Thursday, December 22, 2011

Happy €mas

No, not a post about the euro - more of that next year. Rather a short post about Christmas. We have Christianity to thank for Christmas... obviously. Though more accurately we have the demise of the Christian Church's influence over commerce to thank for Christmas as we have come to know it (shopping, gift giving... shopping). Jared Rubin explains:
Detailed historical analysis of the history of interest (usury) restrictions in Christianity... show that the factors which undermined Church authority in the late mediaeval period were in part made possible by widespread merchant transgression of the Church’s dictates. As more profitable commercial opportunities became available, merchants further evaded the Church’s anti-usury dictates and sought protection from secular authorities, which provided greater incentive for rulers to provide security and legalise interest, which encouraged merchants to even further evade Church dictates, and so forth. Hence, the Church’s loss of power vis-à-vis secular rulers was both a cause and a consequence of the initial rise of commerce and the resulting interactions between merchants, the Church, and political authorities.
We owe much to Christianity, including its eventual acceptance of the separation of powers between church and state. The alternative - as Rubin explains - was the path taken by Islam: the closure, in the tenth century, of "the gate of independent reasoning (ijtihād)". If the Christian Church had followed the same path then I suspect we would now experience a very different type of Christmas.

And I suspect you wouldn't be reading this on a PC, smartphone or iPad. Nor would I be blogging, come to think of it...

Happy Christmas.

Monday, December 19, 2011

Unhappy Ending

My company's latest survey of Irish consumers about their views on the economy, spending plans and emotional well-being suggests we are ending the year about as glum as we started it:

The survey points to continuing emotional resilience, but worsening financial circumstances. How far it can continue into 2012 is anybody's guess right now.

Sunday, December 18, 2011

Good Democrats

Something to cheer us up: Ireland continues to be vibrant democracy, despite all the turbulence of recent years. We're number 12 in the world for 2011 according to the Economist Intelligence Unit. That puts us ahead of Germany, the United States, and Britain in the democracy rankings.  We should be proud of that:

The EIU's Democracy Index 2011 is freely available, just register here to download a copy.

Saturday, December 17, 2011

Swiss Squeeze

What is happening in Switzerland? For a while there they were the poster child for the benefits of not being in the eurozone. Then they went and pegged their currency to the euro. How's that going? Not good, if consumer spending on groceries - via Nielsen - is an indicator:

Makes Ireland and Greece look good. Turkey, on the other hand, is booming. I wish them well, and the best of luck with the old 'soft landing' trick that will follow. Of course, figures for one quarter do not tell us everything. Which is just as well as yesterday's CSO figures for Q3 2011 national accounts were, well, grim. The chart below shows the trend in growth - or 'ungrowth' - for Irish consumer spending, nominal and real, seasonally adjusted:

Consumer spending is down nearly 18% from its nominal peak in Q1 2008, and by 13% since its inflation-adjusted peak in Q4 2007. Real spending has now contracted for 14 quarters in a row. Which makes the more recent Swiss squeeze seem much more manageable somehow.

The 'good news', however, is that Irish consumers are still spending like its Q4 2005, in terms of their total spend in billions of euro. Though somehow it doesn't feel like it. Possibly because spending was still rising in late 2005, whereas it is still falling in late 2011.

2012, meet 2004...

Friday, December 16, 2011

The ePunt

I've had a number of interesting conversations recently about if/when/how we're going to switch from the euro to the punt nua (or whatever it might be called: the pound sterling perhaps?) One thought I've had is that we may not need to produce new bank notes or coins. Instead, we could simply become the first digital currency in the world (ignoring bitcoin for now). No more notes or coins - a cashless society (in the nice, not broke sense).

Is it feasible? I believe it is. Think back to when the euro went into circulation nearly ten happy years ago. Back in January 2002, only a minority of Irish people used the internet, a slim majority had mobile phones, credit and debit cards were used by less than half the population and most people got their wages paid in cash or by cheque. Fast forward 10 years and now 8 in 10 use the internet, 4 in 10 use internet banking, nearly everyone has a mobile phone and most of us have credit/debit cards. Also every shop and pub has machines for swiping the same cards. Indeed, for the vast majority of people, some 90-95% of the value of the transactions in and out of their bank accounts are now entirely electronic. Money is digital already, we just don't want to admit it.

Soooo... if we had to start from scratch tomorrow (or, er, by the end of Q1 next year if it's going to happen), we wouldn't need to print billions of punts worth of notes and mint millions of coins. Instead, all we would have to do is manufacture about 4 million smart cards: one for every man, woman and child in the country. The government would instruct the banks and the card operators that every transaction under, say, the equivalent of €5 would be 'free' for the retailer to process. Overnight (quite literally perhaps) we would switch to a new, entirely digital currency without stopping at the printing presses in between.

IBEC has already provided a roadmap for my idea. Not for the purpose I've suggested I should add, but in relation to social welfare payments, including child benefit. As a suggestion for boosting domestic demand, they recently proposed moving to an electronic payment method for all recipients - a smart card in effect. They even checked out the feasibility and concluded:
While there would be some costs in the transition to a payment card model, preliminary discussions with a number of private sector providers indicate that the project timescale should be no more than three to six months. A payment card model would not require beneficiaries to have a bank account as it would not involve a credit transfer to a bank account but would operate more like an electronic voucher model.
Some are already thinking about a cashless future. Dave Birch, for example, gave a fascinating talk at the RSA recently on this very subject. Whether its smart cards, next generation mobile phones or some form of 'Google Money' it looks like the days of notes and coins are numbered. Except maybe the gold and silver variety.

Necessity is the mother of invention, and uncertainty its father, so perhaps now is the time for the contingency planners in the Department of Finance (I hope there are some) to contemplate our digital currency future. Better still: give it to the Revenue Commissioners to implement. The end of cash will mean the end of the black economy, brown envelopes and all that. And I reckon the resulting boost to tax returns would more than pay for the cost of producing a few million plastic cards...

Thursday, December 15, 2011

Anxious Germans

Yet another 'did-they-understand-the-question?' survey finding. It turns out the majority of Irish people are thriving at the moment, compared to just a minority of Germans...

The research - by Gallup - even finds that 85% of Irish people are satisfied with their standard of living (and all the things they can buy and do). That's just below the Germans at 88%, and just above the British at 84%.

Things are less rosy when asked if people feel their standard of living is getting better or worse: only 25% of the Irish think its getting better, 45% say it's getting worse. The Germans are more bullish in this regard: 31%/23%.

For me, the key question is what does this says about the German zeitgeist right now? The fact that more than half of all Germans feel they are struggling (and another 13% are suffering) will undoubtedly convince their politicians not to agree to anything that puts a further strain on their already burdened electorate. Like paying more taxes to fund budget deficits/bank bailouts in other eurozone countries.

Stepping back from the polls, my sense is that the first quarter of 2012 will be one of historical significance for Europe. And that's besides an Irish referendum. I'll be paying a lot more attention to the mood of German voters over the next few months. We probably all should.

