Wednesday, March 31, 2010

The Commanding Pits of the Economy

The dream of every socialist in my youth was to seize the commanding heights of the economy: with the banks numbered amongst the highest peaks. With the Government on track to own most of the country's financial institutions (via the mysterious SPV) we will soon realise that dream. But be careful what you wish for: the commanding heights are looking more and more like tar pits.

Take Anglo Irish Bank and their results for 2009 published today. Remember, the idea is that all that NAMA money you, your children and your grand children will be repaying is to help the banks get back to the business of lending. Or maybe not - this from page 8 of Anglo's main report:
During 2009 the Bank entered into a Subscription Agreement with the Irish Government, which in line with EC guidance requires that all new lending is solely to the Bank’s existing customer base, confined to amounts which were previously committed or approved to protect asset quality and is aimed at reducing overall risk to the Bank. Included in lending balances is an amount of €1.2 billion of interest capitalised during the period. The Bank’s Credit Policy has recently been revised to significantly restrict interest roll-up facilities going forward. Interest on loans and advances to customers includes margin interest and arrangement fees amortised over the expected lives of the related loans and has reduced materially during the period reflecting the increase in the portion of the loan book transferring to impaired loans.
So there you have it: the bank that's going to cost us northwards of another €18 billion to 'save', isn't actually lending, and the lending 'increase' they report is entirely the result of capitalising interest on unpaid loans (plus the fees they paid themselves). Alan Dukes, Anglo's new chairman argues that closing Anglo rather than saving it would cost over €20 billion. It's sort of getting to the point where closure looks like the more financially prudent option, don't you think?

I have a modest proposal. Inspired by my favourite Wall Street insider - the Epicurean Dealmaker - I suggest we put the fox in charge of the hen house. He has made the same suggestion himself in relation to sorting out the American banks that have cost the US taxpayer so much. I'll let him explain it in his, er, usual robust fashion:
Now Dick Fuld, at least in his prime, was a forceful and scary man. It takes a certain kind of personality to tell such a man to go fuck himself to his face. Fortunately, we just happen to have a substantial supply of brass-balled, take-no-prisoners, kill-'em-all-and-let-God-sort-'em-out people ready to hand. By happy coincidence, these individuals also happen to be intimately familiar with the ins and outs of the global financial system, the nature and construction of the myriad securities and engineered products polluting financial markets, and the numberless tricks and stratagems large financial institutions use to end-run rules and regulations designed to keep them in check.

These people are called investment bankers.

That's right, boys and girls: It's time for the chickens to band together and hire themselves some foxes to guard the chicken coop.
So here's a thought. Why not put together the meanest, greediest, most voracious team of investment bankers from around the world - a kind of financial SWAT team. Then make them a offer: we'll let you keep 25% of the difference between what we think it will cost to close Anglo - say €20 billion, all in, with no nasty aftershocks - and what you, the SWAT team, can close it for. So long, obviously, as the closing price is below €20 billion. That's right: if you can close it for €16 billion then you will walk away with €1 billion in fees. Hell, if you can close it for €10 billion we might even round it up to €3 billion as an incentive. Tax free.

I suspect they would be queuing at the door of the Department of Finance for that deal. Sure, maybe I'm only dreaming, but then, so were the socialists of my youth.

Tuesday, March 30, 2010

Uncommon Wealth

I think it was Brendan Behan who, in a moment of exasperation at his fellow country men, joked that 'we should give Ireland back to the English and apologise for all the trouble we've caused'. At least I think he was joking. Mind you, on the 'Super Tuesday' that's in it ...

But as a modest distraction from all the NAMA talk, and in the spirit of being an equal opportunity blog for speculative thinking about the future, what about the issue of Ireland re-joining the Commonwealth? It was floated recently in the Daily Telegraph (where else?), in light of a new Reform Group pamphlet entitled: Ireland and the Commonwealth - Towards Membership.

The Telegraph suggests an interesting sequence: the Queen of England visits Ireland in 2011 (the centenary of the last visit by an English monarch - George V - in 1911); then Ireland rejoins the Commonwealth in 2012 (having left in 1948); then the North's Unionists rejoin a united Ireland in 2021 (the centenary of the foundation of Northern Ireland). Okay, I made that last one up. Rather, Philip Johnston suggests that:
...were Ireland to rejoin the Commonwealth, it would draw a line under the troubled history of Anglo-Irish relations and help develop a pluralist Ireland comfortable with its different identities and turbulent past. There is a strong argument, too, that Ireland's self-interest would also be served by being part of the Commonwealth, which is a world forum with links to many other institutions.
But this is where I think things come unstuck. Of course the Queen should visit Ireland as the sovereign head of our nearest neighbour: it's a pity she hasn't been able to do so sooner as it would indeed 'draw a line' under a lot of historical baggage. But I'm just not convinced that we have much to gain (nor contribute, frankly) to the future of the Commonwealth which seems, from the outside, to be increasingly about the developing nations that make up the majority of its members rather than the countries with which Ireland is historically connected (e.g.: Canada, Australia and New Zealand).

I do though agree with some of the views aired in the RTE What If? programme on 27th April 2008 which asked: What if Ireland had not left the Commonwealth in 1949? Including the view that we 'left too soon' when we did, and that it would have been better to leave in the 1970s when both Britain and Ireland joined the EEC thereby replacing the Commonwealth as a forum in which the two countries could do business.

On the other hand, if Ireland joining the Commonwealth were to be (part of) the price of a future united Ireland (with the consent of the majority in the North, and on the basis of making the Unionists more comfortable with same), then I would not object. Otherwise I just don't think we have enough in common with the Commonwealth to rejoin. Though on balance, now that I think about it, I'm fairly agnostic about the matter and am open to persuasion.

All this assuming, of course, that they'd have us back.

Saturday, March 27, 2010

Human Achievement Hour

Tonight will witness Earth Hour, when millions of people will switch off their lights to demonstrate their solidarity with, em, Gaia apparently. As usual with these things, North Korea has put Ireland to shame. They don't just do Earth Hour once a year, they do it every night. Theirs is the low carbon, low energy, low everything way of life that we should all aspire to.

