Thursday, November 29, 2012

Saudi America

According to the International Energy Agency:
By around 2020, the United States is projected to become the largest global oil producer (overtaking Saudi Arabia until the mid-2020s) and starts to see the impact of new fuel-efficiency measures in transport. The result is a continued fall in US oil imports, to the extent that North America becomes a net oil exporter around 2030.
James Hamilton (and quite a few other people) isn't so sure:
My view is that with these new fields and new technology, we’ll see further increases in U.S. and world production of oil for the next several years. But, unlike many other economists, I do not expect that to continue for much beyond the next decade. We like to think that the reason we enjoy our high standard of living is because we have been so clever at figuring out how to use the world’s available resources. But we should not dismiss the possibility that there may also have been a nontrivial contribution of simply having been quite lucky to have found an incredibly valuable raw material that was relatively easy to obtain for about a century and a half. 
My view is that stagnant world oil production and doubling in the real price of oil over 2005-2010 put significant burdens on the oil-consuming economies. Optimists may expect the next century and a half to look like the last. But we should also consider the possibility that it will be only the next decade that looks like the last.
Either way, I don't expect it to cost me any less to fill up my car in the next few years. And probably a lot more...

Tuesday, November 27, 2012

Polls Apart

My company's research for RTE Frontline/Irish Daily Mail points to some interesting differences between the Irish and British when it comes to welfare provision:

The British are turning increasingly negative about their welfare state - is it a legacy of Thatcher or a harbinger of how things will evolve here? Especially as we now outspend the British on social protection.

Friday, November 23, 2012

Post Code Bigots

I used to think postcodes for Ireland would be a good thing, but now I'm not so sure. They might turn us into post code bigots (we have a minor form of it in Dublin already). According to the latest Eurobarometer survey on discrimination in Europe we Irish are totally cool with differences, but only up to a point.

Would we support a gay, disabled, black female in her late seventies for president? Yeah sure, whatever. Would we support a candidate from Moyross? Well now, hold on there...

The SAD Economy

The latest issue of the Economic Recovery Index suggests that Ireland's economy is a victim of Seasonally Affective Disorder, or SAD for short. Of course, it could just be the state of the economy, full stop:

Wednesday, November 21, 2012

Tweedle Dee and Tweedle Doom

Chris Martenson's podcast interview with John Michael Greer is a classic. Greer currently serves as the Grand Archdruid of the Ancient Order of Druids in America (they haven't gone away you know...)

His blog - The Archdruid Report - is a recent addition to my rss feed and a very entertaining and insightful read on life in the twilight of the American Empire.

Greer has some funny and insightful things to say about the near future in America, and some handy tips for how to prepare for life in an age of 'catabolic decline'.  For example:
 I would point out that one of the ways we can look at this is what an exciting time this is to be alive. What an astonishing opportunity we have to create – with our own lives, with our own choices – to literally shape the future ahead of us.  
So what I advise is that people start by looking at their own lives and saying okay, how is my life going to change as energy constraints continue to squeeze in, and then get ahead of the change instead of being dragged along behind it. Get ahead of it, give yourself some space, work through the learning curve picking up the skills you’re going to need. Do it now, so that by the time it’s necessary, you’re comfortable with it, you know what you’re doing. 
...You maybe started developing some tradable skills. You’ve got a little basement workshop where you’re doing something you can barter with your friends. You’re brewing beer in the basement, you know? That’s actually my number one suggestion for a lot of people – learn how to brew beer. If the Four Horsemen of the Apocalypse knock on your door and you can offer each of them a cold one, they’re your friends.
I love the smell of hops in the morning...

You can read the full transcript at the bottom of the page here if you don't want to listen to it.

Tuesday, November 20, 2012

From Capitalism to Financialism

So that's what they mean by financialization:

From a fascinating report by Bain and Co. Some numbers:
We discovered that the relationship between the financial economy and the underlying real economy has reached a decisive turning point. The rate of growth of world output of goods and services has seen an extended slowdown over recent decades, while the volume of global financial assets has expanded at a rapid pace. By 2010, global capital had swollen to some $600 trillion, tripling over the past two decades. Today, total financial assets are nearly 10 times the value of the global output of all goods and services. 
...Moreover, as financial markets in China, India and other emerging economies continue to develop their own financial sectors, total global capital will expand by half again, to an estimated $900 trillion by 2020 (measured in prevailing 2010 prices and exchange rates). 
More on financialization here.

