Wednesday, August 31, 2011

People and Profit

I'm a big fan of Business in The Community Ireland. So I thought I'd plug their latest initiative: The Business Impact Map. It's a very handy guide to what businesses in Ireland are doing to support local communities throughout the country:

It isn't People Before Profit or Profit Before People: it's People and Profit.

Spectator Democracy

in his magisterial series Civilisation, Kenneth Clark blamed the decline of Ancient Greek and Roman societies on exhaustion. That 'feeling of hopelessness which can overtake people even with a high degree of material prosperity'. He explained:
'Of course, civilisation requires a modicum of material prosperity - enough to provide a little leisure. But, far more, it requires confidence - confidence in the society in which one lives, belief in its philosophy, belief in its laws, and confidence in one's own mental powers... Vigour, energy, vitality: all the great civilisations - or civilising epochs - have had a weight of energy behind them. People sometimes think that civilisation consists in fine sensibilities and good conversation and all that. These can be among the agreeable results of civilisation, but they are not what makes a civilisation, and a society can have these amenities and yet be dead and rigid.'
Looking at the West today there is clearly a lack of vigour, energy and vitality - and especially a lack of confidence. Of course there's more to it than that. There's the economic burden of extraordinary levels of debt (a burden for the lenders and not just the borrowers, as Germany is discovering). Though that is a necessary but not sufficient explanation for the West's malaise.

I think it goes much deeper. One clue comes from a recent interview with Martha Nussbaum on The Philosopher's Zone. Discussing the difficulties of forging a global sense of identity and belonging, and the ongoing loss of particular local and national sources of identity (about 12 minutes into the interview) she cites Marcus Aurelius and his experience as a 'philosopher emperor':
"Here's someone leading the nation, but gradually it begins to seem meaningless and empty to him, because - once you achieve complete impartiality - and you do it without any strong attachment to any particulars, then it doesn't make any difference any more. So his writings show us - it's a warning - about impartiality, that if we cultivate impartiality in some areas of life, that shouldn't be at the expense of strong loving attachments to particulars."
Though she doesn't say it, what Martha is challenging here is the politically correct concept of multi-culturalism, or specifically, the uniquely Western idea that one culture/religion/belief system/civilisation is as good as any other. Fundamentally, without a 'Them' there is no 'Us' - we need the Other to define who we are. She rightly sees this as the biggest challenge that we face, balancing the need for group affinity (county, club, team, class, nation, race etc) with the recognition of our shared humanity with all other human beings.

So where does this leave us? Here in Ireland we have lost most of the traditional sources of our identity (religion, political affinities, trade union membership etc) with the notable exception of the GAA. We are adrift like Marcus Aurelius: 'nothing makes a difference any more'. Hence the extraordinary parade of the bland leading the bland in the ongoing Presidential election. What we are experiencing in Ireland and throughout the Western world is the onset of Spectatoritis - and its inevitable spin-off: Spectator Democracy.  In other words, we no longer participate as citizens who belong, we merely spectate as consumers who choose.

How will it end? Nature abhors a vacuum and people abhor ennui. So like the Greek and Roman civilizations, our current impasse won't last. Technology may help the transition (electricity is a very important source of modern civilization after all), but I'm with Kenneth Clark. He concluded his series thus:
'I said at the beginning that it is lack of confidence, more than anything else, that kills a civilisation. We can destroy ourselves by cynicism and disillusion, just as effectively as by bombs... One may be optimistic, but one can't exactly be joyful at the prospect before us.'

Wednesday, August 24, 2011

Der Gold Standard

Could Germany exit the euro and re-establish the Gold Mark? Germany experienced the misery of hyper-inflation after abandoning the gold standard during World War One. Any major economy that tied its currency to gold would undoubtedly enjoy a strong currency. Too strong probably if you rely on exports - as Germany does - to sustain growth.

So maybe it's just a late silly season idea - fuelled by comments such as those of one senior German minister that the bailout of Ireland and the other PIIGS should be conditional on their giving up their gold as collateral. Very silly surely. As the latest 'Things That Make You Go Hmmm' Report puts it:
Admittedly, this idea is potentially real pie-in-the-sky stuff. So many previously unthinkable things would have to happen for something as momentous as a German ‘Geldmark’ to be instituted. I mean, the current reserve currency of the world would have to be on its knees, there would have to be financial chaos in the world’s markets and the currency union which Germany currently underpins - the Euro - would have to be on the verge of implosion. Clearly, none of those seismic events are likely to happen so we should probably stop thinking such fanciful notions and return to the real world.
Ahem, yes, very silly. Still, fears of inflation appear more embedded in Germany than fears of recession - and the idea of having a strong, stable currency just might go down well with an ageing, fearful German electorate.

