The Delightful People

The Wall Street Journal Blog wins my Title of the Week award for It's Man vs. Machine and Man Is Losing. The chart from the post shows that US businesses are investing in machinery and software rather than people right now. Which is worrying since capital is scarce (in the form of bank lending anyway) and labour is abundant (given rising unemployment). What's going on?

Every recession in the past forty years has been accompanied by a flurry of articles and op eds hailing 'the end of work' and 'the jobless recovery'. They've all been wrong - so far. But maybe this time really is different?

Megan McArdle blames software - or rather the culmination of decades of automation and falling real (and nominal) prices for hardware, software and the telecommunications services that connect them. Referring to analysis by Arnold Kling she observes that:

The jobs that are being automated are the stable, well-paying jobs where you could settle in and know exactly what you'd be doing for years.  As Arnold says, if you can define it, you can probably outline it specifically enough to outsource, either to a lower-wage worker somewhere else, or to a computer.

Sounds like an advanced case of what Kevin Kelly calls The 7 Stages of Robot Replacement. Now coming to a business sector near you...

Megan wonders why we are not happy to see dull, dreary jobs replaced by automation? Of course, just as the jobs are going, a lot of people are beginning to realise that 'dull and dreary' wasn't all that bad after all, given the (lack of) alternative.

The implication is that we are all going to have to 'upskill', becoming knowledge workers: fewer burger flippers and more chart flipping instead. But even that isn't especially secure, nor rewarding. In a typically insightful post, Seth Godin captures the angst of the pre-recovery labour market perfectly (and it is as true of Ireland as elsewhere):

The industrial age, the one that started with the industrial revolution, is fading away. It is no longer the growth engine of the economy and it seems absurd to imagine that great pay for replaceable work is on the horizon.

This represents a significant discontinuity, a life-changing disappointment for hard-working people who are hoping for stability but are unlikely to get it. It's a recession, the recession of a hundred years of the growth of the industrial complex.

 But the technology that caused the discontinuity will also open up a new era of opportunity:

When everyone has a laptop and connection to the world, then everyone owns a factory. Instead of coming together physically, we have the ability to come together virtually, to earn attention, to connect labor and resources, to deliver value.

Stressful? Of course it is. No one is trained in how to do this, in how to initiate, to visualize, to solve interesting problems and then deliver. 

Personally I'm not so sure. The very people observing and reporting on the changes we are witnessing - people like Megan and Seth - are the likely winners from the changes they describe. But far fewer people are cut out for flipping charts than flipping burgers - and no amount of third level participation nor retraining for ex-bricklayers is going to change that soon. If ever.

Still, I believe we will find our way through the challenges ahead - muddling or otherwise. I take inspiration from Keynes, who in a famous passage anticipated a future in which:

We shall honour those who can teach us how to pluck the hour and the day virtuously and well, the delightful people who are capable of taking direct enjoyment in things, the lilies of the field who toil not, neither do they spin.

In other words, it is people - not machines nor software - that will provide the things we value most in the future. Though I have no idea who those 'teachers' will be, nor what they will teach. Luckily for me there are now 7 billion of us engaged in finding the answer.

Mad As Hell

The End of the American Dream blog has a scary post listing 20 reasons why under 30s are giving up on the economy. In a word: unemployment.

Tragically the same scary picture applies to Ireland. I've copied the chart from a recent post on True Economics highlighting the horrendous rise in youth unemployment in Ireland. It's even worse for young men.

We are - in Giuliano Amato's memorable phrase - eating the future of our young. Golem XIV takes a similarly somber view of the ongoing rescue of Europe's bankers bondholders struggling eurozone members:

If the EU approves the plan to expand the EFSF then they are embarking on a gigantic Collateralised Debt Obligation, taking the yet-to-be earned income of European taxpayers and throwing it at the banks to prop up their traumatised balance sheets. Ultimately just lining the pockets of the wealthy bankers from this leveraged up booty.

In short, they are plundering from the future because it’s not around to protest against it.

 Of course, if our young don't get jobs then there won't be anyone to pay the taxes needed to repay the loans. Some how I don't think our under 30s will have other concerns when the time comes... 

