'm really enjoying a new blog: Dictionary of Irish Biographies, written by Bill Grantham and featuring daily vignettes about famous and not-so-famous Irish people. Delightful and incredibly informative stuff.

My interest is not just confined to Irish biographies. I came across the extraordinary life story of Chuck Yeager (pictured) on the superb Art of Manliness blog. I knew about Yeager from the movie The Right Stuff (featuring a perfect performance by Sam Shepard as Yeager). I just hadn't realised how extraordinary a man he truly was. I knew he was the first man to break the sound barrier, but I didn't know (or had forgotten) he had two broken ribs from a horse riding accident two days before - he didn't tell the doctor for fear they wouldn't let him fly! Though it was his war time exploits, including a daring escape through the Pyrenees after being shot down over France that was a revelation to me.

He once described his outlook on life thus:
You do what you can for as long as you can, and when you finally can’t, you do the next best thing. You back up but you don’t give up…I know too many people who have erected barriers, real brick walls, just because they have gray hair, and prematurely cut off themselves from lifelong enjoyments by thinking, ‘I’m too old to do this or that-that’s for younger people.’ Living to a ripe old age is not an end in itself; the trick is to enjoy the years remaining. And unlike flying, learning how to take pleasure from living can’t be taught. Unfortunately, many people do not consider fun an important item on their daily agenda. For me, that was always high priority in whatever I was doing…
General Chuck Yeager is still going strong at 86 years of age. His extraordinary life teaches us that all men face their own 'sound barrier' and by going through it we transform fear and risk into joy and success. If I get to 86 having lived a tenth the life that man has lived I will count myself truly blessed.

Friday, January 15, 2010

Acts of Gaia

We no longer talk about 'Acts of God' these days, but 'Acts of Gaia' figure more often in the media. Brendan O'Neill (no relation) makes the same point today over at Spiked. We (rightly) take offence at people like Pat Robertson blaming the horrors of the Haitian earthquake on 'pacts with the devil', but take no offence when white men (and their greedy capitalist consumerism) are blamed for the world's natural disasters.

The sheer scale of Haiti's tragedy is not a result of too much capitalism but of too little capitalism. As Anti-Dismal points out - in relation Don Boudreaux's observation that an equivalent magnitude earthquake near San Francisco killed only 63 people back in 1989 - that it's about wealth:
You may argue that stricter building codes are a major reason why the 1989 Bay Area quake killed far fewer people than did this week’s Haiti quake. But stricter building codes increase the cost of building and if you are poor and cannot afford expensive buildings you build cheap, less safe, ones. So you can have all the building codes you like, but people have to be wealthy enough to be able to afford to obey them, for them to work. Also buildings will get safer, even without building codes, as people get wealthier. The more wealth you have the more you have to protect and thus the more you are willing and able to spend on protecting it.
Compared to Haiti we are lucky to have the 'problems' we have here in Ireland. And for a disturbing insight into the problems that that poor, benighted country faced before the earthquake, see The Burden of Aid (whence the image above) via Aid Watch.

You can do your bit here.

Wednesday, January 13, 2010

Crime Causes Poverty

It seems this recession is challenging some old hypotheses about the relationship between poverty (especially unemployment) and crime. Causality used to go one way: from poverty to crime. But could it go the other way? In the United States, instead of a recession-induced crime wave there appears to be a crime wane. The same is happening in the UK.

The latest CSO statistics show a reassuring fall in violent crimes, shown in the chart. And while some categories are up - such as burglaries - and therefore 'explainable' in terms of rising unemployment; other, much bigger categories have fallen steeply such as criminal damage and disorderly conduct. So does economics influence crime?

Anti-Dismal argues that New Zealand economists are at a loss to explain the unemployment-crime relationship. But here in Ireland we have a better idea thanks to work at the Geary Institute. It all boils down to the supply of potential criminals: specifically, young men (key word here is 'potential' I hasten to add). But their supply peaked some years ago, and so the number of potential criminals is falling, as - coincidently - are the number of flathulach consumers.

Crime is still a problem, of course. Especially for its victims. But the other victims of crime are the families of the criminals. Families without fathers are more likely to experience poverty than those with fathers. Which is why providing jobs for young men is of such benefit to society: not just in terms of economics, but also in terms of family life and the next generation.

It's Only Natural

I'm a big fan of the poet-philosopher Fred Turner. I mentioned his delightful book 'Shakespeare's Twenty-First Century Economics' before.

He has had his latest book - Evolution and Natural Law - rejected by a number of publishers. It failed to fit into a convenient ideological boxes apparently. The story is here.

So he has decided to make it freely available on the excellent Scribd service here. I'm looking forward to reading it: his prose reaches the scales of poetry at times. You should read it too.