Wednesday, December 14, 2011

Pluck of the Irish

Brendan Walsh has a new paper out on the relationship between well-being and economics when it comes to the Irish. Or lack thereof, to be more precise. The chart helps make the point, since the 1970s life satisfaction in Ireland has barely budged - despite improvements in every objective measure of economic and material well-being:

As Brendan concludes:
Overall, the evidence presented here points to the conclusion that the impact of the current recession on measures of life satisfaction and indices of mental health and confidence has not been very marked. The population appears to be resilient in the face of major economic hardship.
This resilience is something I have seen in my own research - since the depth of the recession in 2009 the dominant emotions have been happiness and enjoyment.

So should economists and politicians tell us to 'don't worry, be happy'? Probably not. Firstly, things could be about to get a lot worse on the economic front - 1970s bad (hopefully not 1930s...) This might 'restore' a more direct link between life satisfaction and economic indicators such as unemployment.

Secondly, even if people are satisfied with their personal life they may still have a great deal of anxiety about their wider community and country. For example, in a nationwide survey last month, I asked the following question:
Which would say is more likely- that in Ireland we'll have continuous good times during the next five years or so, or that we will have periods of widespread unemployment or depression? 
This is based on the same question analysed by Robert Shiller, which I blogged about here. And the answer? 8 in 10 Irish people (79%) look ahead and see periods of widespread unemployment and depression out to 2016. Just 7% expect continuous good times over the next five years (they're mostly in their 20s, so they might be planning on good times somewhere else).

The national narrative is therefore one of considerable anxiety and negativity. Shifting that narrative may take even greater efforts than improving average life satisfaction. We need a new narrative for Ireland, one that fits with our history, values and demographics. One that is about our engagement with the world, not one of retreat and 'ourselves alone'.

Here's my starter-for-ten: Caring for the World.

Tuesday, December 13, 2011

Shifting Balance

Richard Koo charts Ireland's balance sheet recession in a fascinating analysis. His solution:
One way to solve this eurozone-specific problem of capital shifts would be to prohibit member nations from selling government bonds to investors from other countries. Allowing only the citizens of a nation to hold that government’s debt would, for example, prevent the investment of Spanish savings in German government debt. Most of the Spanish savings that have been used to buy other countries’ government debt would therefore return to Spain. This would push Spanish government bond yields down to the levels observed in the U.S. and the U.K., thereby helping the Spanish government implement the fiscal stimulus required during a balance sheet recession.

...Ending the eurozone’s crisis will require a two-pronged approach. First, international bodies like the EU and ECB need to declare that member countries experiencing balance sheet recessions must implement and maintain fiscal stimulus to support the economy until private sector balance sheets are repaired. Second, eurozone member nations must declare that in ten years they will prohibit the sale of government debt to anyone other than their own nationals.
Of course, ten years is a long time to wait. Though taking a long time appears to be one of the defining features of a balance sheet recession:

Mind you, a balance sheet recession coupled with a bank bailout just might take even longer to work itself out...

Sunday, December 11, 2011

The Stagnation & Austerity Pact

Last week's European summit continues the now three-years-old tradition of solving the wrong problem when it's already too late. The Stability & Growth Pact has become the Stagnation & Austerity Pact. Governments will be prevented from running large deficits in order to limit borrowing levels. The only problem: deficits didn't cause the crisis. As Sean Corrigan explains:
Just pause to think what is at work here. In the 2 1/2 years from the end of 2008, Germany ran a current account surplus of around €335 billion, two-thirds of which (~€220 billion) originated in the trade surplus the country ran with its EZone partners.

In this period, German households put €385 billion into building their nest egg of net financial assets, with non-financial German corporates likewise adding €125 billion to theirs. With the state swallowing up €190 billion as a result of its lurch back into hefty deficit financing, a closely comparable €320 billion was therefore left to be disposed of abroad, sending the funds back whence they came—in aggregate at least, if not necessarily in every devilish detail.
Or take this analysis from the Wall Street Journal about Spain:
In 2007, before the crisis struck, Spain had a modest debt load representing just 36% of its economy, according to European Union figures. And those responsible Germans? They had 65%.

During the past decade, Germany repeatedly breached the euro rules by running too large a budget deficit. Spain actually ran a modest budget surplus in the years before the crisis hit.

But haven’t things changed since then? The German economy has powered through the crisis while the Spanish economy has languished, so you would think the two would have traded places.

You’d be wrong. Last year, Spain’s public debt load represented 61% of its economy. Germany’s rose to 83%. In fact, Spain’s debt burden last year remained below that of the Netherlands (63%), France (83%) and, for comparison, the U.S. (93%).
We have a trade imbalance in the eurozone,  fuelled by German quasi-merchantilism as the ECB seeks to do Germany's bidding in terms of providing the optimal interest and exchange rate environment for its exporters. The Stagnation & Austerity Pact simply ignores the true cause of our current dilemma.

But it gets worse. The real solution - growth - is not part of the agreement about to be foisted on us (with or without a referendum). Nor is it obvious what a 'one-size-fits-all' growth strategy for the eurozone should look like. Megan McArdle notes the terrible demographics now weakening the long term growth prospects for Greece, Italy and Spain (Germany isn't far behind by the way). Indeed, economic prospects for the eurozone are so bad right now that is likely only two member countries will be able to 'achieve' the targets set out in last week's deal.

So in this respect David Cameron did the right thing last week. Britain's financial services sector is worth nearly 10% of GDP, and - absent any other obvious source of growth for the UK (its own economic prospects are equally grim) - he probably had no other choice.

What all this means for Ireland's prospects next year and beyond is harder to say. Though 'rosy' isn't the word that comes to mind. Fasten your seatbelts...

Thursday, December 8, 2011

We're All The Same, Not

Robin Hanson explains why the feminist project is doomed to fail:
While folks are sometimes indignant that others’ expectations about them depend on their gender, few are willing to change the fact that their wants regarding others depend on those others’ genders. So there is little prospect of eliminating gender-based social expectations. Nor is it obvious that this would be a good idea.

Wednesday, December 7, 2011

Three Years On

This is an extraordinary talk by Olafur Grimsson, President of Iceland. It's only twenty minutes long. Well worth the viewing.

Just one of the remarkable statements he makes in his speech: in the past few years they have received more delegations from China than from the United States, Britain, France, Germany, and the Netherlands combined.  The Chinese were the only ones to back Iceland during the disgraceful Icesave bullying episode led by the UK and the Netherlands.

Iceland now has growth and falling unemployment - we've got the debts from a bank bailout currently standing at 40% of our GDP. Still, nice to see what a bit of political backbone can achieve:

Olafur Grimsson: Iceland Bounces Back from PopTech on Vimeo.