Not In The Mood

The August retail sales report from the CSO confirms what most of us knew already: the international uncertainty last scared Irish consumers so much they stayed at home and kept their purses and wallets shut. Another example of how the economy is driven by emotions.

I've updated a previous chart showing the trends for consumer confidence (using the ESRI/IIB index) and retail sales volume growth (excluding motor sales, seasonally adjusted). Or volume decline as it happens.

Ireland is not only the world's most open economy in terms of trade - we appear to be one of the most open in terms of sentiment as well...

The Biggest Risk

Quote of the Great Recession so far:

"The biggest risk people can take right now is not acting". Alessio Rastani

Best not watched before going to bed. Or while having your breakfast. In fact, maybe leave it an hour or two before you have lunch...



ht Zero Hedge

Storytelling Economists

I have a guest post over on the Dublin Microeconomics Blog.

All about That Seventies Feeling.

The Revolution Will Be Advertised

I saw Banksy's Exit Through The Gift Shop the other day. It's one of the smartest - and funniest - documentaries I've seen in a very long time. I really had not appreciated the energy and artistry of the street art 'movement'. Now I do.

It struck me that street art is a perfect manifestation of late 20th/early 21st century urban life. The ugly utility of so much of our city landscapes (blank walls and bland surfaces) seems perfectly designed to provide a 'canvas' for an aspiring street artist. Though it's fair to say few are as artistically gifted as Banksy.

Daniel Little poses an interesting question on his blog Understanding Society. He wonders why advertising and marketing didn't feature in the writing of the earliest economists? Especially given its pervasive nature nowadays. Little's hypothesis is that it was due to urbanisation in the late 19th century: the concentration of large populations in cities and the emergence of extensive public transport networks provided an unmissable opportunity to market to a growing mass market. And to do so efficiently. He's probably right. The same applies to street art: the combination of large populations and eye catching locations is a spontaneous manifestation of the same impulse to reach an audience. Even if the art has a much shorter shelf-life than a billboard. 

What's also striking about Exit is the global nature of street art. Symbols, icons and ideas from one continent rapidly jump to another: sometimes carried by the same artist. It is another example of what Charles C. Mann calls the homogenocene: the mixing of biological systems and even cultures to create mixed or homogenised blends. Mann attributes the bland urban uniformity that now confronts us throughout the world not to urbanisation per se, but to the Spanish colonisation of the Caribbean. A somewhat less obvious explanation that Little's. But worth a read.

Street art will continue to shape (and be shaped by) our urban landscapes for a long time to come. And maybe for the better.

America's Class War

President Obama is leading a class war in America. And it's not a war on the rich. From The Economist blog:

There is a class war in this country, a war between the subsidy barons, the regulatory arbitrageurs, the patent monopolists and the rest of us. Mr Obama is a class warrior. The trouble is he's on the wrong side.

During Mr Obama's reign, the revolving door between Washington and Wall Street has been replaced with an open garage door you can drive a hybrid truck through.

Deep Optimism

Matt Ridley nails Malthusianism again. And probably annoys a few Deep Greens with this:

If there are three things I fear, as a passionate environmentalist who wants to see wild habitats restored all over the world, they are biofuels, renewable electricity and organic farming. Each would demand much, much more land from nature.

We need deep optimism to guide Ireland - and the world - to a better place in the years and decades ahead. Ridley shows the way.

The Future Will Be Cheaper

Capitalism is a race between innovation and stagnation. I thought of this listening to Timothy Ferriss, the most recent speaker at the Long Now Seminar series. He has a simple approach to learning: don't learn the way everyone else learns - rather learn the way the very best do it and then imitate them. Nor are we talking academic subjects here. Ferriss applies his approach (very convincingly) to language learning, sport and even cooking! You can get a flavour of the guy at his blog. Capitalism won't deliver innovation (and the productivity, growth, jobs, wealth and higher standards of living that go with it) unless there is a radical transformation in our approach to education.

What struck me listening to Ferriss was how badly we do the whole education/learning thing. Not just in Ireland - but more or less everywhere. The good news, for once, is that all of that is about to change. Some of it will be driven by economics: society can't afford our current education system, and students can't afford it either. But the biggest driver will be technology.

