Wednesday, July 27, 2011

A Very British Mess

"The legacy of Britain’s previous government, which expanded the public sector incontinently, is thus an almost Marxian conflict of classes, not between the haves and have-nots (for many of the people in the public service are now well-heeled indeed) but between those who pay taxes and those who consume them.

In this conflict, one side is bound to be more militant and ruthless than the other, since taxes are increased incrementally—and everyone is already accustomed to them, anyway—but jobs are lost instantaneously and catastrophically, with the direst personal consequences. Thus those who oppose tax increases and favor government retrenchment will seldom behave as aggressively as those who will suffer personally from budget reductions." Theordore Dalyrmple 
I worry a lot about our cousins across the water. Not only because of natural bonds of neighbourliness and friendship, but also because we in the Republic of Ireland are economically tied as much to the fate of the British economy as to that of the eurozone. Arguably more so since we have land border with the former.

Whilst all of the attention in recent weeks has been on the unavoidable crisis in Greece - and the somewhat more avoidable one in Washington - a separate, slower-burning crisis has been developing much closer to home. Yesterday's ONS announcement that UK GDP in Q2 grew at an annual rate of just 0.7% - well below 'stall speed' in the parlance of the American commentariat, who get upset at anything below 2.0% - points to serious risks across the Irish Sea (or should that be up the M1?)

But how serious? I got a flavour of the answer today when I received a copy of the latest commentary from Tim Morgan at Tullet Prebon. The clue was in the title: Thinking the Unthinkable - Might There Be No Way Out For Britain? The latest, I might add, in a series cheerfully entitled 'Project Armageddon'. Tim makes our own Morgan Kelly seem like a raging optimist by comparison...

The essence of the Tullet Prebon analysis is that Britain is now dealing with the legacy of binge borrowing and spending by the Blair/Brown governments that preceded the current coalition. It is a legacy which witnessed the (further) devastation of Britain's manufacturing capacity, substituting instead the fluffier (and far less sustainable) growth of financial services, construction and real estate. Sounds oddly familiar, come to think of it. The chart above neatly summarises the divergence (one of many extraordinary portrayals of things going badly in the report itself).

But the greater vehemence in the report is reserved not for the wilful collusion of New Labour with a debt fuelled bubble, rather it is reserved for the bloating of the UK public sector fuelled by taxes arising from the bubble that were ultimately unsustainable (again, a rather familiar story for an Irish audience). And not just by taxes - even worse, it was fuelled by borrowing on top of the taxes:

What is different about Tim Morgan's analysis is that it doesn't just confine itself to macroeconomics. He attributes much of the irresponsibility by three consecutive Labour governments to 'moral absolutism':
Perhaps the most intractable part of Britain’s economic problem is the mind-set engendered by Labour. This mind-set, which is a compound of entitlement (both personal and national), financial irresponsibility and spurious moral absolutism, makes it difficult for the public to perceive the nature of the national problem, let alone resolve it.

Not since the days of William Gladstone has a government come to power with a greater sense of moral fervour, and it is at least arguable that Tony Blair and (in particular) Gordon Brown were even more prone than ‘the Grand Old Man’ to treat the despatch box as a pulpit. The essential difference between Gladstone and New Labour, however, was that Blair and Brown peddled an essentially secular moral absolutism, albeit with at times a distinctly nonconformist flavour.

...The problem which has emerged over the last decade, and can in large part be traced to Labour’s doctrine of moral absolutism, is the widespread assumption that individuals and, by extension, Britain as a whole, have an entitlement to these advantages, when the reality, of course, is that they have to be earned on an ongoing basis.
It is the same sad story as played out in the United States. There, successive US governments sacrificed their domestic manufacturing capability (and boosted their financial services sector) in order to accommodate their geopolitical ambitions. The warfare state rather than the welfare state. In the UK, in contrast, successive Labour governments sacrificed their domestic manufacturing capability (and boosted their financial services sector) in order to accomodate their socio-domestic ambitions. The welfare state rather than the warfare state. Both have had the same consequences: a mushrooming of debt (private and public) that was predicated on the good times continuing. But they didn't.