Tuesday, December 6, 2011

The Hammer of Debt

From another great post by Golem XIV:
Debt is the hammer of our age. Its original purpose was to accelerate growth. Which it does. But like many such accelerants, like steroids or speed, it has disastrous side effects which are never slow to manifest. In the case of debt the problems arise from a basic misunderstanding of what debt does. It is often suggested that debt increases growth. It does not. It hastens it. You can save up what it will cost you to build a new factory or you can borrow and build the factory sooner. The debt allows you to start growing sooner. But at the cost of siphoning away a little of the growth to pay the interest on the debt. So actually debt decreases your growth by the interest you pay on your debt. And that is the kernel of the disaster.

... At this moment many of us can clearly see the hammer of debt is now no longer a wonder tool nor the answer to our present predicament. Growth and the debt that accelerated it were inventions of the world of steam and then oil and all the technologies of petrochemistry, electricity and computation. It was the wonder tool of the brief moment when we were still small in number and the world was still big. Today we are very many and the world relative to our powers of consumption and destruction is small and shrinking.

... We are being bludgeoned with debts and the austerity deemed necessary to pay for them. The Irish have just this evening been told they must suffer yet another two billion euros in austerity cuts to education and health. Yet the bail out of their worthless banks remains firm and will increase. In March the Irish state will still run out of money and more austerity will be called for while their banks will ‘require’ yet more ‘aid’ and ‘support.’

Sunday, December 4, 2011


Fat makes you fat, right? Wrong. When it comes to food we have been subject to another example of scientific myopia these past few decades - as with the science of mental illness. That's according to Gary Taubes, interviewed in a recent episode of EconTalk.

It appears we've got the food pyramid all wrong: the causal link between fatty foods and heart disease, cancer and diabetes ignores a far more dangerous and direct threat. It now appears that refined carbohydrates, combined with sugar, are the main sources of the epidemic of obesity and diabetes now gripping developed countries (or 'diabesity' as Taubes calls it in a fascinating New York Times article). It is forecast that half of all Americans will be obese by 2020.

But look what makes up the base of the food pyramid we're all supposed to model our diet on. That's right, carbohydrates... My read of Taubes and others is that instead of a food pyramid we'd be better off with a 'food diamond', i.e.: shrinking the carbohydrate base to mirror the top of the existing pyramid.

Will policy makers and health professionals make the necessary changes? Certainly time is of the essence: the most recent report on Growing Up in Ireland shows that more than a quarter of Irish 3 year olds are overweight or obese (20% and 6% respectively). Rising to 9% obesity in those in the lowest socio-economic groups:

But I wouldn't bet on change happening any time soon. As Taubes makes clear, once a certain scientific paradigm is established (even in the absence of any real science behind the paradigm) it's extremely hard to change it. But change can come from the bottom - more and more people are beginning to realise the fatal flaw in the food pyramid's carbohydrate base as they experience weight loss by significantly reducing their consumption of carbs.

Cracks in the base of the food pyramid might just help us raise a healthy generation of children, rather than face an epidemic of diabesity in years to come.

Friday, December 2, 2011

The 5 Ds

Charles Hugh Smith looks further ahead:

Looking farther out, there are emerging trends I call “the five Ds:” definancialization, delegitimization, deglobalization, decentralization and deceleration. Though these may not be visible to the mainstream just yet, they will slowly influence the job market and our definition of work.
  • Definancialization. Resistance to the political dominance of banks and Wall Street is rising, and the financial industry that thrived for the past three decades may contract to a much smaller footprint in the economy.
  • Delegitimization. The politically protected industries of government, education, health care, and national security are increasingly viewed as needlessly costly, top-heavy, inefficient, or failing. Supporting them with ever-increasing debt is widely viewed as irresponsible. Cultural faith in large-scale institutions as “solutions” is eroding, as is the confidence that a four-year college education is a key to financial security.
  • Deglobalization. Though it appears that globalization reigns supreme, we can anticipate protectionism will increasingly be viewed as a just and practical bulwark against high unemployment and withering domestic industries. We can also anticipate global supply chains being disrupted by political turmoil or dislocations in the global energy supply chain; domestic suppliers will be increasingly valued as more trustworthy and secure than distant suppliers.
  • Decentralization. As faith in Federal and State policy erodes, local community institutions and enterprise will increasingly be viewed as more effective, responsive, adaptable, and less dysfunctional and parasitic than Federal and State institutions.
  • Deceleration. As debt and financialization cease being drivers of the economy and begin contracting, the entire economy will decelerate as over-indebtedness, systemic friction, institutional resistance to contraction (“the ratchet effect”), and political disunity are “sticky” and contentious.
 Still, at least he didn't mention Depression...

Thursday, December 1, 2011

High Anxiety

My company's latest Economic Recovery Index report shows a narrowing 'emotional gap' in the mood of the nation. The chart below shows the percent of Irish adults experiencing each emotion or feeling from April 2009 to November 2011. Although 'happiness' and 'enjoyment' remain the predominant emotions, the negative emotions of stress, worry and anxiety are closing the gap (and back to last November's levels in the case of 'worry'):

The full report, with additional charts and tables, is available here.

Tuesday, November 29, 2011

Hanging On

Ahead of Budget 2012, my company has recently conducted a survey for RTE Frontline and the Irish Daily Mail. The picture it paints is stark: a large and growing minority of Irish people are 'running out of road'. Judge for yourself:

Tuesday, November 22, 2011

After Democracy

A wise man once said that in economics there are no solutions, only trade-offs. The same goes for politics. Democracy is nothing if not a process of trade-offs: 'which do you want: lower taxes or higher spending?' For a while our politicians (and others in the PIIGS) pretended there were no trade-offs: you could have lower taxes and higher spending. That hasn't worked out so well.

The problem is: there are no trade-offs any more, nor any solutions. There is simply the programme - what the Troika wants. Let's be clear: most of our problems in Ireland are self-inflicted. We didn't want to make trade-offs. Though in fairness we are also suffering from a wider problem: the failure of the ECB to make trade-offs. That's why - as Colm McCarthy recently pointed out - 40% of Ireland's debt/GDP ratio is solely the result of the ECB's insistence that we bailout the private creditors to private banks. The trade-off should have been for the ECB to provide the money to pay the creditors rather than let Ireland leave them to their own devices (and haircuts). But no: the ECB wants us to pay the creditors and no haircuts.

The politicians of the PIIGS are not the only ones who can't make trade-offs.

But there's a bigger problem: if there are no longer any trade-offs then we no longer have a democracy. There is nothing to be decided: only targets to be met. In which case: why do we need political representatives, let alone elections? The answer appears to be that we don't. Increasingly our leaders are technocrats - mostly alumni of Goldman Sachs as it happens.

Of course there is a precedent for this: in times of war, democratic countries - including Ireland - will often form a 'government of national unity' or some such thing. Until the emergency is over, of course. But what happens if the emergency doesn't end any time soon? In a fascinating review of Francis Fukuyama's new book, philosopher John Gray criticised the Western hubris that thinks our model of liberal democracy and free markets somehow represents the 'inevitable' outcome of societal development. A brief perusal of history would suggest otherwise. That and the 'brute' success of China and Russia.