Take Khan Academy: I know from my children (both are in third level) that they and many of their fellow students use Khan Academy to help supplement their studies and even to prepare for exams. The difference is: Khan Academy is free... But there are many other examples of educational initiatives (iTunes U, for example) that are perfectly aligned to the needs, learning styles and preferences of 21st century students.

Marc Andreessen recently talked about the way is which 'software is eating the world'. Andreessen's VC company has been an early stage investor in Facebook, Groupon, twitter, Zynga and others - so the guy's fairly clued into what's going on. As he sees it, software will drive down the costs of many, many products and services that we currently pay high (and rising) prices for. Here's what he has to say:

My own theory is that we are in the middle of a dramatic and broad technological and economic shift in which software companies are poised to take over large swathes of the economy.
More and more major businesses and industries are being run on software and delivered as online services—from movies to agriculture to national defense.

Many of the winners are Silicon Valley-style entrepreneurial technology companies that are invading and overturning established industry structures. Over the next 10 years, I expect many more industries to be disrupted by software, with new world-beating Silicon Valley companies doing the disruption in more cases than not.

...Health care and education, in my view, are next up for fundamental software-based transformation. My venture capital firm is backing aggressive start-ups in both of these gigantic and critical industries. We believe both of these industries, which historically have been highly resistant to entrepreneurial change, are primed for tipping by great new software-centric entrepreneurs.

Education and health haven't just been highly resistant to entrepreneurial change - they've been highly resistant to any change. But without change we face stagnation. And maybe even the final crisis of capitalism if Chris Dillow is right about the consequences of a failure to innovate.

But we can live in hope. So parents of the world unite: you have nothing to lose but the cost of putting your children through college! Off to DIY U with them...

DIY U Sungard

View more presentations from Anya Kamenetz

Mad in Ireland

I am reading Robert Whitaker's book Anatomy of An Epidemic. I got it following an extraordinary admission by Martin Seligman during the Q&A session at the end of his recent RSA lecture (an inspiring talk, by the way). At the very end of the session he is asked by a woman working for a pharmaceutical company about the implications of his research on human flourishing for those who are mentally ill. Seligman says something extraordinary: he admits that his entire perspective on mental illness had been changed two weeks prior to his lecture after reading Whitaker's book. Remember, Seligman is one of the most influential psychologists in the world, so that's a heck of an admission. I figured I'd better get the book if it's that good.

Whitaker's thesis is quite extraordinary: he argues that the enormous rise in chronic mental illness we have seen throughout the developed world is not the main driver of increasing psychiatric drug consumption. Rather it is the increasing prescription of psychiatric drugs - especially for prolonged use by patients - that is driving the extraordinary rise in chronic mental illness. He makes a compelling case - and his writing style (he's a journalist by profession) makes Anatomy of An Epidemic one of the best written works of non-fiction I have read in a very long time. His previous book - Mad in America - was a best seller, and I can see why.

What Whitaker and others are pointing to is a disturbing example of iatrogenesis at work once again in the medical profession. But it isn't all the medical profession's fault - the drug companies and government agencies (both as buyers and as regulators) have been at fault too. One of the most disturbing findings in Whitaker's book (and there are many disturbing findings) is that the science underlying the use of psychotropic drugs is only catching up with how they work long after the drugs were mass prescribed to millions throughout the world. Worse, it now appears that the drugs don't somehow restore the chemical balance in the brains of users to 'normal' as popularly perceived - rather they make brains increasingly abnormal. Here's Whitaker:

Now they [scientists] had a remarkably detailed understanding of neurotransmitter systems in the brain and of how drugs acted on them. And what science had revealed was this: Prior to treatment, patients diagnosed with schizophrenia, depression, and other psychiatric disorders do not suffer from any known 'chemical imbalance'. However, once a person is put on a psychiatric medication, which, in one manner or another, throws a wrench into the usual mechanics of a neuronal pathway, his or her brain begins to function, as Hyman observed, abnormally.

The scary thing is: though psychotropic drugs work for many people suffering depression, schizophrenia and other disorders in the short term, their long term usage appears to increase the likelihood of repeat psychiatric problems as the brain becomes dependent on the drugs themselves. Hence the epidemic of mental illness now happening in the United States and elsewhere. For a review of Whitaker's book and two related texts see Marcia Angell's excellent piece in The New York Review of Books (and read the exchange linked from the bottom).  You should also catch up with Whitaker's contributions to the Psychology Today blog.