So what next? With the UK's economy dangerously close to stall speed just as we're all hoping Ireland's economy is approaching take off, the timing is not great. To put it mildly. Tullet Prebon distinguish between two scenarios for Britain: 'bad' and 'very bad'. The 'bad' scenario - which might lead to a better future - entails radically restructuring the state, including the welfare state (e.g.: more benefits in kind rather than cash). Not easy, as anticipated by Theordore Dalrymple in the quotation above.

The 'very bad' scenario could mean that Britain ends up perceived as a peripheral European economy with excessive debts and poor economic prospects. Just like...

Monday, July 25, 2011

Life Before Death

I went to see 'The Tree of Life' over the weekend. Written and directed by Terrence Malick, it is an extraordinary movie about life, the universe and everything. Literally. I'll try to avoid any spoilers - as you should go and see it for yourself - and would simply say that I think it will be recognised in decades to come as a milestone in cinematography. Though right now it has as many detractors as it does fans.

One thing about the film that surprised me was how Christian it was in its content and construct. Catholic even. The family in the movie - with Brad Pitt and the luminous Jessica Chastain as father and mother - are practising Catholics attending church, receiving communion and so on in different scenes. It even opens with a quote from the Book of Job:
"Where were you when I laid the earth’s foundation...while the morning stars sang together and all the sons of God shouted for joy?" 
 I think the film's detractors have missed this: for the film itself is - at the risk of dissuading you from seeing it - a deeply religious experience. Hence the non-linear narrative and the poetic interplay of image and words that annoyed some reviewers. They missed the point: this is cinema as sacrament - a non-rational, non-linear, numinous message of hope and transcendence that ignores the boundaries of rational dialogue and cheap emotionalism that is standard artistic fare these days. But it isn't preachy (or even overtly religious) - I promise!

The core of the movie is about tragedy. About the eternal ache we humans feel for those we have loved and lost in the face of a seemingly cold and indifferent universe. And our deep need to know: why? I am reading John Armstrong's book - In Search of Civilization: Remaking a Tarnished Idea - and he has this to say about tragedy:
This is an area in which civilization does not reduce our suffering - does not make life more pleasing or comfortable. What is the achievement of tragedy? It is to present the deepest sorrows of the human condition: what we love is terribly vulnerable; each life is a brief, scarring moment in the wastes of eternity; our transient existence will be marked by depression, confusion and fear. 'In headaches and in worry/Vaguely life leaks away.' The ambition of tragedy is to hold such intelligent fears in a ceremonial act endowed with splendour and grace. The ceremony does not overcome our fears. But, unlike horror, it does not seek to stoke anxiety. The tragic view is, really, a determination to hold to nobility, love and beauty - even while knowing the worst about ourselves.

...Civilization, in this respect, is a community of maturity in which across the ages individuals try to help each other cope with the demands of mortality. So, in taking this seriously, you become part of civilization in an inward and deep way.
As I followed the news about the mass murders in Norway I thought about families of those killed, and about the capacity of a civilized country like Norway to 'cope with the demands of mortality'.

The Tree of Life is a film that reminds us to embrace life - and love - before the inevitability of death. Such reminders have been at the heart of all religions and civilizations down through the ages: Terrence Malick has crafted a work of art that continues that urgent, civilizing task.

Friday, July 22, 2011

Quote of The Day

On the new world dis-order:
"Behind the paralysis in Washington and prevarication in Berlin lies a troubling thought. Political systems in thrall to 24-hour rolling news have lost the capacity to make difficult choices. Globalisation imposes wrenching change and simultaneously saps the ability of governments to adapt. Politicians find it easier to argue about taxing the rich or cutting Medicare and about central bank bond purchases versus default than to confront the consequences for western societies of the profound upheaval in the global economy." Philip Stephens

Wednesday, July 20, 2011


So is tomorrow D-Day for the Euro? The day the eurozone fights back against the axis forces of the bond markets and the rating agencies? Probably not. The Taoiseach doesn't think that tomorrow's emergency summit about Greece will be 'the be-all-and-end-all'. He might be right. Then again, he could be horribly wrong.