Democracy has shallow roots in Ireland. Instead of a trade-off between representative democracy or participative democracy we have ended up with managerialist democracy. Even the Cabinet don't get to make decisions any more - as explained by Fintan O'Toole

And that's what worries me. We are only in the early stages of the Troika's programme and already our democracy - and that of other European countries - is severely weakened. The Germans elected Hitler in 1933 (though the Nazis only got a minority of the votes). But that only came after a decade-long roller coaster of economic depression, hyperinflation, and crippling reparations. A desperate people eventually reach for desperate solutions when democracy fails to make the necessary trade-offs: or no longer can.

I fear we are living in the age after democracy. I hope I am wrong.

Sunday, November 20, 2011

A Matter of Time

Is Europe experiencing a clash of cultures? Especially cultures relating to time? It would explain why Germany appears unwilling to countenance short term measures that have unwelcome long term consequences. The chart is from a survey of students in 45 countries (yes, another 'Weird' study).

They were asked:

Which off er would you prefer?
A. a payment of $3400 this month
B. a payment of $3800 next month?

The chart shows the percentage in each country willing to wait one month. Guess which country comes tops? And guess which one comes, em, 19th?

No wonder Enda was at cross purposes with Angela last week. He needs to start talking about how good things will be in five years time when we sort this all out: if we do the 'right thing' now. Rather than do the right thing now... in the hope that it will work out for the better.

In other words, we need a plan that everyone is agreed on. Though it'll probably involve a tad more than $3,800...

Saturday, November 19, 2011

Sterling Stuff

If the euro goes I don't think we'll end up with the 'punt nua'. We'll end up back in the sterling zone. Here's why:

They'll have no choice but to take us back - in order to save the UK banking system...

Source: BBC

Thursday, November 17, 2011

Runaway Train

Here's a great quote from Golem XIV (who sees Credit Crunch 2 gathering pace already):
Like a train sliding backwards over a precipice, as each carriage goes over so the weight pulling down grows and the weight resisting decreases. And the engine at the front, the ECB/Germany has to think can I still pull all this back up or should I cut the coupling and save myself at least.
For those who prefer percentages, here's a handy chart from Zero Hedge:

That works out at a 25% chance Ireland will have to do an 'Argentina' (I had guessed 20% in correspondence with an anxious friend abroad wondering what to do with his savings in an Irish bank - let's just say they're not there now...)

Brian Lucy has started a handy discussion about Ireland's post-euro economy, likewise Nama Winelake envisages the introduction of the Punt Nua.

As for how it went for Argentina, Peter Day's recent podcast took a look at Argentina ten years on from its devaluation and break with the dollar. The message: it only works if you have a balanced budget and a strong export sector. Argentina had both going into devaluation (and taxes from the latter helped offset pressure on the former). We've got the exports but not the balanced budget.

So it's going to hurt if Germany cuts the coupling...

Tuesday, November 15, 2011

Richard Douthwaite RIP

I was very sorry to learn about the death of Richard Douthwaite, co-founder of Feasta. I met and corresponded with Richard several times over the years, and read most of his books. Like I said at the start of the crisis, his was the kind of original economic thinking that we sorely needed (and still lack) in Ireland.

I didn't agree with everything Richard advocated, but then you tend to learn more from the people with whom you disagree, and he was a great teacher. And in hindsight I tended to agree more than disagree.

There's a tribute to Richard over at Feasta. He really was one of the good guys. He will be sorely missed.

No Going Forward

In his lates post, Ashwin Parameswaran compares the unfolding eurozone crisis to what happens when you keep suppressing small fires in a forest... you eventually get a big one that destroys the forest. Or as he puts it, sacrificing social stability in order to preserve economic stability will only hasten the conflagration.

Spot the flames:

Send in the water bomber.

Monday, November 14, 2011

Bottom Up Happiness

Is happiness personal? Britain's Office for National Statistics has just issued a discussion paper on the measurement of national well-being, inviting feedback ahead of a measurement exercise next year. They propose measuring multiple 'levels' of happiness - from the personal to the social to the political.

A recent debate organised by Open Democracy has pointed to potential problems with this approach. Firstly, it puts the emotional state of individuals at the centre of national 'happiness policy'. And emotions are - to say the least - quite fickle in most people's experience. Moreover there are profound cultural differences in perceptions of well-being and the sources of life satisfaction - as evident right across Europe. Nor is there any real consensus on what is happiness, never mind how to measure it, as I've noted before.

Still, the ONS initiative does contribute to an important debate. As the prospects for growth in Europe (including the UK) fade we might benefit from a reappraisal of what really matters to our country, our families and ourselves. Even if we discover there isn't much politicians can do about it.

Sunday, November 13, 2011

The Reactionaries Usually Win

From Sheri Berman, contemplating revolution (or the lack thereof):
What lessons does the historical record provide to those interested in trying to figure our whether or not today’s discontent is likely to produce revolutionary change or simply peter out?

One important historical lesson that seems particularly relevant to our contemporary moment is that it is much easier to be negative than positive. Or, to be more precise, it is much easier to mobilize against an old order than to generate consensus for a new one.  

...Today, we are certainly living through a period of massive discontent. Sclerotic and unresponsive political regimes, economic downturns, and financial crises have created grievances and dissatisfaction in many corners of the globe. But much of this opposition remains focused more on what it opposes than on what it wants, better able to articulate why it wants to do away with the existing order than able to convey viable alternatives to it.

...Prognostication is always a difficult and dangerous business. Perhaps we are still in the early stages of our “age of uncertainty.” Powerful and attractive plans for changing the status quo might soon emerge. But if history is any guide, the chances of that happening are slim. Particularly in the West, what seems striking about the current period is the widespread sense of the need for change combined with the lack of any coherent plans for it.  

Tuesday, November 8, 2011

Ciao Silvio, Ciao Euro

Vox Popoli calls it as Italian bond rates soar to nearly 7%:
This is a very big deal. One year ago, the Italian 2-year was at 2.010 and the 10-year was at 3.924. The Italian 2-year is now rapidly approaching where the Portuguese 10-year was one year ago.

What this indicates is that the end of the Euro and the end of the EU in its present form will likely take place within one year. Greece and Ireland were sideshows. Italy is the main event.
Maybe it's safer being a sideshow?

Monday, November 7, 2011

Plan G

On January 1st 2002 - the day euro notes and coins entered circulation in Ireland and throughout the eurozone - an ounce of gold would have cost you just over €300. Today, as the tenth anniversary approaches, an ounce of gold costs €1300. The chart tells the story - from the excellent World Gold Council website (free registration).