However, I have good news as far as Ireland is concerned. The value of gold - in euro - held by the Central Bank of Ireland has actually declined since the start of the year (see table). That either means they have been taking advice from Gordon Brown; or else our Central Bank is one step ahead of the Germans and is getting rid of the gold before they come along and demand it for collateral.

That or the Central Bank is using the national 'silver' to pay a few of the nation's running costs...

Tuesday, August 23, 2011

The Financialization Bubble

The graph below - from Der Spiegel - says it all. But first a quote:
Once upon a time, the sole purpose of banks was to supply the economy with money. They were service providers, sources of energy for the economy, so to speak, but nothing more. But now the financial industry has largely disconnected itself from the manufacturing economy, transforming its role from subservient to dominant in the process.
And on the 2008 bailouts:
The assistance was provided, but a historic opportunity was squandered in the process. None of the powerful banks was broken up, and only a few of the dangerous financial products were banned. With the central banks lending money at low rates, speculation could continue.
The financial industry recovered quickly as a result, and now it is just as powerful as it was before the crisis -- and just as dangerous, for both the economy and society as a whole.
That 'disconnection' now means that for every €1 in internationally traded goods and services (the stuff people need and want) there are over €25 worth of speculative flimflam. Now I get the need for maybe €2-€3 for every €1 of trade - trade finance and currency transactions say - or even €5-€10 if you're going to add in bonds and pension funds etc.

But 25:1? Sounds like a bubble to me...

Sunday, August 21, 2011

Quotes of The Day

Two for one this Sunday.

First up, Janet Daley gives a right-wing explanation for the recent riots in England:
"What real people know – and have known for quite a long time – is that the great tacit agreement which once held civic life together has been deliberately blown apart. There was a time within living memory when all reasonable grown-ups were considered to be on the same side. Parents, teachers, police, judges, politicians – decent citizens of every station and calling – formed an unspoken confederacy to uphold standards of behaviour within their own communities. But their shared values and expectations about human conduct were systematically undermined by a post-Sixties political ideology that preached wholesale disrespect for authority, and legitimised anti-social activity in the name of protest."
Which oddly enough sounds like the left-wing explanation put forward by Brendan O'Neill:
"Because the very problem in rundown urban communities is the surfeit of ‘external solutions’, the surfeit of welfarism and authoritarian measures and do-gooding initiatives that have been imposed from without in recent years. A tsunami of economic, political and therapeutic programmes has had the effect of severely undermining community bonds and social solidarity in many areas. The welfarisation of people’s lives, where their every basic need is met by faceless bureaucrats who simply want to keep people ticking over, has undercut both the spirit of self-reliance and the trend for community solidarity.

...Time and again, external interference has undermined communities’ internal resources and their organic forms of solidarity and authority. In essence, such interventions have undercut good forms of dependency – such as children being dependent upon their parents or neighbours being dependent on each another – with a bad form of dependency: reliance upon the external force, the state, the apparently all-seeing, all-knowing expert who lives outside of your community walls."
The Welfare State has become the enemy of the Working Class.

Friday, August 19, 2011

Sterling Stuff

"We appear to be entering most dangerous time for Europe since World War II." Marshall Auerback

If the end game for the euro really is upon us (as argued by Marshall Auerback, quoted above), what are the (short run) options for Ireland? Going back to the punt would be a big punt. Pun intended. If that's Plan A then maybe we need a Plan B. Like switching to sterling instead?

I'm not the first to consider the idea - James Green thinks there are many more reasons for switching to sterling. But it does have the advantage of an established conversion rate of exchange that would instantly reprice all contracts, debts etc in sterling rather than euro.

There would be many problems with such a scenario (even if the British consented to the arrangement - a mighty big 'if'). Not the least being that sterling has strengthened against the euro (or rather the latter has weakened against sterling), so Irish exporters could find themselves disadvantaged as a result of any further strengthening by the pound.

In reality, it's an arrangement that neither the British nor Irish authorities would welcome. But then neither will be very happy to seen the disappearance of the euro either.