We are now entering the 'unstoppable force meets the immovable object' phase of the unfolding euro/sovereign debt/dollar crisis. Whilst most of Europe's politicians would really rather park the issue until after their holidays in August, reality just keeps delaying their departure (well maybe not in Ireland). In the normal course of previous crises politicians, the markets, and the global economy kind-of-more-or-less muddled through. Though not this time. As blogger George Washington wisely notes, by bailing out American and European (and Irish) banks during the 2008/09 crisis, our democractically elected governments have simply 'transferred massive debts (from fraudulent and stupid gambling activities) from the balance sheets of the banks to the balance sheets of the country'. The buck has stopped. There is no more muddle room.

So things could get nasty - very quickly. We are already experiencing the psychological consequences of when the powerful feel incompetent. David DiSalvo recently analysed how powerful people react when they feel incompetent and powerless: they take it out on the rest of us. And there's certainly no denying that the financial markets are powerful. We're feeling their wrath. But it's only a foretaste. Indeed, I increasingly have the impression of the ECB's Jean Claude Trichet that he is acting like a Mafia consigliere: making lots of threatening noises on behalf of his 'boss' - the capo di tutti capi, i.e.: the bond markets.

Thanks to our participation in the euro - and our supine attitude towards the ECB - this is one 'Emergency' Ireland cannot sit out on the sidelines. In fact, we're at the front of the landing craft, filled with the other eurozone countries, and we're about to hit the beach...

Tuesday, July 19, 2011

Bottom Turning

The latest IBEC Quarterly Economic Outlook takes a detailed look at the prospects for consumer spending. Their view is that we are close to - if not at - the bottom of the economic cycle with regards to consumer spending and that recovery is imminent (next year, that is).

Consumer spending is a subject very dear to my heart, not least because demand for market research - the day job - is driven by growth in consumer spending. Broadly speaking, every 1% increase in consumer spending tends to increase spending on market research (by marketers keen to capture their share of that increase) by about 1.5%. Of course, a decrease in consumer spending has a proportionally negative impact on MR spending (I do hate symmetrical elasticities sometimes!). Nevertheless, the prospect of a recovery in consumer spending (albeit an anaemic one as per the table) is doubly welcome by me - good news for the economy and good news for business.

But a forecast is just a projection based on assumptions (genuine or hypocritical, as Robin Hanson would say). What are IBEC's assumptions? They start with the savings rate: which has certainly risen since the start of the recession. Much of that increase is driven by negative psychology, so logically a return to more positive psychology should reduce the savings rate. Are they right? Yes and no. Yes if the money really is being saved, no if the savings rate isn't quite as clear cut as after tax income deposited in savings accounts. Dan O'Brien recently pointed out that the data suggests the real savings ratio is actually lower than it seems because of debt repayments.

The important question though is: what will change consumer psychology from a negative outlook to a positive one? Here IBEC thinks that the Government must play a key role:
The medium-term fundamentals of the Irish economy remain solid and the potential growth rate is about double that of the euro area. Short-term difficulties remain, however, and Government must become more effective in how it communicates these challenges to consumers.

To date, it has not given householders certainty on the shape of the forthcoming budgetary adjustment and in response consumers have retrenched further. Government must now move to explain to households in an easily understood way how the budgets over the next years will affect disposable incomes.
Is that all?! It reminds me of an SME client who was recently asked by his bank for a two year cash flow projection to support an overdraft application. My client was somewhat bemused: he wondered a) what currency should he assume for two year's time, and b) how confident was the bank that they would still be around in two year's time? I think we'd all love to know how the Government's budgets over the next years will affect our disposable incomes... but I suspect they haven't the slightest idea how the rest of this year will pan out, never mind the next few years.

But IBEC are right about one thing: demographically our economic prospects (and consumer spending prospects) are indeed sound. Our long term prospects as a nation are good (I genuinely believe that) - but as we all know by now, the long run is made up of a series of short runs. And we only get to the future one short run at a time.