Or maybe not. Just by coincidence, tonight will also witness Human Achievement Hour, when billions of people will leave their lights on to celebrate the extraordinary gift of human innovation, imagination and productivity. Here's a little video from last year that helps put things in perspective:

Friday, March 26, 2010

Recession Babies

You don't expect recessions to be 'good' for babies, but this one is - at least in Ireland. The latest CSO data shows that the number of births rose in Q3 2009. Is this a leading indicator that the recession is over? As I've mentioned before, there does appears to be a link between consumer confidence and birth trends.

The charts below updates previous information I've posted about the combined number of monthly live births in the Rotunda and National Maternity Hospitals* (which together account for a quarter of all births in the state). Firstly the total number of births trend remains positive but has levelled off somewhat:



But before we can determine the impact of the recession on birth trends we have to strip out seasonality - which is quite marked as the next chart shows (showing the number of births in each month over four years as a percentage of average monthly births over the same period):



If you want the undivided attention of the midwives then February remains a good month to have your baby! July and August are the peak months for births, the result - obviously - of dark nights and early bedtimes the previous October and November ...

But aside from seasonality and nature taking its course, does the state of the economy affect birth trends? It is well known, for example, that stress reduces fertility (it may cause up to 30% of all infertility problems), so you would expect a recession to reduce the number of births regardless of other, demographic factors. Sure enough, my own analyses of the monthly Rotunda/NMH data does show a significant relationship between consumer confidence (lagged 9 months for obvious reasons) and the rate of increase or decrease in the number of births (stripping out seasonality).

The chart below plots the ESRI's monthly consumer confidence index (lagged 9 months) against a twelve month moving average of the annual rate of increase/decrease in the number of births in the two hospitals:



Not surprising there is a high and significant correlation between the two series (r=0.85).

There's only one problem of course. The recession isn't over yet: we can see that from the recent unemployment, national accounts and trade data. But we know that consumer confidence is affected less by the level of unemployment than by the trend in unemployment. So it would seem that more and more couples decided early in 2009 that the worst was over - or would be over by the time their new family member came along.

All of this is good news in the long run, not just in the short run. It means that we can anticipate a growing Irish population in the decades ahead - in marked contrast to many other European countries. Curiously enough it also means that this will be an island-of-Ireland phenomenon, as pointed out in a recent Ulster's Doomed! post on Northern Ireland's latest birth statistics.

We'll have had a good recession if we do indeed get through it with a rising population. That's something to be additionally grateful for as we welcome our newest citizens.

* I'd like to once again thank the administrative staff in both hospitals for sharing this information with me.
N.B.: the most recent monthly data is still provisional.

The Blame Game

Today is National Blame Someone Else Day. The Irish Independent gets into the spirit of things with it's lead headline today:
No one gets the blame for €426m docks farce
No surprise there. Still, part of me wonders whether the daily drip feed of egregious incompetence and excess that we are now being fed will temper the famous Irish appetite for a free lunch (at the taxpayers expense)? Perhaps, though I think it'll take a while longer. As P. J. O'Rourke reminds us (channelling Milton Freidman), people tend to have four different ways of spending money, depending on whose money:
  1. You spend your money on yourself. You're motivated to get the thing you want most at the best price. This is the way middle-aged men haggle with Porsche dealers.
  2. You spend your money on other people. You still want a bargain, but you're less interested in pleasing the recipient of your largesse. This is why children get underwear at Christmas.
  3. You spend other people's money on yourself. You get what you want but price no longer matters. The second wives who ride around with the middle-aged men in the Porsches do this kind of spending at Neiman Marcus.
  4. You spend other people's money on other people. And in this case, who gives a shit?
I'd apologize for the vulgarism, but then it was him what said it, not me.

Wednesday, March 24, 2010

Lives of Quiet Desperation

They say if you've been playing poker for a while and you haven't spotted the chump, then you're the chump. It has taken a while for the penny to drop, but after yesterday's Cabinet reshuffle I've finally figured who the chump is: it's the Irish people.

As it happens, I also got to review the responses yesterday to a question we ask every month of 850 different people, namely: "how do you feel about your life at present?" It's asked of a cross section of people from all over the country, and it's open-ended so people can answer with words of one syllable (many do), or with longer responses. We ask the question on behalf of Chemistry as part of their Zeitgeist study. Reading the longer responses can be sobering. Many people are doing okay and still dodging the bullets fired at them by our faltering economy. But not everybody is doing so well. Below I contrast the Government's announcement yesterday with the lives lead by a small cross-section of our fellow citizens in March 2010 (these are verbatim quotations, typos and all, though I've deleted any names or other details that might identify a specific individual as the survey is anonymous):

Batt O'Keeffe will become Minister for Enterprise, Trade and Employment and the Department will take responsibility for Innovation.
I was self employed up to 6 months ago, I had to close my business due to the recession but I am unable to get social welfare. This does not encourage entrepreneurs. I am very worried about my finances I owe a lot of money and am barely making ends meet. I do not want to have a bad credit rating in the future so I am planning on selling a foreign property in order to pay off a business loan and other personal debt. It is very annoying that a small business person such as myself will be held accountable for a small loan when larger companies who owe hundreds of thousands seem to get away scot free and normally open up again under a new name. 44 year old female, Leinster

I have a bleak outlook on what will become of Ireland as at the moment have spent all my life getting my house and business for which I have always paid my mortgage on time, still owe some and if things stay as they are I could lose the lot. Lots more things but this is the main one. Never felt so depressed because of this. 51 year old female, Munster

The level of deceit, stealth taxes and overall erosion and lies by politicians and institutions is almost laughable if it were not so painful.Why should I or anyone else have to pay a raised mortgage interest level when rates tumble just because the lending institution is not deemed credit worthy enough by that from which it wishes to borrow? If I was deemed uncredit worthy the door would be shut in my face and that is what should have been done with them. 57 year old female, Leinster
Mary Coughlan will remain as Tánaiste but will move to the Ministry of Education and Science, which will become the Department of Education and Skills.
I am a full time Science student in my final year and the prospects in science in ireland next year are very limited now compared to when I entered my course. I am unable to get a part time job after numerous job interviews and a lot of experience. I am fully dependent on my parents’ income, which is very low. My father has his own shop which employs both him and a family member and is in severe debt due to the recession and is facing closure, and therefore we are facing losing everything. 23 year old female, Leinster