What about Ireland? We are certainly not immune from the issues raised by Whitaker. Last month Jennifer Hough reported that those in the front line of mental health in Ireland now fear that psychiatric drugs are being prescribed to excess because it is cheaper than providing therapy and other, non-drug interventions that can be as successful in the short term as drugs, and possibly more successful in the long term. I say 'possibly' because there is a shocking lack of research on the impact of long run psychiatric drug usage in Ireland - or anywhere else for that matter. Questions about the long term usage of psychiatric drugs were also raised in the second episode in RTE's series Behind the Walls, broadcast last week.

However, the 'good' news is that the extent of mental illnesses such as depression in Ireland is low relative to the rest of Europe. The chart above shows the incidence of depression in the EU - from a Eurobarometer study on mental health. In Ireland, 6% of adults have taken antidepressants in the past 12 months - just below the EU average. It rises to an alarming 15% in Portugal - whatever's going on there. The recent CSO survey on the health status of the nation reported that 4% of adults were being treated for anxiety or depression by their doctors, and another 1% for other mental health problems.

Mental illness is a horrible affliction both for the sufferers and for their families. We have come a long way from the horrors of psychiatric hospitals as dumping grounds for the ill and the merely awkward. But we must avoid the chemical imprisonment of thousands through the prolonged use of psychiatric drugs that may be making the situation worse for those afflicted rather than leading them to health and wellbeing.

And on the day that's in it - don't forget Daisy Day.

Aristotelian Bankers

Harry Mount on what today's bankers should have learned from the Medici:

If Fred the Shred had spent his millions on something so high-minded and useful, he might not have got it in the neck so badly. That’s the depressing difference between 15th-century Florence and 21st-century banking. Here, gazillions passed through Wall Street and the City in the golden years of the last two decades, and there’s barely anything to show for it.

Walk around central Florence and you are walking through a city of buildings largely commissioned by 15th-century bankers. Santa Maria Novella, Florence’s first great Renaissance church, still has the name of its banker builder, Giovanni Rucellai, inscribed across its facade in foot-high letters.

Walk around London and New York, and, a few skyscrapers apart, you could be forgiven for not noticing that both cities had just been through the bonanza years. 

Harry rightly attributes religious motivations to the Medici. But it wasn't just religion - it was also philosophy. The Florentine princes were imbued with the ethics of Aristotle: how the higher good emerges from the unified harmony of virtue, truth and beauty.

I guess our modern bankers fail on all three measures. Not that the Medici were saints of course!

Letter to the Future

Following on from yesterday's post, I came across a fascinating initiative from China Post (only in Beijing for now). It's a service for newly-weds in which they send each other sealed love letters - but their letters are stored by China Post and only delivered seven years later...

It's all part of an initiative by Beijing's Civil Affairs Unit to tackle the growing problem of divorce in China. A possible copycat opportunity for An Post perhaps? (Please, no jokes about postal deliveries being late enough as it is...)

Married To The Job

The OECD has published its annual update on educational statistics for member countries. One chart that caught my attention was that for the percentage of third level degrees awarded to women by broad subject matter. Now to my layman's eyes the stand-out fact from the chart was that in all but three of the OECD's member countries men make up a minority of third level graduates. The majority of graduates from most of the developed world's universities are women. It has been that way for some time now (since 1992 in the United States). But the OECD doesn't see it that way. No, the stand-out fact for the OECD is that not enough women are doing science at third level. I kid you not.

Like I've said several times before, the myth of men as the economically and politically dominant gender demands that any situation in which men are a disadvantaged minority is ignored or dismissed. Elsewhere there will always be such a thing as a majority and a minority, but men will always be in a manority.

The OECD's politically-corrective proclivities aside, there are some important implications arising from this trend. One is that gender is now as significant a driver of income inequality as occupation. No I'm not referring to the 'gender pay gap'. That's one of those myths that Tim Harford calls a 'zombie statistic', i.e.: no matter how often you disprove the existence of a gender pay gap (arising from sex discrimination) it still keeps coming back from the dead...