My guess is that gold has a big future ahead of it in the eurozone. With the ECB and Germany suggesting that Italy puts up its gold reserves as collateral for future bailouts, we are going to hear a lot more about gold and gold reserves in the coming weeks and months... and years. The funny thing is: the Germans could probably transition to 'Der Gold Mark' more easily than any other eurozone country as they have the largest gold reserves in Europe (and the second highest in the world). Then again, maybe that's the plan...

Here in Ireland, our leaders are not ones to follow the gold herd, no sirree. Though maybe that is changing. In the chart below I have plotted the price of gold in euro and the value of the Central Bank of Ireland's gold reserves between January 2003 and September 2011:

It is quite clear that the value of reserves has moved in lock step with the price of gold - suggesting little net addition or subtraction to the total stock held by the Central Bank. Although curiously, September saw an increase in the value of reserves even as the price actually fell - suggesting a net addition to the stock of reserves. But it's very little, very late.

According to the World Gold Council report on World Official Gold Holdings October 2011, Ireland has 6.0 tonnes of gold reserves, with a value equivalent to 15.4% of the country's total foreign reserves. We used to have 16 tonnes as recently as the late 1990s. Just to put that in perspective: we currently rank number 72 in the world in terms of tonnes held - the lowest reserves in the eurozone. By the way, the eurozone average for the share of foreign reserves held in gold is 66.3%. While Germany holds 74.7% of its foreign reserves in gold...

So forget Plan A or Plan B - Ireland needs a Plan G: just in case the eurozone doesn't get to celebrate the tenth anniversary of its launch into circulation.

Sunday, November 6, 2011

Perpetual Finance

Charles Hugh Smith explains global finance - and why it's about to collapse:
Modern financial "products" and "instruments" are often highly complex and abstract, but the entire edifice can be distilled down to this: the system is based on the assumption that all risk can be hedged, and the difference between the initial position's yield/gain (i..e. placement of capital at risk for a gain) and the cost of hedging the risk of the wager to zero can be skimmed from the system risk-free.

That is the entire system in a nutshell, and we can immediately see the advantages of this system over traditional Capitalism, where risk can be hedged but never to zero, and the return is correlated to the risk taken on.

...The entire global financial system is thus based on the equivalent of a perpetual motion machine: money can be borrowed or leveraged into existence in essentially unlimited quantities, and then deployed in risk-free skimming operations to harvest unlimited wealth.

What does this promise of using leveraged capital to skim risk-free fortunes do to the "real economy" of production and investment in plant and technology? It guts it. The risk of industrial Capitalism is real and cannot be hedged away; high-risk investments may blow up or they may return high yields. It literally makes no sense to risk real capital in productive Capitalism when a zero-risk skimming operation can be developed that essentially needs near-zero capital.

Thus financial capital has come to completely dominate industrial or productive capital. The pernicious consequences of this dominance have poisoned the economy and culture on multiple levels. 
Now you know. Go read the rest here.

Saturday, November 5, 2011

Nobody Knows Nothing

The Department of Finance has seen the future, and it doesn't look great. The Medium-Term Fiscal Statement paints a less than rosy picture to be sure. But what if it's still too optimistic? Robin Hanson points to a recent review of forecasts by the equivalents of Ireland's Department of Finance in 33 countries which found that:
... the average upward bias in the official forecast of the budget balance, relative to the realized balance, is 0.2 percent of GDP at the one-year horizon, 0.8 percent at the two-year horizon, and 1.5 percent at the three-year horizon. The longer the horizon, and the more genuine uncertainty there is, the more scope there is for wishful thinking.
Of course, our Department of Finance might be better at measuring and forecasting macroeconomic variables than finance ministries elsewhere. Hmmm.

The reality is that the Department's forecasts are like a business application for a bank loan. The applicant inevitably emphasises the positive, without exaggerating things to the point it lacks credibility. But it's still spin - or a 'scenario', if you prefer. There is nothing wrong with such an approach per se - so long as you see it as a communications exercise rather than something more profound. Or more useful.

There is, however, a bigger challenge than one of mere accuracy. And that is that we just don't know what drives growth, or what the future holds. Russ Roberts gets to the heart of the matter in a recent critique of Paul Krugman. Economics is more about ideology than about engineering:
...when we’re dealing with complex systems, truth is very hard to come by. To claim otherwise is the pretense of knowledge. What we are really debating is ideology and philosophy. That’s the fight of the century - more bottom-up or more top-down. That’s what’s really at stake. We may pretend otherwise, that we’re just economic engineers trying to make the system work better but I think that’s an illusion fostered to encourage people to buy our intellectual wares.
We simply don't know enough about what makes any economy grow to be able to forecast the economic future, let alone shape it.  According to Charles Kenny some 18,000 statistical analyses have been published since 2005 alone on what drives GDP per capita growth. And the answer?
So what’s the secret to economic growth? The short answer is that there appears to be no short answer. ... the available data don’t allow us to make any hard and fast statements about “what causes economic growth” at all.  That there might not be a holy grail of growth policy, however, is unlikely to prevent people of economic faith from looking. The next six years will undoubtedly see another 18,000 papers on the topic. Just don’t spend too long reading them. Episodes of fast growth and stagnation around the world will continue to take us by surprise.
Worth remembering as the debate about austerity etc gathers pace in the years ahead. And as we ponder the probability of Ireland experiencing the future forecast by the Department of Finance. I'll leave the last word to Charles Kenny again:
There’s a reason it is hard to predict the future: It hasn’t happened yet.

Friday, November 4, 2011

Mind Games

Ever since I read Robert Whitaker's book about the explosion of mental illness in the United States (see my recent post) I've been much more conscious of mental health trends.

The 2011 Pfizer Health Index provides recent information about health and illness in Ireland. I've highlighted data from one of the report's tables showing the incidence of depression and of other mental illnesses. It comes to about 5% of the Irish adult population (the same as in the recent CSO study of the nation's health status). Though even at 5% that is still nearly 150,000 people - more than twice the numbers affected by cancer over the same period.

Of course, the predominant paradigm for the treatment of mental illness is a biological one (necessitating treatment by psychiatric drugs): even though there are several other models of mental illness that have stood the test of time. This means that any increase in the incidence of mental illness tends to automatically increase the prescription of psychiatric drugs. Whitaker and others have charted the alarming increase in the incidence of mental illness in the United States and elsewhere - and the manner in which it has grown in lock-step with prescription drug consumption.

Almost uniquely in the medical domain, the incidence of mental illness (as opposed to, say, cancer or heart disease) isn't just a function of epidemiology. It is also a function of 'definition'. Which is why there is so much controversy about the forthcoming edition of the American Psychiatric Association's Diagnostic and Statistical Manual of Mental Disorders (DSM-5 in the jargon). Effectively, the APA are being accused of widening the definitions of mental illness to such an extent that huge majorities of the population could be diagnosed as mentally ill. In effect: the APA are 'inventing' mental illnesses (my favourite: 'Apathy Syndrome' - as if anyone cares).