Money is always a worry. I get paid at the end of every month and have to budget my money accordingly. I am never left with money at the end of the month and most of the time I owe some one €100 which I needed because I couldnt even afford a bottle of water. My brother is currently unemployed and has only recently been approved for the dole. I find this crazy as he was studying pharmaceutical science in college for four years and cannot complete his final diploma year as the government wouldnt approve a grant for him. So he has been unable to attend college, unable to get a job, and unable to get the dole for quite some time. I think it's a disgrace that a young man with high intelligence and a want to learn and better himself, was not approved the dole when there are certain people who have no intentions in getting a job getting the dole and everything else paid for. I think it's a disgrace, and the government are not paying enough attention to the people. I can get very depressed worrying about money and i'm sure a lot of people are the same. 19 year old female, Leinster

Im finding it hard to get any type of part time work. I feel that weve let in too many foreign nationals and that we cant afford them. Theyve been the backbone of the lower paid sector and its unfair to send them home , but we should have had the foresight to see this coming [I did !!] I could see it in America, I wondered how we could afford to keep these people on welfare, I worry about the Soc Welfare system, the invalidy system. About anarcy, the people on the street are angry and the way politicians are telling us to pull our belts in , and yet giving themselves raises, expenses, New touches to the Dail via a shop etc. 48 year old female, Leinster
Éamon Ó Cuív will become Minister for Social and Family Affairs, while the Department will become the Department of Social Protection, and take responsibility for FÁS.
I feel at my wits end. I cant pay the bills that are coming through the door. My job is down to a three day week. The dole is not worth the paper it is written on. My family are suffering - its a sad day when you cant afford the basics in life i.e. food shopping and heating. 40 year old male, Leinster

The future is unclear - I am worried that interest rates will rise making our mortgage repayments higher. We have no savings to fall back on because we have used these to make ends meet because of pay cuts. We have had to cancel our health insurance so I am worried about that too incase one of us becomes ill. We cannot afford to go to the doctor if one of us gets ill. 37 year old female, Munster

Our politicians have let us down very badly and one could be angry with them. They just dont seem to understand the people of the country; I think its partially because we allowed them to reward themselves whenever they wished and now the gap between us and the earnings and perks they enjoy, means that they just dont understand. 60 year old male, Munster

I hate opening the mail each day, as it is usually bad news, threats for repayments, etc. Unexpected expenses can cause a lot of stress, we’ve had to sell our house to clear our debts, but at least that will stop us being slaves to the banks, and give us time to relax more and worry less. 55 year old female, Leinster
Mary Hanafin will become Minister for Arts, Sports and Tourism, whilst Equality will go into the Department of Community and Gaeltacht affairs.
I have lost my job, have no prospects of being employed again, I have a very limited income, my investment and pension are down, and I have to wait another year to get my OAP that I paid for over 40 years of work. Now I learn that a 56 year old minister has resigned gets a pension, and an lump sum................I wish you could get that in the private sector when you give up a job. So I feel very depressed, what is the point of going on. 59 year old male, Leinster

I feel life should be great for anyone my age 51years old that have worked from age 16years. You would think I should be wealthy, but I have never had really well paying jobs, it was always min wage, the wage packet disapeared as quickly as I receive it. I'm a very healthy person I'm greatful for that. I lost my Job last May 2009 along with many other people. I find it difficult to even get a part time Job anywhere at the moment. I'm living now on my Socail Welfare payments only. I never imagined that this is how it would be at my age. I keep hoping to win a hugh amount of money so that i won't have to think about bills ever again. 51 year old female, Munster

I can't pay bills. Schools looking for more money to meet rising costs so parents have to fork out. Everyone is looking for money. Both working to keep roof over our heads with nothing left at the end of the week and nothing to look forward to. 43 year old, Leinster
Ciarán Cuffe will have responsibility for horticulture, heritage, sustainable planning and transport while Mary White will have responsibility for equality, human rights and social inclusion.
I am earning less than i was when i started six years ago. I seem to have more costs. This country makes me laugh. We seem to pay for everything twice and still not get anything. My road tax is ten times what my mother pays in the north. What do we get for prsi? My doctor still wants 50 euro to sign his name. 31 year old male, Leinster

I am earning less money than a few months ago due to changes at work. Extra government levies are directly as a result of the ecocnomic situation. I work for an American multinational and pressure to remain competetive and keep jobs in Ireland has directly impacted my earning power eg no overtime, changes in shift patterns, reduction of bonuses. Also my college going son was let go from his part time job so I have to financially support him. I am trying to claim some social welfare benefits ( Family Income Supplement) but due to work to rule and under staffing I cannot find out if or when I may get any payment. 46 year old female, Connaught

i feel sometimes that i am just living from payday to payday, if i can just maintain the status quo at the moment i will be doing well. if I can meet my bills as they fall due and continue to give my 4 year old a good life for the time being i will be ok. i feel sometimes that i regret staying in the country over the last 6 years. i graduated college in 2004 and feel that perhaps i would have had a better life and now been able to give my daughter a better life in another country. for now we need to keep our heads, continue to work as best we can, get our government out of power and give try to make sure this recession has as little negative affect on our children as possible. 30 year old female, Leinster
Of course, now that the pressing issue of a Cabinet reshuffle is out of the way we can expect immediate action to solve the nation's problems. What kind of action? I got an example through the post the other day. It was a letter from Barry Andrews, our local TD and Minister for Children & Youth Affairs. It was a nice ceadúnas letter from Dáil Éireann. I got one, my wife got one, and my son got one. My daughter didn't get one (too young to vote). And the hampster was a bit annoyed too.

Naturally I tore open the letter eager to know the Minister's plans to mitigate the recession's impacts on our fellow Blackrock residents only to discover that it concerned 'the lack of sweeping taking place on George's Avenue and Frascati Park'. He added that he had 'been in contact with Dún Laoghaire Rathdown County Council in relation to this'. The letter then went on to explain the arrangements that had been made for sweeping the roads between 8am and 9am to ensure a 'thorough cleaning' ... and that was it.

Now you could interpret this in two ways I suppose. On the one hand you could see it as a clear example of democracy at work, and a microcosm of the intimate relationship between the Irish people and their elected representatives. On the other hand you could see it as a clear example of why our democracy isn't working (especially for 436,956 of our fellow citizens), and a microcosm of the deeply dysfunctional relationship between the Irish people and their elected representatives in the midst of a catastrophic economic crisis. I will leave you, dear reader, to decide which interpretation I lean towards.