No, I'm talking instead about the income inequality that arises from men's increasing alienation from third level education (even those men in third level don't think it's as beneficial as women do). Indeed I'm intrigued that of the prevalent narrative about rising income inequality and the disappearance of the middle class never mentions gender. And yet it is as powerful an explanation as any other, including shifts from manufacturing to services or the off-shoring of unskilled work to developing countries etc. Kay Hymowitz is right when she observes that:

The economic independence of women and the collapse of marriage norms have deprived men of the primary social role that incentivized their achievement. Adult manhood has almost universally been equated with marriage and fatherhood. Boys grew up knowing that they had inescapable future demands on them. There were exceptions, of course. In polygamous societies, low status men often had neither wives nor children; in others some males became priests and some, warriors and soldiers. But in most human societies, men knew that they were expected to become providers. Why have men agreed to do all of those dangerous, boring, dirty, exhausting jobs? Because people were depending on them. Evolutionary psychologists would point out it’s not insignificant that many of those dependents shared their genes.

Beginning in the middle of 20th century, not coincidentally the same historical moment that great numbers of women were moving into the workforce and becoming economically independent, the universal assumption that men were essential to family life started to erode. Divorce and single motherhood began to rise; even today, though divorce rates have declined, 40% of American children are now born to single mothers. Close to half of those mothers are living with their child’s father at the time of birth, but within five years, 40% of those fathers have moved out and their contact with their children diminishes steadily.

One of the reasons that marriage is collapsing (first in the West and now in the East) is that women are increasingly married to their job - and don't need a husband as a traditional economic provider. Ironically though this exacerbates the distribution of income in society. Educated women marry within the diminishing pool of educated men (hypergamy taking its natural course), combining two high incomes in one household, whilst low skilled men (and women) generally experience insecure, low paid, unskilled jobs that are subject to falling incomes, subjecting their fragile households and families to economic uncertainty.  Back in the days, trade unions used to campaign for a 'family wage'.  But since their capture by third wave feminism they have been reduced to meaningless demands for a 'living wage' - much to the relief of capitalists everywhere...

So what next? My guess is that the unfolding economic collapse in the developed world will mean a sharp shrinkage in the third level sector anyway (that particular bubble is already bursting in the USA). Then what? A reversion to traditional values and family wages? I don't think so. A new 'rapprochement' between the genders? Possibly. One thing is for sure, long after the debts have been repaid and the bondholders burned, our society - even our civilisation - will continue to be profoundly shaped by the real gender inequalities now facing us.

The Europeans Have Hated Well

George Friedman blames German Unification for Europe's woes. That's German Unification in 1871 by the way, not 1990. Big picture stuff, and well worth the read. Here's a flavour:

The deeper worry is nationalism. European nationalism has always had a deeper engine than simply love of one’s own. It is also rooted in resentment of others. Europe is not necessarily unique in this, but it has experienced some of the greatest catastrophes in history because of it. Historically, the Europeans have hated well. We are very early in the process of accumulating grievances and remembering how to hate, but we have entered the process. How this is played out, how the politicians, financiers and media interpret these grievances, will have great implications for Europe. Out of it may come a broader sense of national betrayal, which was just what the European Union was supposed to prevent.

Read more: The Crisis of Europe and European Nationalism | STRATFOR

The Novelty

I don't play chess, but I admire those who do. That said, I've always thought of it as more of a cerebral than a creative pastime. Having just listened to the latest episode from the (consistently excellent) Radiolab show on Games I now realise that I was wrong.

Among other things the show explored the (new-to-me) chess concept of The Novelty. Simply put, all professional chess games - and the sequence of moves by the two contestants - have been recorded in 'The Book' (now an online resource used and studied by all serious chess players). So every opening sequence of moves has been played (and recorded) in thousands of games before. But as each new game proceeds, the number of times an exact sequence of moves has previously occurred gets fewer and fewer. And eventually a move occurs that has never been recorded before. That moment is called The Novelty - and the game is now said to be 'out of Book'. Literally, something has happened that has never been recorded before in the history of chess. It's that novel.

By way of illustration, Radiolab relates the extraordinary story of The Game of The Century in which a 13 year old Bobby Fisher (pictured) managed to 're-write' the book by deliberately sacrificing his queen in order to win a game against a much older, more experienced adversary.

