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.
Indeed.

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

Diabesity

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.
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