But if this morning you're feeling a little let down, perhaps even a little cheated after yesterday's reshuffle then now you know - you're the chump. Time to demand a new croupier.

Tuesday, March 23, 2010

The Government Will Make You Happy

Should we outsource the operation of the Passport Office to Mossad? According to their website they 'plan and carry out special operations beyond Israel's borders'. It's just a thought: after all, they seem to have the, er, technical capabilities.

But perhaps I'm going too far: sure hasn't the The Department of Foreign Affairs warned employees at the Passport Office they may not be paid from today if they refuse to attend to the public counter. And mummy won't read them a bedtime story either. That'll whip 'em back into place to be sure.

But it raises a bigger issue: why does the state need to employ people directly to operate the Passport Office? Sure, there are security and other concerns: but the state regularly uses private operators to provide security-critical services (e.g.: special DNA analysis laboratories). The protocols and procedures for ensuring the proper protection of privacy and security are well established. And the nice thing about outsourcing to private contractors is that you can fire them if they don't do the job you're paying them to do - rather than pretend they 'may not' be paid.

And there's an even bigger issue: does letting the government do more for us make us happier? 'It depends' is the short answer. According to a recent paper by Zohal Hessami, there is a U-shaped relationship between government size and well-being: people are happier at below average levels of government spending (relative to GDP and other measures) or at higher levels, but are much less happy around the middle.

Given that Ireland is unhappily caught in the middle, and in danger of becoming what Lord Tebbit calls (in the case of the UK) a land of quangocrats and hereditary welfare junkies, then perhaps now is the time to move decidedly to the, er, 'left' of the U-curve? We might all be happier for it. Especially anyone in need of a passport.

Picture cred: Niall Carson/PA Wire

Sunday, March 21, 2010

Product Displacement

The perils of online advertising: from today's web edition of the Sunday Independent ...




And I thought the Carlsberg Bank was just a work of advertising fiction:

Friday, March 19, 2010

A United Ireland by 2016?

History is the only laboratory we have in which to test the consequences of thought. Etienne Gilson
I keep thinking back to this time one hundred years ago - to 1910. People had no idea at the time what the decade ahead would bring, and not just in Ireland. The following ten years would witness the death of 10 million men in the First World War, the destruction of four empires, and the triumph of communism in Russia. And the start of Ireland's War of Independence. It wasn't that our ancestors were witless or obdurate, they just had other priorities and concerns. Just like we do.

Which brings me to 2016 and the question of a united Ireland. It isn't on anybody's radar. Sure it exists as an aspiration for many (it's even written into the Republic's constitution), but in the course of practical planning and policy making - in Dublin, London or Belfast - it simply doesn't figure. No long-term projection or forecast - by the IDA, or would-be taskforce or any economist for that matter - assumes anything other than 'business-as-usual' for the next ten years in terms of the fundamental political and constitutional architecture on the island of Ireland. Which is reasonable enough as these things go: the future from the perspective of 2010 is uncertain enough without incorporating game-changing scenarios for which we have no precedent.

History, however, suggests this may not be the most prudent approach to adopt. Firstly, there remains a strong desire for a united Ireland on both sides of the border. In a poll I did in January, 55% of adults in the Republic of Ireland agreed that "a united Ireland would, on balance, be better for people on both sides of the border". By contrast, a recent Northern Ireland poll by Inform Communications showed that only 36% would vote for a united Ireland in a referendum, rising to 69% of Catholics. No surprise there. But it does reflect an 'on again/off again' Northern debate (e.g.: on the Slugger O'Toole blog) about these things (and in some of the British media as well, I might add). I'm talking political debate here of course: not the death-worshipping nihilism of CIRA et al.

Of course these are just survey findings. And as an old trade unionist I knew was given to saying, opinion polls are like bikinis, what they reveal is interesting, but what they hide is vital (yes, he was old enough to say such things and not have to issue an apologetic press release afterwards ...) Opinions, being opinions, vary all the time, and in the final analysis they don't 'cost' anything to hold, or to change. What does count are votes expressed in the ballot box: in elections as well as in referenda.

The protocol for deciding on a united Ireland is clear enough. Under the Northern Ireland Act 1998, the Northern Secretary may "by order direct the holding of a poll ... if at any time it appears likely to him that a majority of those voting would express a wish that Northern Ireland should cease to be part of the United Kingdom and form part of a united Ireland". A similar poll or referendum would have to take place simultaneously in the Republic of Ireland.

I think it unlikely the Northern Secretary might exercise such an option on the basis of an opinion poll; or at least I'd like to think he wouldn't. But he might exercise it on the basis of Census results showing a majority of the electorate in Northern Ireland to be Catholic. As it happens, the next Census in Northern Ireland is next year: on Sunday 27th March 2011 to be precise. Next year also happens to be the first time the Census will take place in the same year North and South of the border since 1991 (on Sunday 10th April 2011 in the South). The 2011 census in Northern Ireland (and the UK as a whole) will be the first in which people will be able to complete the census online. So the results will be out quickly ...

In the event that the 2011 census revealed a Catholic majority in Northern Ireland, then the Northern Secretary would certainly come under pressure to hold a referendum within a year or two of the results. Assuming a majority approved the re-unification of Ireland in simultaneous referenda in the North and in the South (the Republic's constitution requires that a majority in both jurisdictions approve re-unification), then a few more years of procedural and legislative arranging could see a united Ireland ... by 2016.

A key question, of course, is whether the 2011 census will show that a majority of the North's population aged 18 and over is Catholic? I suspect not: more recent data than the last NI census (in 2001), such as that on equality from NISRA, certainly indicates a near-majority of Catholics, but by no means an absolute majority. Another obvious question is whether all the North's Catholics would vote for a united Ireland. According to the opinion polls, the majority certainly would vote yes, but a large minority might well abstain or vote no.

So it's one to watch. If there is a referendum on a united Ireland in the next few years then its advocates might note that the 1998 act also requires that the Northern Secretary does not hold another poll for seven years after the previous one. We might be looking at 2018-2019 for the sequel. In which case analyses of the North's school age populations by blogger Ulster's Doomed! (you get the drift) suggest every likelihood of a Catholic majority later in the decade.