The Job Gap

Where will the jobs come from? That was the big question discussed with some friends last night. Unfortunately we didn't come up with any easy answers!

Starts-ups and entrepreneurs got a mention - especially in the IT/software sector. I was more sanguine - it'll take a lot of start-ups to make a big dent in our current unemployment levels. What's more, new research in the UK shows that entrepreneurs are more risk averse - not less - than the total population. Go figure.

John Mauldin makes the case for manufacturing in his latest newsletter - it's the only sector capable of absorbing the unskilled and the semi-skilled in large numbers. But I don't think it's about betting on the right sectors. An increase in consumer spending - and the resultant boost to demand for shops, restaurants and hotels - will do more to create jobs than delusional aspirations to become the next Silicon Valley. But that's a matter of economy policy, not employment policy.

The default solution in these conversations is: education. We need a better educated workforce. Which usually translates into more degrees. I'm not so sure. It's not working so well in the United States right now - take it away Peter:

Monday, November 19, 2012

Happy International Men's Day

That's today, in case you haven't heard (and you probably haven't).

Well done to the men of Trinidad and Tobago for getting it started, and to our mates in Australia for taking it global.

Here's a handy reminder why we need to show our solidarity with those trapped in the glass cellar.

Sunday, November 18, 2012

The Kingdom of Whatever

For some reason Alexis de Tocqueville keeps coming up in the post-election commentary in America. He is, as usual, relevant to all of us living in 21st century democracies. Here's James Kalb:
Tocqueville was concerned to secure the advantages of democracy and minimize its dangers, but his confidence in its approaching triumph was not matched by confidence it would endure... Tocqueville’s intelligence and insight did not bring him influence, and democracy and Western society have gone their way without reference to his warnings. The outcome has been a setting increasingly unfriendly to democracy. People have become more interested in comfort and security than self-rule, and a technological and globalized world seems too complicated—and problems such as terrorism, environmental degradation, and economic instability too pressing, far-reaching, and resistant to solution—for popular rule to appear workable. Under such conditions Russia and China can seem better symbols of things to come than the New England town meetings that so much struck Tocqueville when he visited.
The low turnout in the recent referendum in Ireland, and the lowest turnout ever in last week's UK police and crime commissioner elections are example of people becoming more interested in 'comfort and security than self-rule'. Though perhaps that's unfair to our fellow citizens. We are living through not so much a crisis of faith as a crisis of reason. Worse, we are now living in what Professor Brad Gregory calls the Kingdom of Whatever:
Modern Western political theory tries (or pretends) to steer clear of prescribing morality. Because our society divides so bitterly over matters of truth and ethics, modern lawmakers tend to enshrine individual privacy and autonomy. But in doing so, they diminish the life-giving social importance of religious faith. This legal “neutrality” isn’t so neutral. In feeding the sovereignty of the individual, our public leaders fuel consumer self-absorption, moral confusion, and—ultimately, as mediating institutions like the family and churches wither—the power of the state. The Reformation has led, by gradual, indirect, and never-intended steps, to what Gregory calls the “Kingdom of Whatever.” It’s a world of hyperpluralism, where meaning is self-invented by millions, and therefore society as a whole starves for meaning.
The people's romance with democracy is turning to dis-enchantment, as it did in the 1930s, and we know how dangerous that can be. We started with Tocqueville so let's end with a (quite remarkable) song in French, from Quebec:

ht The Thinking Housewife

Friday, November 16, 2012

The Good Old Days

... were smarter too, apparently:
"I would wager that if an average citizen from Athens of 1000 BC were to appear suddenly among us, he or she would be among the brightest and most intellectually alive of our colleagues and companions, with a good memory, a broad range of ideas, and a clear-sighted view of important issues. Furthermore, I would guess that he or she would be among the most emotionally stable of our friends and colleagues. I would also make this wager for the ancient inhabitants of Africa, Asia, India, or the Americas, of perhaps 2000–6000 years ago." Jerry Crabtree
Link to paper. And here's a contrarian view that says he's wrong (phew!).

ht The Reference Frame

But if reading's too much for you (ahem), this'll explain it:

Thursday, November 15, 2012

Digital Optimism

Today sees the launch of a report by my company on digital trends and prospects in Ireland. The big message is that both consumers and businesses are optimistic about digital technology - it's the only thing that's got consistently 'better' (cheaper/faster/easier) these past five years.