Practitioners of the 'other models' (cognitive therapists, psychoanalysts etc) see DSM-5 as a more-or-less self-serving initiative by psychiatrists to 'grow the market'. With the implication that we will see a growing population of 'mentally ill' (as more and more people are so-defined), and the resultant growth in demand for prescribed psychiatric drugs that will inevitably follow.

Economic reality (certainly for the HSE in Ireland) might curb such a trend - and cultural influences may also have an influence (e.g.: I still haven't figured out why the Portuguese are three times as likely to take anti-depressants as the Irish - see my previous post). Given that the share of Irish adults suffering depression hasn't risen the past five years, then perhaps we are somewhat immune to the 'mind games' of the psychiatric profession?

Thursday, November 3, 2011

It's Complicated

That's a map of Ireland you are looking at. Admittedly an unfamiliar one.

It comes from The Atlas of Economic Complexity - published recently by Harvard Kennedy School. The idea behind the atlas is simple enough: to express the degree of globalisation of countries in terms of Diversity (the number of product markets an individual country is connected to) and Ubiquity (the number of countries connected to an individual product market). Thereafter it gets a bit more complex: but you can enjoy the equations for yourself in the main report.

What is interesting is that Ireland scores highly in terms of economic complexity (profile on page 196 of the pdf).  We rank number 18 in the world: just below Denmark and just above Israel. Greece ranks number 53 in the world, by the way, just below Brazil and just above Columbia. More fuel for the 'Ireland isn't Greece' meme perhaps?

The authors of the Atlas argue that economic complexity is broadly associated with higher standards of living, better growth prospects and a degree more economic resilience. All good things to be sure. Of course, the index is just based on trade-related data. And there's more to an economy and society than exports and imports obviously.

Which is why it is handy to compare Ireland's standing in other measures. Luckily we have two new ones to examine. The first is the latest Legatum Prosperity Index for 2011 - Ireland ranks 11th in the world (Greece ranks 40th by the way - just thought I'd mention that). I like the Legatum approach as it combines both economic data and social indicators, including survey based measures of social capital.

The second of our comparative measures is the United Nations International Human Development Indicators - just out today. On this measure, Ireland ranks 7th in the world (Greece ranks 29th, in case you are interested). The HDI lacks the depth of the Atlas of Complexity and the breadth of the Legatum Prosperity Index - but as a measure it does provide comparative data going back to the 1980s. And the trend for Ireland has been extremely positive.

Of course, all such trends and comparisons must come with the usual warning: past performance is no guarantee of future performance. It seems to me that Ireland is going to need all the complexity, resilience, diversity and ubiquity we can muster in the coming months and years.

Occupy Yourself

Quote of the day...
"This is perhaps why everyone running around in V is for Vendetta masks makes me laugh. Moore’s vision of a rebellion against a totalitarian fascist dystopia was predicated on a simple duality: “Us” vs “Them”. The people vs the system and similar tropes. The problem is that an “us” doesn’t exist anymore. As much as anyone who appropriates the anonymous rebel idea wishes to believe they are in league with everyone versus the man/the system/whatever, they’re more likely to be in league with a startling minority of people who happen to believe in a given cause. A cause which is in any event one amongst many." Jack McDonald

Wednesday, November 2, 2011

A Growing Family

Growth must be the number one priority for Ireland.

The importance of the growth agenda was brought home to me by the recent OECD report on Ireland. The chart from the report shows the trajectory of Ireland's gross government liabilities as a percentage of GDP given different growth scenarios to 2025. The impact of even modest differences in projected nominal GDP growth (plus or minus 0.8% per year in the higher/lower scenarios) is huge. The central or baseline scenario assumes 4.8% nominal annual growth, or real growth of 2.8% when inflation is stripped out.

Of course, even 2.8% growth is very high relative to the global outlook. With the OECD forecasting just 0.3% real growth in the eurozone next year then we'll have our work cut out to achieve even the baseline over the next twelve months, never mind over the next twelve years. Nor is this just a problem for Ireland. As Chris Dillow regularly explains, the global economy - and international capitalism - may well have entered a prolonged, even permanent phase of low growth teetering on stagnation. His recent explanation for the origins of the present crisis explains why:
Put simply, the combination of China’s export-driven growth and the desire to build up FX reserves to prevent a repeat of the 1998 currency crises generated a glut of savings which was invested in western bonds, causing a fall in their yields.

In principle, this drop in interest rates might have triggered a boom in real capital spending. But it didn’t, perhaps because the "great stagnation" meant there was a dearth of investment opportunities. Instead, lower rates unleashed a bubble in house prices, the bursting of which brought down banks.
Nevertheless, the growth agenda needs to be pursued vigorously.  And not just in Ireland. Now the world has 7 billion mouths to feed, getting on a path to sustainable growth is more vital than ever.  Whilst there have been many suggestions for how best to kick start growth (for example ICTU's recent call for a €6 billion investment programme over the next 3 years), most ignore the biggest long term issue affecting growth: demography.

We are lucky in Ireland to have relatively favourable demographic trends for the next decade or so, but not everywhere is the same. A fascinating series of studies on The Sustainable Demographic Dividend has recently observed that marriage has played a key role historically in sustaining growth, and its decline in recent decades has contributed to the great stagnation now facing us:
Finally, the global retreat from marriage is also likely to depress and distort economic growth. Evidence drawn from Europe and North America indicates that children who are raised in an intact, married home are more likely to excel in school and be active in the labor force as young adults, compared to children raised in nonintact homes. Married adult males also work harder than their unmarried counterparts and enjoy an income premium over single men of between 10 and 24 percent, in countries ranging from Germany to Israel to Mexico to the United States. These findings suggest that market economies in the Americas and Europe—from Canada to Chile, from Spain to Sweden—that are now experiencing a retreat from marriage will also reap a new crop of problems as fewer children have the opportunity to acquire the human and social capital they need to thrive in the global economy and as fewer men have the motivation that marriage brings to fully engage the world of work.
Reversing the retreat from marriage might not seem like an obvious solution to the growth problem we are facing (to economists anyway), but feeding 7 billion men, women and children - and the next billion that will be born in the decades ahead - will take all the economic, social and technological skills we can muster.

It will also hold out the prospect of a better future than merely one in which we dutifully pay off our debts - and the debts of others foisted upon us.

Monday, October 31, 2011

Trick or Trick

Here's a horror story for the day that's in it: the EFSF may not be able to raise the money that was supposed to keep Ireland going until we're ready to go back to the bond markets...

ht Irish Economy Blog

Thursday, October 27, 2011

The Devil's Benefit

"And when the last law was down, and the Devil turned around on you - where would you hide, Roper, the laws all being flat? This country's planted thick with laws from coast to coast - man's laws, not God's - and if you cut them down... d'you really think you could stand upright in the winds that would blow then? Yes, I'd give the Devil benefit of law, for my own safety's sake." Robert Bolt, A Man for All Seasons

So I'll be voting No to the 30th Amendment.