If I was preparing a long-term plan for Ireland I would pencil in the (slim) possibility of a united Ireland by 2016 ... and the likely probability of a united Ireland by, say, May 2021 - the centenary of the foundation of Northern Ireland.

Stranger things have happened: just ask your ancestors.

Thursday, March 18, 2010

Less Is More

I hate deflation ... when I'm selling. The CSO says prices in my business sector (market research) are falling and back to where they were before 2006. Sounds about right. But I love deflation ... when I'm buying. It seems the costs of lot of things I buy - be it inputs into my business or simply as a consumer - are still falling: the consumer price index is back to 2006 as well.

And I'm not alone in my infatuation with deflation. I asked a question on my company's omnibus survey of 1,000 adults in the Republic of Ireland last week about the trend in 'purchasing power'. Given the downward trend in incomes after tax thanks to tax rises, salary and wage cuts, and not to mention job losses, you might expect that people would be feeling over-stretched. But here's where deflation comes in: when asked 'does your money buy a more or less than it did a year ago' the majority, 56%, clearly say that it buys more (13% say it buys a lot more, as seen in the chart). Deflation seems to have compensated for some of the income reduction experienced by most people in the past few years (though admittedly not all of the extra 'stretch' in purchasing power is down to deflation: if you simply stop spending then you've got 'more' to spend ...).

Curiously, men are more likely than women to say their money is going further (59% vs 53%), along with middle aged groups (62% of 45-54s) and those in higher social classes (59% of ABC1s). Nevertheless, majorities in every sub-group of the general population say that their money is going a lot or a little further than a year ago.

All of this is just as well, of course, because deflation has a firm grip on Ireland. We are experiencing what Richard Koo correctly calls a Balance Sheet Recession, with all that that entails in terms of falling asset prices and the generalised deflation that results from it. As he says himself in a fascinating interview in Weedon & Co's newsletter, it takes years for businesses and households to 'clean out' their balance sheets after an asset bubble bursts, all part of a long term process of bringing debts back into a sustainable ratio with revenues and incomes.

Deflation is a saver's friend and a borrower's enemy. The former gains from seeing the purchasing power of their savings increase over time (even with near-zero interest rates), the latter suffers from seeing the value of their securities, against which they borrowed, decrease over time. Likewise deflation is good for the consumer but is tough on the retailer if his or her revenues are falling (due to falling prices) whilst rent and borrowing costs are high or rising.

What about growth? A price-cut for a price-cut soon leaves everyone broke. Koo's solution is a massive government spending binge, fuelled by borrowing all the money going into savings (since no businesses are borrowing as they're all too busy repaying debts). The problem here in Ireland is that - sure enough - we're getting the massive borrowings, but instead of new railways, schools and hospitals we're getting ... NAMA.

I suspect we'll have - yet again - a two-speed economy in Ireland for the foreseeable future. The foreign owned companies that were built on things other than flipping property (pharma, IT etc) will do well from the global economic recovery now under-way, and some of that will reflect back on Ireland. But many of our indigenous companies - who discovered that flipping property was, for a while anyway, far easier than making and selling stuff that other people might actually buy - will take much longer to recover.

Tuesday, March 16, 2010

The Innovation-Inflation Race

We are in a race between innovation and inflation, one that will determine the future standard of living of this generation and the next. "What inflation?" you might well ask. Ireland will be the only EU country to experience deflation this year. But inflation is coming, and it will come from two sources: oil and an ageing population.

Oil-fuelled inflation will hit us sooner. Jim Hamilton is worried that we are heading for a re-run of the 2007-08 price spike because global oil demand has become noticeably less sensitive to price thanks to continuing growth in the BRIC economies. With the global economy coming out of recession then we may quickly re-visit some of the same pressures that drove oil prices to their June 2008 high of $145 a barrel. Others go further and argue that we are entering a new era of competition between OECD and non-OECD countries for a static (and soon diminishing) supply of oil to fuel their economies. Couple this with the long-term fallout from the financial crisis (especially chronic under-investment in oil exploration and the development of new supplies) then governments (especially the UK's) will have no choice but to inflate their way out of a growing debt crisis. Like I've said before, when it becomes easier to print money than to find oil then there is only one direction that the oil price is going to go in the long run.

What about the longer-term pressure from age-related inflation? That surely seems improbable when you look at the deflationary experiences of ageing economies such as Japan. However Andy Xie takes a deeply pessimistic look at the inflationary consequences of ageing with reference to Japan as a precursor to where Europe will rapidly follow and observes that:
An economy ages in many ways. The most common are tied to the exhaustion of factors such as production-labor, capital and resources. When an economy begins to develop, labor is the abundant resource. Hence, it makes sense to develop labor-intensive industries. When labor surplus is exhausted, it makes sense to develop capital intensive industries. When capital stock is high enough, investment cannot drive growth anymore. Economists call it diminishing returns, or more of the same yields less output.
He adds:

Aging has disastrous consequences for asset prices. Property, for example, must be a permanent bear market. Declining population means declining demand for property. As property is a long-lasting asset, permanent surplus is likely, exerting a constant downward pressure on property prices. Japan's property prices have been declining at about 7 percent per annum for nearly two decades. The rental yield happens to be similar to the price decline.

... An aged economy is a stagnant economy. Hence, corporate profits are likely to be stagnant. Without growth, stocks should be very cheap, say, around 10 times earnings and 5 percent dividend yields. Japan's stocks were trading at above 70 times earnings at their peak. They have been falling for two decades.
And the outcome of all this?
Aging is supposed to be deflationary. Japan's experience supports that theory. However, deflation is possible only because governments can borrow to cover the cost of aging. When debt is unsustainably high, inflation is inevitable. Inflation is a form of reneging on promised benefits. I'm afraid the world is heading that way.
Hence a 'perfect storm' of rapidly rising oil prices coupled with sovereign debt crises will lead us to Weimar-style hyperinflation in affected countries. But then again, maybe not ...