The report was commissioned by UPC (their CEO Dana Strong is pictured at the launch) and is hosted here on their website - along with background information and a digital self-assessment tool. It's a good news story - hence, possibly, the optimism!

Tuesday, November 13, 2012

The Great and the Small

Lawler channelling Toqueville:
Tocqueville makes a key distinction between SMALL and GREAT political parties.  Great parties are parties of high principle.  Their dominance on the political stage has the advantage of bringing great men into political life.  They have the disadvantage of rousing up animosity that readily leads to war.  So great parties make great men happy and most men miserable.  Lee and Lincoln were given by the Civil War challenges worthy of their great talents and ambitions, as was Washington by the Revolutionary War.  But these bloody conflicts were devastating for ordinary lives—for most people’s hopes and dreams. 
Democracies, however, hardly ever have great parties.  Most of the time our parties are coalitions of diverse interests and short on clear and divisive principle.  Politicians make petty appeals to ordinary selfishness, and people vote their interests.  The bad news is that great men are repulsed by the small stakes and contemptible motives of political life, and so they stay away from it.  The good news is that the outcomes of elections aren’t so important, and people aren’t roused up to take to the streets or grab their weapons.  The winning candidate and party is the one that most effectively builds a majority coalition of diverse interests, and the losing candidate and party end up acknowledging that, most of all, it got outhustled.
We should be grateful to live in an age (and a country) of little parties. For as Brecht put it:
Pity the land that needs heroes. 

Monday, November 12, 2012

Is the Future Catholic?

Admittedly not a question you hear often these days. But it might be true in, of all places, England. Matthew Taylor has written about a fascinating shift on the political Left in England towards Catholic social teachings. He has even produced a radio programme/podcast on the subject as part of the BBC Analysis series (well worth plugging into your iTunes feed). According to Taylor:

Although its roots can be traced back not just to the Bible, but to the ideas of Aristotle, rediscovered in the 13th Century by St Thomas Aquinas, the modern expression of Catholic Social Teaching came in an encyclical - the highest form of papal teaching - titled Rerum Novarum and issued in 1891 by Pope Leo XIII. 
The Pope offered the "gift" of Catholic social thought to a troubled world. He called on the one hand for compassion for the poor and respect for the dignity of labour and, on the other hand, for respect for property and the family - all held together by the core idea of the common good. 
The encyclical can be seen as the Church both realigning itself towards the concerns of the urban working-class, but also seeking to find a path of reform as an alternative to the growing threat of revolutionary unrest. These origins offer one explanation for the current revival of interest in these ideas. For today too we live in a time of rapid change and social unrest.
Taylor - a former advisor to Tony Blair - is clearly intrigued, even if he's not entirely convinced. Partly because he has seen such fashions for 'new ideas' (especially among opposition parties) come and go; and partly because of the extreme wariness he notes on the part of the Catholic Church in England, who have historically been more used to being on the outside, intellectually speaking. Taylor, as Chief Executive of the RSA, is himself not shy about exploring and adopting new ideas. His recent annual lecture was a fascinating exploration of the need for hierarchy: an odd thing for a Left Liberal to argue for, but he's honest about the conclusions he has reached.

Perhaps that is part of the appeal of Catholic social teachings to the Left: it promises an antidote to corrosive individualism (e.g.: via teachings on solidarity), and to failing state centrism (e.g.: via teachings on subsidiarity). But it isn't just the Left who are open to Catholic social teachings, so also is the Republican Party in the United States. Even some Protestants are getting in on the act, recognising that the Reformation has gone too far - and that sola scriptura has landed us in a world of hedonistic nihilism: though that wasn't quite the plan.

But maybe Matthew Taylor is right to be cautious: political parties and politicians rarely stick to a set of principles or practices for very long. American Catholics voted much the same as everyone else in the recent election, and displayed many of the same gender and racial divides.

Here in Ireland, even though Catholics make up 84% of the Irish population according to the 2011 Census, I doubt that any political party will make Catholic social teachings an explicit part of their policy platform. Especially Labour, come to think of it...

Then again, Social Partnership was an Irish version of Catholic Corporatism: so we have adopted some related ideas in the past. Perhaps those looking for ideas to fill the gap left by Social Partnership's (welcome) demise might look across the water for inspiration?