Monday, October 24, 2011

The Long Is Short

Apparently I have a 'Present-Future' thinking style. I filled out the short survey on Mind Time Maps and got the chart opposite (with some additional commentary on what it all means). It's a neat way of thinking about the relative importance of the past, present and future in our lives. Though I suspect lifestage (i.e.: getting older) has an influence on one's place on the map. I'll be sure to update it for you in twenty years time...

The time map idea is featured in an excellent report on the idea of The Future Quotient. You've heard of IQ and EQ - now there's FQ. It's a fascinating report, full of interesting ideas, tools and examples. Well worth the read. It also includes a reference to Andrew Haldane's paper that I blogged about previously - whence the title of this post.

The authors are anxious to arrest a perceived decline in thinking about the future. I think any 'decline' is an inevitable consequence of increasing uncertainty. When the near term is so uncertain, what's the point of thinking about the long term? Chris Dillow has a contrarian perspective (as usual): we are moving rapidly from a Fordist era of planning and thinking (writ large in macro economic forecasting) towards a Zaraist era of real time responses to demand (making macro forecasting useless, let alone inaccurate). Alternatively, it could be that we are simply 'over-discounting' the future - we need a better way to price the future.

Perhaps. But there also profound cultural differences. According to Geert Hofstede's analyses of Long Term Orientation (LTO), it is predominantly Asian countries that have the highest capacity. There isn't a measure for Ireland - but I suspect we're not much different to the UK: and their LTO capacity is on a par with Tanzania and Zambia... By the way, another cultural dimension measured by Hofstede is that of the Uncertainty Avoidance Index (UAI). Countries with a high UAI have populations that generally seek to avoid novel situations that are unstructured and surprising or different from usual.

And the country with the highest UAI in the world? Greece. Oh dear...

Sunday, October 23, 2011

Budget Psychology

My latest post over at the Economics, Psychology and Policy blog argues that Budget 2012 will be the most important psychologically in years...

Saturday, October 22, 2011

Your Brain on Animation

I've blogged before about Iain McGilchrist's The Master & His Emissary - one of the most original books I've read in the past ten years - but if you don't have the time to read it, then check out this handy animation from the RSA:

Friday, October 21, 2011

The X-Factor Election

John Waters worries about our narrowing spectrum of possibilities as a nation:
In the Ireland midwifed by materialism and pseudo-modernity, it is impossible to image a patriotism that is not jingoistic, an idealism that is not economistic or a sincerity that is not sanctimonious. We know too much, are too clever, have become over-ironified to the point of cultural self-ingestion. Political rhetoric, then, has become a kind of game, in which only the most pious or populist sentiments are a safe bet...

More than anything yet “announced” by anybody – leader, writer, artist, whoever – this election has declared an end to the present spectrum of possibilities. One thing we now know: we cannot return to this well until we take steps to replenish it. In a culture increasingly driven by scepticism and suspicion, we can find no ideas or images concerning our collective future from within the existing package, but nor does anyone seem capable of generating any new thoughts or symbols that might sustain us into another phase.
Most Irish people under the age of 35 haven't voted in a Presidential election before. I call them the X-Factor Generation and perhaps we should not be surprised that the election has taken on the same 'light entertainment' features of a celebrity game show.

I'm a citizen, get me out of here...

Thursday, October 20, 2011

Cultivating Civility

Kindness is the parent of kindness.
Adam Smith
The Young Foundation have published a thought-provoking report recently called Charm Offensive: Cultivating Civility in 21st Century Britain. The Adam Smith quotation is from the report. So is the graph: a neat framework for scoping the full extent of civility.

It's also a very British - even English - report. In my experience the English enjoy a deep culture of civility. Not everywhere and always, nor in every interaction. But enough for a visitor to come away with an abiding sense of English civility. So it seems apt, in a way, that a research institute in England should be fretting about something that - I suspect - doesn't occupy nearly as much attention in other countries. Including Ireland. I think we assume in Ireland that our smallness - and the fact that nearly everyone is three-degrees-of-separation away from each other - is enough to keep us civil.

The Young Foundation report sets out lots of examples of how civility is being shaped by cultural, economic and other forces in Britain. Some are working against civility - busy lives, for example - others are working for civility - e.g.: ethnic diversity and the need to 'get along together'. The report recommends a number of ideas - including nudge-type applications of behavioural economics - to induce a great level of civility in society.

One of the issues they could do with giving more attention to is the decline of shame. Jennifer Jacquet blames the decline of shame as a 'civil-izing' force on the ephemeral nature of so many interactions and relations in today's world which loosen the bonds that gave shame its power. She cites the example of economy-wrecking bankers and their bonuses. Indeed. The problem with shame, of course, is that implies passing judgement - and passing judgement on other people's lifestyle choices is now considered politically incorrect most of the time. Indeed, there are some who argue that political correctness has replaced old-fashioned 'niceness' as the driving force of civility. Which can be problematic.

But here's the thing. I do think that the level of civility in Ireland is quite high - whether by accident or design. And it is something we should make more of when thinking about our future. We are number 2 in the world in terms of civic engagement after all. Also civic, civility and civilization all share the same route in the Latin for citizen. Citizenship is about belonging and as we look ahead to 2016 and the centenary of the Rising we might use the occasion to think again - and together - about what it means to be Irish in the 21st century and how it binds us together.

In a civil manner of course. 

Wednesday, October 19, 2011

When The Lever Breaks

Golem XIV compares the world's leaders to a stress-out rat in a Skinner Box as they keep pressing the 'confidence bar':
Seems clear to me our leaders are just pressing that bar because they don’t have the imagination to think of anything else.  They never did know why pressing the bar delivered the reward. Economics is a Skinner box, a black box, where there no one can see and certainly none of them understands, the mechanism at work. They have theories about the underlying rules and mechanisms and assumptions about human nature and the nature of economic behaviour. Their assumptions are almost all fatuous from any kind of evolutionary perspective. And their theories about the mechanisms are generally drawn from dubious first principles or based on correlations which they have noted – when this has happened in the past then this has followed. But sadly for them the correlations are very often ephemeral. They hold true for a decade or two and then seem to stop being correlated.

...And so they continue to press the bar and attribute anything positive that subsequently happens to their bar pressing. While anything negative is attributed to not pressing it correctly or to malign external factors. If nothing happens, well press it again a bit harder. Remember confidence in the bar is the key to seeing the policy through!
Where's PETA or the ISPCA when you need them?

Tuesday, October 18, 2011

Miserably Happy

The latest Eurobarometer report on the Social Climate in Europe suggests, once again, that the laws of economics stop at Hollyhead. The survey asked respondents throughout the EU for their opinions on the state of their country's economy, unemployment, inflation, health services etc etc. On many of the scores Ireland scored last or in the bottom four or five out of 27 countries for satisfaction with the state of their nation.