This is where innovation comes in. As the latest Clean Energy Trends 2010 report makes clear, innovation drives down prices. Innovation is fundamentally a force for deflation. Think about the price of your mobile phone or of a sub-prime mortgage (okay, maybe not that one). Innovation is a perfect antidote for inflation, and not just in the energy sector. Just take a look at what has happened to solar energy in recent times according to the report:
Traditionally, a doubling of global PV manufacturing capacity has resulted in roughly a 20 percent price decline. But about five years ago, this pattern was interrupted as shortages in production of polysilicon – the key ingredient of most solar panels – sent prices of the material skyrocketing from around $30 per kilogram in 2004 to more than $400 per kilogram in 2008. This drove demand for alternative products like thin-film and CIGS PV, which can produce electricity with little or no processed silicon, although usually at lower levels of efficiency. Led by companies like First Solar, thin-film cells soon became the cheapest form of solar and can now be made for as little as $1 per peak watt.

... Cheaper silicon – along with increased production capacity, declining demand growth, and price competition – led to a 30 to 50 percent drop in crystalline silicon module prices during 2009. Another major factor was the emergence of China as a leading PV cell manufacturer, bringing a vast amount of low-cost production online.

As a result of cheaper modules, PV’s installed cost also fell dramatically from $7 per peak watt in 2008 to slightly more than $5 per peak watt in 2009 and as low as $3 per watt installed for some utility-scale projects.
And that's just in one renewable energy sector. Innovation also drives non-renewable energy output as well of course: it makes previously non-viable oil and gas reserves accessible (technically and economically) and so output is maintained or even increased. Energy innovation can and will play a key role in mitigating the otherwise inflationary prospects for energy prices in the months and years ahead.

But what about age-related inflation? Here again innovation can play a part. Firstly, although employee productivity does decline with age, the decline is modest and - coupled with productivity-enhancing technologies - entirely avoidable and even reversible. The potential to arrest and even reverse the productivity-depleting consequences of ageing could be revolutionary. As Andy Xie points out:
Moreover, youthfulness is possible for a mature economy. Through innovation, an economy can produce more with the same inputs. This so-called total factor productivity (TFP) is an elixir for a mature economy. It determines how fast a rich economy gets richer. A 1 percent TFP is considered mediocre, 2 percent is good, and 3 percent is super.
Think of it as the productivity equivalent of botox. Although neither 'ageing' nor 'demography' are mentioned in the recent Innovation Taskforce report (nor is 'inflation' nor 'deflation' for that matter), innovation will be the key to deflating the inflationary pressures Ireland will face in the years and decades ahead.

My money is on innovation to win the race.

Hiring Freeze

Does Ireland need its own Frozen for Their Future Act? It's a radical suggestion that new college graduates be cryogenically frozen until the job market improves.

I know, I know: you're thinking that's a crazy idea. One right up there with loo-laa proposals for the government to pay the banks billions of borrowed euro in the midst of a vicious recession for properties that are then demolished and turned back into fields. I mean, come on, you couldn't make this stuff up.

Okay, maybe The Onion could.

Sunday, March 14, 2010

The Enemy Without

Should we worry about islamic terrorism in Ireland? Today's Sunday Times has a feature on the 'enemy within Irish society' dealing with the recent arrests of several muslims in Ireland suspected of plotting to kill Lars Vilks, along with 'Jihad Jane' (Colleen LaRose) in the photo.

As the Times points out, there are about 40,000 muslims in Ireland: 35,000 of them Sunni and the balance Shia. Sunni are now the largest single religious denomination in Ireland after Roman Catholic and Church of Ireland. That seems like a lot of potential Islamic Irish terrorists and suicide bombers: and it is also an incredibly stupid way of assessing the 'threat' posed by muslims in Ireland. A bit like gauging the threat posed by the Real IRA on the basis of the number of Catholics in Northern Ireland.

To be honest, what strikes me most about Islamic terrorists in Europe is not how dangerous they are (unless you're a Swedish cartoonists, and even then ...) but how inept they are. Seriously: I despise the violence-worshippers in the Real/Continuity IRA, but they seem to be far more deadly effective at what they are doing (in the face of a far more extensive and intensive counter-insurgency operation) than a bunch of would-be Islamic assassins. Insurgents on their home ground usually are: just look at the Taliban and Hezbollah.

There is a real terrorist threat posed by Islamic terrorists: but its victims are mostly other Muslims in mainly Islamic countries. And the prospects for more of the same seem fairly likely given the grim fragmentation and political stagnation that now grips much of the Arab world. But too often it seems that claims about the threat posed by Islamic terrorists in Europe (never mind Ireland) belong in the same league as fanciful extrapolations about how Europe is becoming Islamicised. As usual with terrorism, it is the crass over-reaction of governments and the securocratic empires they spawn that are the bigger threat to our freedom.

The bottom line is that our own police and intelligence forces have been able to neutralise the threat posed by a small handful of operatives in Ireland: one far less dangerous than the one posed by our own, homegrown terrorists. We need to remain vigilant: but then, that is the eternal price of democracy. We should all be happy to pay it.

Saturday, March 13, 2010

Inglorious Bloggers

People who don’t blog and so don't have a pixel trail of every fool thought are not smarter than those of us who have. Instead, they are too dull not to have an interesting idea every day, and too poker-up-the-arse wimpish to express themselves.
He said it, not me: Stumbling & Mumbling on the blogger's fallacy. He sort-of-has-a-point. But that was just my second favourite quote of the day. My number one favourite quote of the day is from Sean Dunne, via Declan Kiberd in today's Irish Times:
The people with money have no balls and the people with balls have no money.
My God, that sounds like market failure. Surely not ...

Friday, March 12, 2010

Joined Up Forecasting

Like the proverbial bus, long-awaited, not one but three sets of long-term forecasts for Ireland have come along at the same time. The most recent is the Innovation Taskforce report which asserts that:
... the implementation of the recommendations in the Report, supported by a favourable economic context, has the potential to contribute to net job creation in high-tech firms of the order of between 117,000 and 215,000 between now and 2020.
Only a few days previously the IDA had gone one better by setting out a strategy for FDI that could create 105,000 new jobs by 2014. All this, by the way, on top of the 80,000 green jobs the green economy could create - apparently - in the next few years according to a report last December. Pretty soon we're going to have to send Fás to South Africa and further afield to fill all those vacancies again ...