Lots (and lots) of turbulence ahead...

Tuesday, August 16, 2011

Quote of The Day

Echoes of the Titanic and 'not enough lifeboats':
"The game is all but over for the weaker countries – Greece, Ireland and Portugal. Vulnerable countries – Spain and Italy – are now being relentlessly hunted down. The stronger countries – France and Germany – no longer look secure, immune from the problems. It is time to admit that the “lifeboat” isn’t big enough for everybody and throw Greece, Ireland and Portugal out (read debt restructuring), concentrating efforts on salvaging Spain and Italy. Whether the EU have the stomach for this is difficult to tell, although self-preservation is a powerful motivator, especially for politicians. Whatever happens, the European debt crisis remains a key risk to the global economy."
Satyajit Das

Monday, August 15, 2011

Young England

There are many reasons for the riots in England. But one in particular has been missed: demography. Yes, there have been numerous references to the age and racial profile of the rioters hooligans protesters, but that's not what I mean. Rather I am referring to the increasing number of young men in England. 

England's population of young men (20-24 year olds in particular) has increased steadily in recent years. In fact, it won't peak until next year, i.e.: 2012. That's not good against a background of economic stagnation and rising unemployment. Ireland, in contrast, saw its total number of 20-24 year males peak back in 2006. That's the main reason for our falling crime rate - despite the recession. That and the excellent work of An Garda Síochána of course, ahem.

The implications are clear enough. For an alarming majority of young English men (and young Irish men for that matter), there is little to no prospect of the three things that will turn them into responsible, older men, namely: jobs, wives and children - ideally in that order. The ongoing collapse of marriage and the absence of any sustainable alternative (now that Peak Government is upon us) will see an entire generation of young men wasted. 

Shops can be prepared and buildings re-built: but lives cannot be relived in the hope of a better outcome.


Tuesday, August 9, 2011

Slow Forward

The future has been postponed. Again. The shock waves from the current economic turmoil will likely lead to a downturn followed by a bounce back. Next spring. That's according to Nicholas Bloom.

The bigger picture is that we have entered a permanent era of slow growth. Especially consumer-led growth. Chris Dillow frets about the Growth Problem. He's right. Debt-laden consumers are experiencing the joys of thrift. This isn't just an Irish problem (far from it), even the UK is caught in a slow growth trap, thanks to consumer debt:
If you look at what's happened since 2008, banking debt has been reduced in the UK; but the corollary has been a rise in public-sector debt. The aggregate of debt bearing down on the UK economy remains at more-or-less record levels equivalent to around 400% of GDP.

As for a huge element of that indebtedness, household debt, that's fallen from around 180% of disposable income in 2008 to nearer 160%. But official forecasts by the Office for Budget Responsibility for any kind of meaningful economic recovery in the UK are predicated on that household indebtedness rising back to around 180% of disposable in the coming few years.

That either means the recovery won't actually materialise, because households won't want to borrow on that scale, or it means that the economy will remain vulnerable to an interest rate shock for the foreseeable future (if interest rates rise, the spending power of consumers would be devastated).
Ireland is fortunate to have a medium term, demographic momentum that is growth friendly. But with the developed world (and China) ageing rapidly, it's hard to see how economic growth can get ahead of demographic destiny elsewhere.

When and how will it end? Not by next spring, despite Nicholas Bloom's optimism. It will end with debt forgiveness, a debt jubilee or a plain old default. Though even then, the trajectory for growth will be much, much slower than the long boom that ended in 2008.

It's slow forward to the future from here on folks...

Monday, August 8, 2011

Island Hideaway

For those of you thinking that the economic outlook calls for an extended holiday.

Why not buy your own island? (ht the visually brilliant

Saturday, August 6, 2011

Baby Booming

Ireland's baby boom continues apace, despite the economy. I've updated a previous analysis of births at Ireland's two leading maternity hospitals - responsible for nearly 1 in 4 births in the country. The data includes the first six months of this year.

The good news is that the number of births continues to rise - albeit at a much slower rate (1-2% year on year on a smoothed average basis) than in the earlier part of the data series. It's one reason why we can continue to be positive about our country's medium to long term prospects - despite the short term gloom and uncertainty.

Seasonality is still quite marked - February is a great month to have a baby if you want the undivided attention of the midwives (typically just 87% of the monthly average for the past five years). August is a somewhat busier (105% of the average!) as anyone visiting a maternity hospital at the moment will know.