Which brings me to the world in September 2011: it feels like the global economy is 'out of book' and all of us as players are at the economic equivalent of The Novelty. The book of policies for dealing with the worsening crisis no longer has a game plan for us to follow. Sure there are things that each of us can do individually - as employers, citizens, taxpayers, voters, even as nations as the Swiss have just demonstrated - but it's beginning to look like there's no more road left to kick the can down.

Then again, maybe that's the point: The Novelty is an interface between creativity and danger - and with no prior plan to follow then the winner will be the one who breaks through to a new sequence of moves that are ultimately successful. The game of chess reminds us in microcosm what Hayek warned about in macrocosm in his Nobel speech:

"The recognition of the insuperable limits to his knowledge ought indeed to teach the student of society a lesson of humility which should guard him against becoming an accomplice in men's fatal striving to control society - a striving which makes him not only a tyrant over his fellows, but which may well make him the destroyer of a civilization which no brain has designed but which has grown from the free efforts of millions of individuals."

The game of the 21st Century is upon us.

Quote of The Day

Jeremy Warner on Osama's legacy (i.e.: the banking/sovereign debt crisis):

"There comes a point when the debt overhang gets so big that nothing, other than capitulation by creditors and a massive programme of debt forgiveness, is capable of resolving it. As things stand, the mechanisms don't exist to allow for such a resolution.

The normal conduit is currency adjustment, which has the effect of devaluing the external indebtedness of deficit nations and clawing back lost competitiveness. But that cannot happen within the eurozone, while the mercantilism of Chinese economic policy prevents in the Asia/America trading relationship either.

The same sort of currency wars that plagued the interwar years are already fast establishing themselves. Horrified by the effects of its safe haven status on industrial profitability, Switzerland has promised to print as much money as it takes to depress the Swiss franc to more tolerable levels.

Repeated rounds of quantitative easing in the US and UK have much the same effect of debauching the currency and gaining trade advantage. It can only be a matter of time before Japan follows Switzerland into similar action."

De-Risking the Future

I've been struck recently by the similarities between the Irish consumer and the American consumer. Both went on a borrowing binge fuelled by cheap credit. Both poured unprecedented amounts of money into property thereby fuelling a massive bubble. Both are now struggling to undo the damage by paying off debts and avoiding additional borrowings. Surveying the US consumer landscape, the Blackrock Investment Institute has observed that:

In the past expansion, consumer spending growth was able to outpace income growth because of the wealth effect created by the housing boom, which increased the collateral value upon which consumers could lever, fueling a coincident expansion of credit. In our view, however, the era of abundant consumer credit has ended, at least for the time being. In future years, it is more likely that secular tightening in consumer credit markets will force US consumers to keep consumption growth roughly in line with income growth and to slowly reduce their current level of leverage.

We think that these trends, coupled with stubbornly high unemployment, higher commodities prices, and slower growth in wages and salaries, will likely contribute to a lower level of personal consumption growth over the next few years. Moreover, since consumer spending is a key component of the GDP growth rate, this would argue for generalized economic growth levels that are, at best, modest for years to come, and may in fact appear anemic when compared to pre-crisis growth rates.

The same, alas, applies to Ireland. The big de-leveraging has still some way to go. Irish consumers know this of course. The fundamental psychological driver is risk. People consider it too risky to buy house, change their car, or even to take a holiday. But life goes on, and people want to live a little. That is why consumers in America and Ireland are increasingly attracted to options that allow them to de-risk the future. And the best way of de-risking a purchase decision? Don't buy, rent.

I've suggested before that we will be renting the future. I was thinking mostly about tenure. But now it looks like renting is becoming the new buying across a wider range of consumer markets. For example, US home furnishings store Best Buy have set up 'Rent-a-Centers' where consumers can rent furniture etc, and return the items if they no longer wish to keep them. Sure it's a variation on hire purchase, but such innovations are now much easier and cheaper to operate (for sellers and buyers) thanks to communications technologies. One fascinating example of the impact of technology is Airbnb. This turns consumers into landlords: so you can rent a spare bed (or air bed - hence the name) for one or more nights, generating extra income when you need it. Two million bed nights later it looks like there's a demand for it... Ireland's B&B industry could be transformed (or obliterated - depending on how it plays out) by such innovations.