But maybe not. The third report that has come along recently is the Fás/ESRI Occupational Forecasts report for 2015. Sure enough they forecast a net increase in employment (250,000) between 2010 and 2015, though that won't be enough to restore job levels to 2008 levels. Moreover, most of the employment increases they foresee are in categories such as health (including caring), education, and clerical work. Not to forget a growing number of, er, clergy (no, I don't know why neither). All of this is forecast to be beneficial to women and those with third level qualifications (both of whom will see significant increases in their labour force shares as the shares - and numbers - of male/non-3rd level qualified workers decline). But there's very little evidence of high-tech manufacturing, green and/or R&D type jobs.

None of this is to detract from some of the good ideas and thinking in the IDA and Innovation Taskforce reports, but I find this obsession with job creation projections on the back of one strategy or another to be quite bizarre. Jobs are an outcome from economic activity: not its purpose. And another thing: innovation is not the same as entrepreneurship (nor patents for that matter): yet that seems to be the predominant mindset of much of thinking that imbues the Taskforce report especially. Like I've said before, most successful entrepreneurs are not innovators, they are followers. Sometimes the 'smart economy' think to do is to learn from other people's (very expensive) mistakes and then avoid them.

Nor do I think the general public actually believe these forecasts, projections and aspirations. At least not in the sense intended, i.e.: 'the plan will save us'. The Irish people don't want plans, they want a timetable and the hopeful certainty such a timetable would provide in terms of knowing when the misery will be over.

We need fewer forecasts and more hope.

Wednesday, March 10, 2010

Indebted To Our Children

Here's one for the 'silver linings' collection: at least with a growing population the legacy of our credit-fuelled blow out will be a lot more affordable than if our population was shrinking.

The point is made in a recent post over at Worthwhile Canadian Initiative who observes that the critical measure is not the Debt/GDP ratio but rather the 'Cost-of-Servicing-the-Debt'/GDP ratio. Even a modest rate of population growth means that a country can handle a multiple of debt compared to a country with zero or negative population growth.

The chart is from an NCC report last year - the blue line shows projected interest payments on the national debt as a percentage of GNP. It will be higher than in recent years, but not as high as the early 1990s. Add in continuing population growth (likely unless emigration returns to late 1980s levels), and the outlook for debt affordability looks more positive for Ireland than for countries with falling populations. Like, er, Greece.

Of course, there's the opportunity cost of paying off the debts with taxes that could otherwise be spent on schools, hospitals and nuclear power stations. But then there's a cloud with every silver lining ...

Monday, March 8, 2010

Men and Other Minorities

A happy International Women's Day to both my female-gendered readers. Naturally I am delighted to have this opportunity to celebrate the triumphant success of our overlords ('overladies' doesn't quite have the same ring about it, does it?) As a member of a minority group, I realise the importance of keeping on the good side of the dominant majority - I'm sure you do too.

But what's all this, you protest? Aren't men the overlords, aren't men the dominant abusers of their majority status? Aren't men the exclusive source of all the misery visited upon womankind? No doubt if you have been reading the celebratory build up to today, you will have been convinced about the terrible suffering women continue to endure because of the patriarchy and its institutionalised sexual discrimination.

But here's the thing: women make up the majority of the electorate in every democracy (and have done since they got the vote); they make up the majority of the workforce in some countries (and soon will here in Ireland); and they even make up the majority of parents thanks to the explosion of single mother families in most western societies. They also receive the greater part of social welfare transfers (though men continue to pay the greater part of the taxes), as well as being the main beneficiaries from state spending on education (especially third level) and health (even excluding maternity related services). In the case of the latter, by the way, Ireland has the lowest maternal mortality rate in the world, thanks to all those patriarchal investments in maternity hospitals, inventions of antibiotics and such like as well as the taxes paid by fathers (the largest group of men in the workforce) to fund it all.

Now you might think - from the perspective of the suffragettes of the early twentieth century - that this would amount to a case of 'job done' when it comes to equality between women and men. But no, apparently there's more to be done. Take, for example, the Women's Charter that the European Commission has decided in its wisdom to impose upon us. This from the introduction:
Europe has made remarkable progress towards equality between men and women during the past decades: it has taken commitment to heart, put partnership into action, and combined its resources and instruments – legal, political and financial – to bring about change. Today, more girls than boys graduate from universities.
Yep, you read that right. Some 'equalities' are more equal than others - but like I've said before, there's majorities and minorities, and then there's manorities. The Charter's goals include the following:

- promote equal economic independence, through more equality in the labour market;
- cut the gender pay gap significantly during the mandate of this Commission;
- see a better representation of women in key decision-making roles;
- promote dignity, integrity and eradicate all forms of violence against women;
- and finally promote more gender equality beyond the EU at an international level.

Who could possibly object? But let's look at each of these in more detail. 'Equal economic independence' - what does that mean? Ironically it means that the feminist agenda now driving so much of this stuff has decided that it is better for women to be wage slaves than to be domestic servants. Germaine Greer calls women who don't work 'parasites'. So much for giving women more choice ...

Then there's the mythical 'gender pay gap' - the lie that refuses to die. Despite exhaustive economic and statistical analyses showing that almost all of the pay gap is due to the fact that people with more job experience get paid more than people with less, the gap is somehow taken as a totem measure of discrimination against women in the workforce. It isn't, rather it reflects two things: women have babies (and prefer to spend some time with them rather than in an office cubicle), and women prefer to work part time (out of choice). Less time in work means less experience means less pay on average. That's why older people are paid more than younger people - but nobody frets about the the 'age pay gap' oddly enough.

On the matter of representation we keep bumping up against another awkward fact: if women wanted more women running the country they simply have to stand for election and garner the support of the female majority in the electorate. But oddly enough they don't - possibly because women don't consider a candidate's gender to be more important than his or her track record and policy proposals.

Then there's the issue of violence against women. The Women's Charter has this to say:
Europe does not tolerate gender-based violence. We will step up efforts to eradicate all forms of violence and to provide support for those affected. We will put in place a comprehensive and effective policy framework to combat gender-based violence. We will strengthen our action to eradicate female genital mutilation and other acts of violence, including by means of criminal law, within the limits of our powers.
Violence against anybody is disgusting, though why women are singled out for special attention is beyond me: men are vastly more likely to be attacked, mugged and murdered than women. They also make up 93% of prisoners, and are far more likely to commit suicide than women. But there is one special instance of violence against women that deserves special attention, and that is the practice of gender-eugenic abortion. As The Economist points out this week, there is a worldwide Gendercide taking place right now that has so far claimed the lives of nearly 100 million females: we're speaking about the use of ultrascans to determine a fetus' gender and then the sex selective abortion of females.