Including a colleague of mine since yesterday - congratulations Mark!

Friday, August 5, 2011

The Road Ahead

The E-Day landing isn't going so well. Right now - with the markets in free-fall - it feels like we are coming to a global fork in the road. One fork leads to a double-dip recession (we managed to avoid that in Ireland by not coming out of the first one), the other leads to something more like The Road. Minus the laugh-out-loud humour.

The economic solution to Europe's difficulties is simple. It's the political solution that is the problem. As Chris Dillow explains:
There is, in principle, a simple solution to it - to convert risky assets into safe ones. This could be done by beefing up the European Financial Stability Facility. It could then issue more of its own bonds - which have a AAA rating as they are guaranteed by the French and German governments - and buy PIGS debt. This would replace low-quality bonds which investors don't want with high-quality bonds which they do want.

...the problem with what I'm suggesting lies elsewhere. Such a move would represent a massive step towards fiscal union. It would mean that, in effect, northern European governments would guarantee the debts of southern ones, and in exchange for this they would demand limits upon how much they could borrow, as federal governments around the world limit states' borrowing. This would represent a huge loss of sovereignty. 
So a choice between penury or sovereignty.

Still, at least we have a choice right now, though that might not last if a Credit-Anstalt moment comes our way. Notes Dan O'Brien:
This August, there are legitimate fears that many governments in the rich world will not be able to fund themselves, leading to outcomes of potentially Armageddon-like proportions which could alter peoples lives more dramatically than any single event in many decades.
I must get a comfortable pair of walking shoes...

Wednesday, August 3, 2011

Farewell Ossie

I didn't know his name until today. I was passing AIB on Upper Baggot Street - at the corner of Eastmoreland Place - and there was floral memorial to Ossie.

He was homeless - younger than he looked I suspect - and he was always there just off Upper Baggot Street for all the years I worked in an office nearby. I was going to say he was begging but often as not he just had something funny to say or invited you to chat or get him a coffee (or something for his dog). Which of course meant you were only to happy to sub him the occasional euro or two. Clearly I wasn't the only one.

Farewell Ossie.

Go ndéana Dia trócaire ar a anam

Tuesday, August 2, 2011

Are You Happy Now?

Remember when all the bling and excess of the Celtic Tiger was destroying the Celtic Soul and turning us into shallow addicts of consumerism? But that that's all gone: so are you happy now? It depends, doesn't it? Andrew Simms in The Guardian suggests that happiness is the price of growth. The more you want of the latter, the less you have the former. It's an old cliche: Wordsworth demanding that The Tables Turned, even as the rural poor flocked in their tens of thousands to participate in the Industrial Revolution. I do sympathise: far happier for me the bucolic pleasures of Dunfanaghy in Donegal than the Dundrum Shopping Centre. But each to his (and more especially her) own.

The problem is: there's no going back. And the biggest obstacle? Debt. Debt is the hangover that doesn't go away - even with copious applications of analgesics. We can't even return to the bucolic bliss of, say, 1996 let alone 1896 (or whatever you fancy yourself). Instead of less growth leading to more happiness we get less growth leading to ... less happiness. Debt is the problem. That is why the likes of Charles Hugh Smith now talk about The Demise of the Consumer Economy. It isn't that people have suddenly become disgusted by the idea of shopping (perish the thought): it's just that the triple whammy of falling incomes (fewer jobs, higher taxes), rising prices (energy, public services) and crushing debt burdens (rising interest rates) has put the trips to the shopping centre on hold. In America, in the United Kingdom, and most certainly in Ireland.

But the issue isn't some imaginary trade off between growth and happiness. Rather it is about the absence of a purpose for growth beyond mere consumption. Blame democracy, or Wall Street, or even feminism. It doesn't much matter whose to blame: the failure of the West to develop a sufficiently mature culture that articulated the non-material ends (religious, philosophical, or even aesthetic) towards which growth was (broadly) directed has now trapped the West in a debt trap of its own making (for the lenders as well as the borrowers I might add).

Nevertheless we will get out of the trap. Eventually. Debt is nothing but digital Ones and Zeros on a computer somewhere. Subjecting a generation or more of real, living, breathing human beings to misery for the sake of Ones and Zeros on a computer will eventually appear as absurd as Papal Indulgences. And we know how that ended...
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