But when asked about their satisfaction with the life they lead right now, the Irish scored the 6th highest in Europe! Indeed, as the table below shows, almost half - 46% - of all Irish people said they were 'very satisfied' with life right now. Of course, we're not alone in that regard: Angus Deaton recently reported that measures of the subjective well-being of Americans are more vulnerable to questions about politicians than about the economy.

We're more Boston than Berlin when it comes to happiness and life satisfaction it seems...

Monday, October 17, 2011

Emotional Kapital

Is capitalism now appropriating our emotions and not just our labour? Writing in New Left Review, William Davies argues that:
Capitalism would seem to require an optimal balance of happiness and unhappiness amongst its participants, if it is to be sustainable. The need for dissatisfaction is implicitly recognized by Keynesian economics, which sees the capitalist system as threatened by the possibility of individual or collective satisfaction, manifest as a demand shortfall. Capitalism’s gravest problem is then how to maintain governments or consumers in a state of dissatisfied hunger, and how to find ever more credit through which to feed that hunger.

As always with such left-wing narratives there does tend to be an unhealthy dose of conspiracy about their explanation. Take Davies description of advertising:
Advertising, like management theory, is fuelled by a critique of the dominant normative-economic regime within which it sits, facilitating safe acts of micro-rebellion against the macro-social order. It acts as capital’s own trusted moral and artistic critic in order to inspire additional psychological engagement on the part of ordinary worker-consumers. Dissatisfaction is reduced to a psychological tendency to be fed back into processes of production and consumption. As a result, understanding such psychological qualities as impulse, libido and frustration—often in the micro-social context of the ‘focus group’—has been key to the development of advertising since the 1920s.
Which would all make sense if it wasn't for the nagging fact that most advertising is ineffective - hence the current fall in ad spending in mainstream media. I guess ordinary worker-consumers are more complicated than ordinary left-wingers realise.

But Davies saves most of his opprobrium for behavioural economists, whom he sees as leading the intellectual charge by capitalism to control the happiness agenda in society:
Happiness economics took off during the 1990s, drawing on data provided by a number of national household surveys, which had included questions on ‘subjective wellbeing’ from 1984 onwards. With it has come the rise of homo psycho-economicus, a form of economic subjectivity in which choice-making is occasionally misguided, emotional or subject to social and moral influences. If homo economicus was unhappy, that was merely because he had insufficient money or consumer choice. But homo psycho-economicus suffers from psychological afflictions as well. He makes mistakes because he follows others too instinctively; he consumes things which damage his health, relationships and environment; he sometimes becomes unhappy—or even happy—out of all proportion to his material circumstances.

...Homo psycho-economicus is less rational, less calculating, than homo economicus; but to what extent is he a social creature? Wellbeing policies can be seen as efforts to get people to conform more closely to the ideal of neo-classical rationality, and the ‘Robinson Crusoe’ rugged individualism that it assumes. 
Missing from Davies' critique is the awkward fact that most people in capitalist societies are happy most of the time. That doesn't mean they are content with everything as it is now - the state of the economy, for example - but nor does it mean that they are in a perpetual state of dissatisfaction, manipulated by capitalist lackeys in the advertising and economics professions. As the OECD's initiative on well-being shows, there are many different influences on the happiness or unhappiness of nations, not all of them economic. Indeed, there are even racial differences in our propensities for happiness - again, well outside the influence of even the most ardent nudgers. 

Anyway, it's Monday so I'd better get out there and do my worker-consumer duty - for my own happiness sake of course...

Wednesday, October 12, 2011

Aladdin Gain

With the banks on strike unable to lend money because nobody wants to borrow, bless, it's encouraging to see people taking the whole money-creating thing into their own hands. After all, why should governments have a monopoly on money. They haven't exactly done a brilliant job of it so far?

I blogged about the Bijlmer Euro before, and today I'd like to introduce you to the Brixton Pound (or B£). It's another example of a local community coming together to grow their own money and to stimulate their local economy.  It doesn't have to be either/or: either fiat currencies or local currencies - right now we need as much monetary diversity as we can muster in order to make local and national economies more resilient to the shocks ahead. The Brixton Pound can even be used as an electronic payment system via text. Again, a nice hybrid of smart technology and local activity, just like the Bijlmer Euro.

And the really cool thing: the B£10 note features a local lad made good - one David Bowie.

Monday, October 10, 2011

The Great British Recession

Whilst Irish eyes are focused on Brussels and Berlin, we shouldn't overlook what's happening to our next-door neighbour.  Only last week the Governor of the Bank of England - Sir Mervyn King - warned that Britain's debt difficulties are "the most serious we've ever seen since the Great Depression of the Thirties, if not ever". He was so spooked he announced a further round of quantitative easing: £75 billion worth, and that's only a starter.

His outburst coincided with the downgrading of 12 British banks by Moodys - so perhaps the Governor knows something the rest of us don't...?

As ever, Tim Morgan - from Tullet Prebon - has a crystal clear explanation for the mess Britain is in (updating their extraordinary analysis that I blogged about previously):
Between 2003 and 2010, Britain – by which in this context we mean both the government and individuals – borrowed an average of 11.2% of GDP each year. This isn't sustainable, and never was. Borrowing at this scale did deliver apparent 'growth', but at an appalling cost, with each £1 addition to national output coming at a cost of £2.18. Meanwhile, between 1999-2000 and 2009-10, government spending increased by 53% in real terms. The two drivers of the economy, then, were public spending and private borrowing. The denouement of this recklessness coincided with a global banking crisis, but no amount of 'neo-endogenous growth theory' could disguise the fact that basing national prosperity on borrowing always contained the seeds of its own destruction. 
That last point is crucial. For as Morgan explains, most of the British economy is now ex-growth:
The first problem faced by the UK, then, is that both of the economic drivers of the last decade – private borrowing and public spending – are dead in the water. The second (and bigger) problem lies in the way in which the era of recklessness skewed the economy against organic growth.
The biggest beneficiaries of private borrowing were real estate, construction and financial services. With the era of ever-increasing private debt well and truly over, these sectors cannot grow, which is a bit of a snag, because they account for almost 40% of economic output.

Meanwhile, the ending of public spending largesse has also put a stop to growth in healthcare, education and public administration, collectively a further 18.8% of the economy. With falling real incomes impacting retailing as well, the total proportion of the British economy which is now ex-growth rises to almost 70%.
Which isn't good news for us in Ireland. We export more to Britain than we do to France and Germany combined. There are tough times ahead for Britain - including the real risk of a prolonged recession. Britain, like Ireland, overdosed on cheap credit and is now going through economic detox. And like Ireland, our neighbour face a stark choice:
... there are no wholly good options, only choices between the fairly unpleasant and the downright nasty. 
Let's hope for our neighbour's sake - as well as our own - that Britain makes the choice quickly and that the after effects are not contagious...

Image credit: Strange Maps
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