Now you might think this is the kind of widespread, sexist, patriarchal horror that would (understandably) vex European feminists and lead to demands for the European Union to ban the export of ultrascans to countries practicing gendercide against females. But don't hold your breath. The EU would rather condemn (quite rightly) female circumcision, than tackle gender-eugenic abortions. Especially as they are allowed in one EU country already, namely that paragon of gender equality: Sweden. But then condemning a woman for having an abortion on the grounds of the gender of the fetus does leave you rather vulnerable to a wider debate about precisely what grounds are appropriate for abortion. Something the European Commission wisely avoids (don't want to upset the sisters) - and so abortion isn't even mentioned in the Women's Charter.

In the final analysis, feminism is a political ideology that has made remarkable progress in recent decades with its agenda for the social engineering of the family and wider society. It is not an ideology committed to freedom or equality: how could it be in the case of the former with its disgust for women who do not have jobs, or in the case of the latter with its total silence about gender-eugenic abortions. Rather the purpose of feminist ideology, like all ideologies, is to secure political power and to wield that power to their advantage and to the detriment of their 'enemies'. And they seem to be doing a good job, to their credit.

Maybe it's time for an International Men's Day?

Friday, March 5, 2010

A New Story

Joyce once described history as "a nightmare from which I am trying to awake". I've been thinking a lot about history lately, partly for my book, and partly - I suspect - because of my age. Accumulating 'personal history' makes you more conscious of a bigger historical narrative. Which is probably also why I find historians so interesting when it comes to understanding the present - and anticipating the future.

Hence my enjoyment of a recent talk by GMU's Stephen Davies on the theme of Why We Are Not Living in Western Civilisation. The money quote for me comes 48 minutes into the talk (my transcription):
What does this mean about the way we see the world? It means that we are experiencing something quite novel. We’re not at the end of a long story, or the culmination of a long story, but rather at the start of something new. And this I think changes the way you view the world quite radically and quite drastically.
I like that idea: there is something intellectually and emotionally invigorating about thinking you are only at the beginning rather than at the end. Same goes for countries as well as civilisations I suspect.

And for something a little lighter - one hell of an example of 'something new' come to think of it - check out this amazing video. I've been wowed before by attempts to digitally create reality, but making reality look digitally created is something else. New York as a giant child's sandpit. By Sam O'Hare. Awesome.

The Sandpit from Sam O'Hare on Vimeo.



Be sure to watch it in HD.

Thursday, March 4, 2010

Why I'm an Optimist

The latest Eurobarometer survey of EU citizens makes for gloomy fare. When asked if they thought the life of those who are children today will be easier, more difficult or the same as for today's adults the overwhelming majority expect it will be more difficult: 61% on average across the EU27 nations. In Ireland, 54% expect life will be more difficult for our children, and only 15% expect it will be easier (see question QD5). Such is the despondency brought on by our current difficulties. But as I see it the people of Ireland are being absolutely ridiculous if they really believe that.

I think we have an unusual inversion of uncertainty and time horizons right now. Normally the near term is fairly certain, but the further ahead you look into the future the more uncertain things become. However at present we are experiencing the mental equivalent of an inverted yield curve, the normal progression from certainty to uncertainty has been flipped. So it seems that in the short term we face enormous uncertainty: the economy, the banks, the nature and timing of recovery etc. But in the medium to longer term things look much better - more certain - because of our remaining stock of human, physical and financial capital (albeit depleted) and what they mean for future levels of productivity and growth. Even allowing for the 36 global risks facing the world at present.

Why the 'uncertainty inversion'? Obviously it has to do with the shocks to the Irish economy - and most especially to it's employers and employees - resulting from the recession/depression we are still experiencing. It's like we are experiencing a collective post traumatic stress disorder. It's normal enough in the circumstances.

But a disorder is still a disorder: it isn't normal or healthy. And the idea that the future for children in Ireland will be worse than the present is for adults reflects a deeply unhealthy mindset. One still in a state of shock. For the reality is that life in Ireland today in 2010 is - on almost every measure - better than life in the 1990s, the 1980s and the 1970s. Unemployment, poverty, emigration and crime were far worse - not to mention the running sore of political violence a few hours to the north.

I get that the people who have created the mess Ireland is in (or who have made it much worse than it would otherwise have been given the global forces involved) need to be brought to account and not let off the hook. But I don't think speaking positively about the future amounts to a 'get-out-of-jail' card for those responsible for the depth of our recession. And yet I feel there is almost a blanket refusal by many commentators to see anything positive about our current circumstances and about emerging trends. Rather there seems to be a constant requirement to 'emphasise the negative'.

Well here's the thing: most of the businesses that existed before the recession are still in existence, and the same goes for most of the jobs. If the employers and employees of Ireland saw the world through the gloom-tinted glasses of the commentariat we'd not get out of our beds in the morning. Luckily we have better things to be doing than paying attention to the constant mood music of doom and gloom (nor to the self serving obfuscation of our political 'leaders').

All recessions end in recovery - and so will this one. And then we'll get on with building a better future in Ireland for our children just as our parents and grandparents did for us. Moreover, we'll do it with more resources and better odds for success than anything our ancestors ever had.

That's why I am an optimist.

Tuesday, March 2, 2010

From 'Mancession' to 'Mancovery'?

Men appear to be having a better recession than women, emotionally-speaking that is. It's one of those curious things that keeps popping up in the surveys and other research I'm involved in. Maeve Sheehan in the Sunday Independent picked up on this when reviewing my company's most recent recovery indicator findings. And it's despite the shockingly unequal burden carried by Irishmen in terms of unemployment.

I am confident that the future will be better for men (from an economic perspective) than is generally assumed by many forecasters. Also I am constantly amazed that nobody is pointing out that the government's Smart Economy strategy is better suited for men than for women: after all, it means a lot of new jobs in IT, energy and engineering - categories in which men still make up the majority of graduates and job holders.

Maybe that's why Irishmen are feeling chirpier about the future?
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