These are examples of the new reality: buying is the new 'wasted money'. Renting is the least risky way to get hold of the things (furniture, cars, accommodation) that people still need. There is a new generation growing up in Ireland most of whom will never know job security, will never see property as a sure thing, and who will avoid those life decisions that are 'irreversible' and therefore risky for as long as possible. Sadly including getting married and having children.

Just like their American counterparts.

Dublin First

Will Dublin lead Ireland's economic recovery? It's an interesting question - and one that came up in conversation with a group of business men yesterday. I think it will - and it's all down to superlinear scaling.

I came across the concept in a presentation by Geoffrey B West to the Long Now Foundation during the summer. He's a physicist with a keen interest in explaining scaling phenomena in biology and in human institutions - especially cities. Geoffrey has applied Klieber's Law to human society and found that - just as in nature - there are genuine efficiencies to scale. For example: energy consumption per capita fall as cities get bigger (though obviously total consumption rises).

But cities do more than provide economies of scale (or sublinear scaling in the jargon). They do something else: they produce increasing amounts of some things as they get bigger - including incomes per capita, but also outputs such as creativity and innovation. This is a superlinear scaling effect. Only cities do this: which is one reason why they survive so long (much longer than animals, empires or corporations for that matter).

If the fate of humanity is inextricably linked to the future of cities, then the same goes for Ireland. The fate of our economy - and of our nation - is inextricably linked to the future of Dublin. And here's the thing: Dublin is having a (relatively) good recession. Yes we've experienced the same shock as the rest of the country in terms of the implosion of construction and the fallout from the banking disaster. But...

Dublin has a strength of infrastructure, a cosmopolitan energy and a depth of talent (Irish national and foreign national) that still makes it a very attractive place to set up business (or relocate businesses to in a growing number of instances). And what's left of non-property related wealth is also concentrated in Dublin.

All of this points to two things: firstly, Dublin is better positioned than the rest of the country to generate both endogenous growth and to benefit from internationally traded growth. Secondly, until Dublin starts growing, then the rest of the country will be moribund and recovery for the country as a whole will be delayed. Let me add a third: the political party that builds significant momentum in Dublin in the coming years will govern the country (on its own or in coalition) for the foreseeable future.

A victory for Dublin in the forthcoming All Ireland Final may be just what the city - and the country - needs right now...

A Nasty Turn

You know it's bad when even the banks start worrying about social unrest. This from UBS:

"The economic cost is, in many ways, the least of the concerns investors should have about a break-up. Fragmentation of the Euro would incur political costs. Europe’s “soft power” influence internationally would cease (as the concept of “Europe” as an integrated polity becomes meaningless). It is also worth observing that almost no modern fiat currency monetary unions have broken up without some form of authoritarian or military government, or civil war."

 ht:  zero hedge

Quote of The Day

"The sensitive plant of idealism never grows without the nihilistic twining vine.
...Nihilism and the ideals that feed it are as persistent as the sins they claim to excise."

P J O'Rourke

ht Division of Labour

Not even social workers are immune from idealism's nihilism - first they came for the fat...

Economists for Socialism

This one surprised me:

According to a 2008 survey of members of the American Economic Association, nearly half were registered Democrats, while only 17% said they were registered Republicans. Furthermore, 60% of the economists said Barack Obama would make the most progress on important economic issues as President. Indeed, contrary to the stereotype, economists aren't rabid supporters of free markets. In a 2003 paper, researchers Daniel Klein and Charlotta Stern showed how 1,000 economists had responded to 18 questions about the role of government in matters like tariffs. Only 8% supported free-market principles, they reckoned; Klein says he doesn't think that figure has changed since the survey was carried out. A 2008 article in the journal "American Economist" argued that economists over the past half-century have helped sell voters on bigger government. "We find that the increased role of economists in society and in policymaking has led to an increase in favorable attitudes toward government intervention," wrote the authors, economists Scott Beaulier, William J. Boyes and William S. Mounts.

From "10 Things Economists Won't Tell You' (ht Captain Capitalism).

I would add an eleventh:

"We don't know".