The same goes for Government, IBEC, consumers... and market research companies.

Saturday, July 16, 2011

Song for Europe

The Eurovision Song Contest was never this educational:


Friday, July 15, 2011

Quote of The Day

Unhappy ending - in memoriam for Europe:

"On the street level, and in the worst affected countries, the poor will get a bit poorer and their lives will be proportionately more miserable.

The squeezed middle will be further squeezed and the credit freedom of 1997-2008 will be the sort of thing we report to our grandchildren with a misty look in our eye.. for my generation, we were told about the 1950s in a similar tone.

The rich will always be rich." Rob Dover

Thursday, July 14, 2011

Who Says They Want a Revolution?

I'm in Donegal this week, hence the light posting (that and the absence of 3G cover never mind broadband!)

Still, sometimes being away can provide a little perspective. One theme I keep coming across is the prospects for revolution. And not just in Greece. Satyajit Das sees things moving quickly from angst about Europe's economic stability, to angst about its political stability:
In the afflicted nations, public protests and disturbances are increasing as the populace rejects greater austerity. Populist politicians, willing to reject the need for further “sacrifice” and repudiate the country’s debt, hover in the wings. The argument that the country will be an international “financial pariah” don’t carry much weight when you are already one with no one likely to lend you money any time soon. It also has less weight when you don’t have a job and the country is on the brink of social breakdown.
Are we living in pre-revolutionary times? 1848 all over again? It has that potential - or does it? It takes more than failing economic policies to instigate a revolution. One of my favourite blogs is Kings of War, and they have this to say about the revolutionary potential of Europe's first post-modern crisis:
Teodor Shanin points out an important ingredient in revolutions: “Social scientists often miss a centre-piece of any revolutionary struggle—the fervour and anger that drives revolutionaries and makes them into what they are…At the very centre of revolution lies an emotional upheaval or moral indignation, revulsion and fury with the powers-that-be, such that one cannot demur of remain silent, whatever the cost.  Within its glow, for a while, men surpass themselves, breaking the shackles of intuitive self-preservation, convention, day-to-day convenience, and routine.”  This anger, according to Frantz Fanon is what created the solidarity of the oppressed, and from that solidarity, revolutionary action: “The colonized, underdeveloped man is a political creature in the most global sense of the term.”  
But as they point out: breaking the shackles of convention and convenience is more unlikely than ever in an age of Facebook and Web 2.0. When the voice of dissent is called 'Anonymous' then there is no obvious leader of the revolution to channel moral indignation, revulsion and fury...

Bruce Charlton provides a different perspective (as always): he wonders who will provide leadership and cohesion in the face of chaos or a coup? Leadership of the revolutionary or counter-revolutionary kind. He doesn't think there is an obvious choice in present day England:
Instead there is placid laziness alternating with gross sensation-seeking, reinforced by the rainy climate (which make rioting risky - who wants to riot in the rain? But encouraging ) - but all that domestication will act against the English if society becomes disordered and resistance is required.
It really is hard to exaggerate the weakness of England; at the public level a morass of careerism, hedonism, self-advertisement, self-hatred. All resilient virtues secretly operative only between atomic individuals and hidden within families.
So instead of revolution we face the prospect of something more akin to what is happening in Belfast right now: mindless thuggery masquerading as violent protest against 'the system'. A policing problem, not a political problem. Or at least that's how it'll be until the money runs out. Then we'll all be reminded that civilisation is three meals away from anarchy.

With or without a broadband connection...

Thursday, July 7, 2011

The Advertising Dividend

At the end of the Cold War, Western politicians talked about the Peace Dividend. Some years after, James Ogilvy coined the phrase 'the Advertising Dividend' to describe a future world in which individually tailored products and services would no longer need the loud and expensive exhortations of advertising. That world will soon be upon us.

Three forces are about to unleash the Advertising Dividend. The first is macro: the developed world is entering the 'winter' phase of the Kondratieff Cycle according to Societe General, as rapidly ageing populations in developed countries combine with massive debt overhangs to shrink the economic pie (though inflation might hide the fact for a while). Not quite a dividend, more a tax perhaps...