Tuesday, January 12, 2010

The Calm before The Calm

A few thoughts now that snowmageddon has been averted. Despite a media-hyped panic (followed by media speculation about why we were all so panicked!), I didn’t actually witness much panicking. Instead I witnessed neighbours helping neighbours, most people (and their families) enjoying the ‘change of scenery’, and local communities fixing local problems.

The last one is important. Dun Laoghaire Rathdown County Council did an excellent job keeping main roads and side roads open where I live. Many, many householders took on the task of keeping paths clear as well. And none of this involved central government. In fact, every time central government got involved (school closure announcements, for example), they just made things worse.

So what does this tell us? Firstly it tells us that we live remarkably privileged lives here in Ireland. Nobody died from the weather. Those at risk got looked after: by their families, neighbours or local emergency services. The media hyped it up but that just made it exciting: like watching a scary movie in the safety of your snug, warm home.

Secondly, people got on with their lives without any help from central government - because they didn't need any (and none was forthcoming anyway, come to think of it). Our research last month for the National Consumer Agency showed that two thirds of adults (67%) agree "despite the recession I feel I am enjoying life as much as ever". Same goes for the snow I reckon.

Daniel Bell once famously observed that in the future the nation state will be ‘too small for the big things in life and too big for the small things’. His forecast appears to be coming to pass with a vengeance here in Ireland.

Friday, January 8, 2010

An Ill Wind

I'm thinking of getting Minister Eamon Ryan a belated Christmas present: a subscription to Sky TV. On the day he was welcoming the announced reduction in gas prices by the CER - as a result, he explained, of surplus supply via the UK - the BBC was reporting severe gas shortages ... in the UK.

Of course it's a matter of timing: the weather has put extreme pressure on gas demand in the short term. The price cuts reflect long term trends (especially a demand-destroying recession). But the long term is made up of a lot of short terms, and when it comes to energy the short term has a habit of going in the opposite direction to the long term.

Take wind generation of electricity. In a (very) quiet moment I like to pop over to eirgrid to see how our long term progress towards a world-leading dependence on wind generation is going (i.e.: 40% of electricity from renewables by 2020). You can monitor our progress towards that brave new future on the eirgrid site: fifteen minutes at a time.

The problem with this ambition is evident in the graph which I've derived from eirgrid's site. Today, as electricity demand was escalating (top chart), wind generation was plummeting (bottom chart). By implication this means that dependence on renewables (mainly wind) will require a massive, back-up generation capacity in the form of non-renewables. And today isn't exceptional: check out Thursday, 8th October 2009 on the eirgrid site when wind generation fell to just 5 megawatts during the peak demand period (or 0.4% of the installed capacity of 1,396Mw).

What are the alternatives? The problem with our commitment to an unprecedented target of 40% renewables is that it effectively shuts down other, potentially more viable alternatives. As Richard Tol points out in a recent post on the Irish Economy blog: "nuclear and wind power do not mix well, because the amount of wind that Ireland is committed to requires a power plant that is more flexible than nuclear can be."

As the rock salt shortage is proving, trends that appears inexorable in the long run (global warming, apparently) may be entirely confounded by events in the short run. Gas prices may be the least of our problems in if we end up with an entirely 'unsustainable' renewable energy system in just ten years' time. Or even one month's time …

Wednesday, January 6, 2010

Narrow Escape?

2009 was the year of the swine flu. Sadly, 22 people died last year from swine flu in Ireland, according to year end reports. But it was not the worst year for flu in recent years - not by a long shot. Back in 2000, as the chart shows, more than twice that number died from influenza according to CSO mortality statistics. There were a total of 51 deaths attributed to influenza that year. 2009 certainly stands out by comparison with 2001-2008, but is on a par with 1997-1999.

So are we out of the woods yet? Was the great swine flu panic overdone (like all the other noughties panics)? Probably not. Although Ireland has had a less severe problem with swine flu than other countries (Iceland is the worst affected on a per capita basis); we need to be aware of the seasonality of influenza. The first quarter of every year is usually the worst for flu deaths: 49 of the year 2000's 51 deaths occurred in Q1 2000. The cold weather probably doesn't help (especially for the elderly, who remain the most vulnerable, swine flu or any flu).

So if you are in one of the vulnerable groups, it's not too late to get the vaccine. Better safe than sorry and all that.

Tuesday, January 5, 2010

South of the Border

Southern shoppers crossing the border to shop in Northern Ireland are known affectionately by the locals as 'the Mexicans'. That's the northern sense of humour for you (and I think it's funny myself, but that's probably just my roots showing ;-)

But here's the thing: the cross-border shopping panic of 2009 is now history. Even as the CSO was publishing its report showing the value of cross-border shopping rising to €435 million in the year to Q2 2009, deflation in the south coupled with continued inflation in the north was rapidly narrowing what I call the 'justification gap'. In other words, the value of money saved versus the cost of securing the savings is much, much narrower than before. The jump in UK vat rates this month has narrowed the gap further: and the wiser-after-the-event decision to reverse last year's stupid Irish vat increase will help too.