But there are two other, more-micro forces driving the Advertising Dividend. Ones which will present more opportunities for savvy entrepreneurs and investors. The second of the three forces is that of the Quantified Self - which describes our burgeoning capacity to track and measure our own lives (and a favourite topic of mine). The era of the Quantified Self is now upon us. Every time you use your mobile phone, the web, or even your car, you are creating an invisible cloud of uniquely personal data about yourself that follows you around 24 hours a day. We are only beginning to realise the potential significance of this for business, economic activity and society as a whole.

Which brings me to the third force: Data Liberation. The Advertising Dividend cannot be realised without the flow of data created by the Quantified Self. But that flow will only be of value to each of us individually if we own the data. In other words, Data Liberation will require that all the information stored by your mobile phone company, your credit card company, your utility company (i.e.: the digital cloud that comprises your Quantified Self) will be yours to take, keep and use as you wish. Sounds improbable? Actually the British Government have set about ensuring the Data Liberation will start to become law by the end of this year. There strategy goes by the name of 'mydata' - outlined in a recent cabinet office report and the subject of a brilliant series of studies by Ctrl-Shift.

When we finally liberate the Quantified Self to serve our needs and not those of the governments and corporations that currently claim ownership of our data, then the Advertising Dividend will finally have arrived. Even a smaller economy in the Kondratieff sense will be a more efficient, more relevant, less wasteful economy. We will experience nothing less than the economy of the sublime. Let James explain:
Despite the wonders of modern science there never seems to be enough: enough love, enough attention, enough respect, enough dignity. ... I know of no law of the constant conservation of laughter, or any limitation on joy. I see no reason to limit our sense of what is possible for the distribution of delight. ... Quite the contrary, there might be a virtuous circle of mutual reinforcement in the spread of sublime delight, like a ripple of laughter that gains momentum in a crowd. According to the economics of the sublime, there can be enough for all.
 I look forward to it.

Wednesday, July 6, 2011

Quote of The Day

"Party rulers in China are trapped in a position that chess players deeply fear — zugzwang — where any move made puts you at disadvantage. In China, the potential cost of both action and inaction is economic collapse." Vitaliy Katsenelson

Sunday, July 3, 2011

After Intimacy

We tend to think of the future in terms of what we will gain (Bigger, Better, Faster, More) rather than what we will lose. But lose we do/will, and Richard Watson has provided another handy update to his trendlines for the future; this time for extinctions. Yes it is tongue-in-cheek, but there are more than a few grains of truth (or should that be 'grains of probablility'?) in what he projects.

Take his forecast that this decade will see the extinction of Intimacy.  In a recent talk at the RSA, Sherry Turkle explored how our digital lives (online and mobile) are substituting the illusion of companionship for real intimacy. Rendering us 'Alone Together'. She gave the example of repeatedly observing numerous parents of young children outside schools and in playgrounds busy talking on their mobile phones, ignoring the demands of their children. Seemingly preferring the intimacy of the phone conversation to a face-to-face conversation with their own children.

Rob Horning thinks it may be about more than just a technological phenomenon. That there may in fact be a more profound shift taking place in the ways in which we perceive intimacy. As he explains it:
I have this feeling that people are going to become more and more wary of direct face-to-face attention because it will seem like its wasted on them if it’s not mediated, not captured somehow in social networks where it has measurable value. I imagine this playing out as a kind of fear of intimacy as it was once experienced—private unsharable moments that will seem creepier and creepier because no one else can bear witness to their significance, translate them into social distinction. Recognition within private unmediated spaces will be unsought after, the “real you” won’t be there but elsewhere, in the networks.  
To me this represents a generational shift. Most people in developed countries under the age of 25 are - in Rob's words - 'increasingly unavailable to attention in the moment'. And a few of us over 25.

Of course, there is a reaction for every action (Newton's third law applies to societies not just objects in my opinion), and in the long run human nature determines the human future, not our technology. Still, plenty more peaks ahead.

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