So perhaps now we'll see an end to taxpayer funded campaigns to 'buy (southern) Irish', such a that of the National Diary Council? The evidence elsewhere is that such campaigns are a waste of money (see Anti-Dismal on the very expensive lesson in economic reality that was the Buy Kiwi Campaign). No surprise there.

At the end of the day, it is better to let free trade bring the goods to shoppers rather than have shoppers cross borders to get the goods. Now that Lisbon's out of the way, maybe it's time to re-focus on the Single Market? That'll do more for Ireland's economic welfare than any amount of beggar-thy-neighbour protectionism. Just ask the Mexicans.

Monday, January 4, 2010

The Future will be Integrated

Robin Hanson on the future:
Truth be told, folks who analyze the future but don’t frame their predictions or advice in terms of standard ideological categories are largely ignored, because few folks actually care much about the future except as a place to tell morality tales about who today is naughty vs. nice. It would be great if those who really cared more directly about the future could find each other and work together, but alas too many others want to pretend to be these folks to make this task anything but very hard.
He's right of course. Most people really don't care that much about the future - and they care even less here in Ireland in my experience. As Hanson would say, most people's forecasts about the future are simply ways of signalling their suitability to 'lead' their audience to the future. Even if they haven't got a clue where they're going. Politicians, for example.

But there are serious folks thinking about the future: Richard Watson is one. I love his 2010-2050 Roadmap for the Future: a clever play on the brilliant linear diagram of the London Underground designed by Harry Beck (download the pdf of the 2050 Roadmap to appreciate the details). Richard creates a visual space in which to explore the interplay of 16 different trends over forty years. And he doesn't reduce it to 'morality tales'.

It would be intriguing to envisage something similar for Ireland. Say, one building on the work of Stephen Kinsella (see his recent Irish Times article). Of course, we'd have to use a map of Dublin's transport system ... hmm. Still, we could include a wild card forecast for the successful introduction of integrated ticketing on, say, New Year's Eve 2049. We're bound to be a smart economy by then.

Sunday, January 3, 2010

Eastern Promise

The Noughties were good for capitalism, on balance. Tyler Cowen points out that - outside of USA and parts of Western Europe (including Ireland) - the past decade has seen capitalism deliver the goods for hundreds of millions of people. But we tend to be parochial about these things, magnifying our own difficulties in the West whilst ignoring or under-appreciating extraordinary successes in the East. As he puts it:
One lesson from all of this is that steady economic growth is an underreported news story — and to our own detriment. As human beings, we are prone to focus on very dramatic, visible events, such as confrontations with political enemies or the personal qualities of leaders, whether good or bad. We turn information about politics and economics into stories of good guys versus bad guys and identify progress with the triumph of the good guys. In the process, it’s easy to neglect the underlying forces that improve life in small, hard-to-observe ways, culminating in important changes.
Even in Ireland we'll likely get back to a 2005-2006 standard of living in the next 24 months: not quite the failure of free market capitalism some like to portray. Indeed, if markets have failed so dismally, how come five out of six people in the private sector still have jobs two years into a vicious recession? They must still be creating goods and services that others are continuing to buy? The market keeps working (I'd suggest a visit to your local shopping centre if you doubt me).

Nevertheless, the West-East shift is set to continue, exacerbated to some extent by the Great Recession. Liam Halligan is right when he observes in today's Daily Telegraph that:

The dire performance of Western assets markets over the last decade is unprecedented. It severely challenges the long-standing view that holders of equity, if they're patient, will do well. If pondered upon, and assessed honestly, it also unsettles the assumption, hard-wired into our political and cultural mindset, that our part of the world will keep getting richer.

Contrast this sorry tale of wealth-loss with the fate of the large emerging markets over the last decade. Off the back of a manufacturing miracle, China's Shanghai Composite Index of leading shares gained no less than 140pc over the last 10 years. India's Sensex 30, the main index on the Bombay stock exchange, is up 249pc - the result of the country's IT and outsourcing skills.

... Back in 1990, the "advanced" nations – effectively Europe, the US and Japan – controlled around 64pc of the global economy, as measured by gross domestic product. They now control 52pc – a huge loss of economic influence in a very short period of time. Most of that shift happened during the last 10 years.

... Not so long ago, the US was the world's biggest creditor. It is now, by a long way, the biggest debtor. Other big Western economies have followed America, spending the last 10 years borrowing money from the Eastern economies to fuel irresponsible increases in public spending.

As a result, the big-four emerging markets, known as the BRICS, now hold no less than 42pc of the world's total reserves. The G7 countries, in contrast, hold only 17pc. Take away Japan, the only substantive creditor nation among that group, and the "club" of advanced countries – including the US, UK and France – holds only 4pc of the world's reserves in their respective central banks.

Welcome to the New World Re-Ordering, and it has only just begun.

Here in Ireland we are culturally 'Soft Left' (though there are a few of us on the 'Cuddly Right' I'm glad to say). So the default setting is 'more government' whenever there's a problem: despite copious evidence that our politicians and civil servants are simply not up to the job (and most of the time it isn't there job any way). Irish businesses - like businesses elsewhere - do a lousy job of justifying their existence in the face of this culture. The Economist calls this The Silence of Mammon (may require a subscription - and worth it at twice the price!):
More ambitious defenders of business have advanced two arguments. The first is that many firms are devoted to good works. They routinely trumpet their passionate commitment not just to their various stakeholders (such as workers and suppliers) but to the planet at large.

... The second argument is more hard-headed: that businesses have done more than any other institutions to advance prosperity, turning the luxuries of the rich, such as cars a century ago and computers today, into goods for the masses.

... The problem with the first argument is that it smacks of appeasement. Advocates of corporate social responsibility suggest that business has something to apologise for, and thus encourage its critics to find ever more to complain about. Crocodiles never go away if you feed them. The problem with the second argument is that it does not go far enough. It focuses exclusively on material well-being, and so fails to engage with people’s moral qualms about business.
So what to do? The Economist suggests three better arguments:
The first is that business is a remarkable exercise in co-operation. For all the talk of competition “red in tooth and claw”, companies in fact depend on persuading large numbers of people—workers and bosses, shareholders and suppliers—to work together to a common end. This involves getting lots of strangers to trust each other.

... Another rejoinder is that business is an exercise in creativity. Business people do not just invent clever products that solve nagging problems, from phones that can link fishermen in India with nearby markets to devices that can provide insulin to diabetics without painful injections. They also create organisations that manufacture these products and then distribute them about the world.

... A third defence is that business helps maintain political pluralism. ... Only 202 of the 500 biggest companies in America in 1980 were still in existence 20 years later. Anti-capitalists actually have it upside down. Companies actually prevent each other from gaining too much power, and also act as a check on the power of governments that would otherwise be running the economy. The proportion of the world’s governments that can reasonably be called democratic has increased from 40% in 1980, when the pro-business revolution began, to more than 60% today.

And the revolution continues, buoyed on by the Eastward shift in global economic gravity now under way. Irish businesses can (and will) play a part in the extraordinary task of raising the living standards of billions of people throughout the world by profitably meeting their needs. We should be proud of that - and celebrate it at the start of a new decade of opportunity.

Saturday, January 2, 2010

Reasons To Be Cheerful

This made me choke on my cornflakes:
The Sex Pistols’ Never Mind the Bollocks (1977) is closer to the second world war than it is to the present. The Beatles’ release of “Love Me Do” (1962) is closer to the first world war than to us. Bill Haley’s Rock Around the Clock (1954) is as close to the Spanish-American war (1898) as it is to us. There is nothing hipper than hip-hop, but the Sugarhill Gang’s “Rapper’s Delight” (1979), the first rap song, is closer to Al Jolson’s last hits than to the songs in the rap charts now.
As Christopher Caldwell reminds us in today's FT: time doesn't so much fly as become compressed. But I'm not going to let the melancholia of another lap around the sun get to me. Instead I want to celebrate why we should be cheerful here on our chilly little island. And the number one reason to be cheerful is that we are still a free country: as the recent Freedom in the World 2009 report from Freedom House reminds us. But freedom is relative, and another report - the 2009 Legatum Prosperity Index - points out that our personal freedom in Ireland is amongst the lowest of the countries surveyed, even if we perform better on economic freedoms.

Which is why we need to support campaigns such as that by Atheist Ireland against the new blasphemy laws that came into force yesterday (which I didn't see mentioned in a single Irish news report even though the BBC and Guardian gave it coverage). The laws are most certainly a backward step in terms of our personal freedom: and another example of how the excesses of politically correct multiculturalism ends up destroying the freedom that gave rise to it in the first place. Atheist Ireland has published 25 blasphemous quotes on their site and are willing to go to court if the government decides to take them on. One of my favourite quotes is from none other than Pope Benedict XVI. Should make for an interesting court case ...

Nevertheless, we remain a free people and I for one am grateful for that as we begin another lap around the sun. Though I think Ian Dury put it better (all those many, many years ago) ...

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