The Real Crisis

Quote of the day from Ambrose Evans-Pritchard:
The youth jobless rate is 58pc in Greece, 54.2pc in Spain, 35.1pc in Italy, and 25.7pc in France. 
Labour economist and Nobel laureate Peter Diamond says the life trajectory of these young people will be damaged. There is almost nothing worse you can do to the productive potential of an economy - and therefore to debt ratios - than locking a great chunk of the future workforce out of the system during their formative years. 
“They have a debt problem and an unemployment crisis, but they think it is the other way round,” he said. 
The tragedy is that Europe is wasting its last chance to train a workforce for the 21st Century before its demographic crunch hits later this decade. EMU leaders - like the donkey generals of the trenches - are fighting the wrong war. They are crippling a generation. Budget deficits are coming down - though far less than assumed - but the skills deficit of the jobless army is going through the roof. It is the tyranny of the Maastricht Treaty.

Sunday, November 11, 2012

Ponzi Pensions

What will your pension be worth when you retire? It's a question a lot of people are going to be asking themselves in the years and decades ahead. The short answer is: 'it depends'. Here are just a few things you'll have to consider:

1. Prospects for global economic growth (as one of the world's most open economies, our fortunes - and pension funds - are very much tied to everyone else's).

2. Future tax rates: there could will be a (very) big difference between the income your pension provides and what you actually receive, thanks to taxation.

3. Your contributions: an obvious one, but forecasting future contributions requires you to forecast future (after tax) income as well as the tax treatment of pension contributions (in the next Budget and every other Budget after that).

4. Pension fund levy: due to run for another two years, and - like all taxes - it'll keep on running and most likely, get bigger.

Oddly enough, none of the 'pension calculators' you can find on the web sites of pension providers invite you to answer these questions. Wisely perhaps: because the truth is nobody can answer them. However, kudos to the OECD for recently having a go at answering 1 above. They've produce a study on global growth prospects for the next fifty years. They reckon Ireland can look forward to annual growth of less than 2% per annum to 2060. Add in another couple of percent for inflation and 3-4% looks like the most optimistic assumption for pension fund growth in the long term:

But the report itself is full of heroic assumptions (necessary, of course, to say anything about the world in fifty years' time). However, the question I always ask of such long-term projections is: how likely would you have been to describe the world we live in today starting out fifty years' ago, say in 1960? And that's the problem with long-term forecasting - including pension forecasts. The boundaries of uncertainty increase exponentially the further out we seek to forecast.

Add to the mix the accumulating burden of unfunded public sector pension liabilities and the assumptions you'll have to make about future tax levels will likely need to be on the very high side. Here's Colm McCarthy on the pension ponzi scheme now strangling the country:
Defined-benefit schemes are strewn with temptation. The biggest temptations are to make unrealistic assumptions about investment returns and to negotiate fancy benefits unsupported by adequate contributions. Because the schemes are meant to last forever and will typically have enough cash to meet current payments to retirees, they can turn into Ponzi schemes where current contributions are eaten up, making these payments and the schemes become insolvent. Private companies competing in today's markets are not credible guarantors of long-term pension-fund liabilities. The defined-benefit model is broken and the individualisation of pension savings is the unavoidable alternative. 
In the public service, no funds are invested and the collective obligation falls on future generations of taxpayers, rather than on the unretired employees. 
The Reality Gap is going to get bigger before a new generation of politicians emerges who are prepared to close the gap. Though we don't have the luxury of waiting a generation to close it.

Tuesday, November 6, 2012

American Destiny

Whoever wins today will face challenges of historic proportions - via the Burning Platform:
The next Fourth Turning is due to begin shortly after the new millennium, midway through the Oh-Oh decade. Around the year 2005, a sudden spark will catalyze a Crisis mood. Remnants of the old social order will disintegrate. Political and economic trust will implode. Real hardship will beset the land, with severe distress that could involve questions of class, race, nation and empire. The very survival of the nation will feel at stake. Sometime before the year 2025, America will pass through a great gate in history, commensurate with the American Revolution, Civil War, and twin emergencies of the Great Depression and World War II.” Strauss and Howe in 1997
See here for more on the Generations of Men.

Sunday, November 4, 2012

The Reality Gap

The Financial Services Authority (FSA) in the UK has just announced that the future is on hold. Or at least postponed. The reason? From next year, pension projections have to be based on a more pessimistic view of the future:
The Financial Services Authority has confirmed that it will reduce the standard projection rates used to indicate investment returns and the impact of charges on these savings plans. Currently a pension statement will show the current value of your fund, and what it will be worth at your retirement date if it grows by 5pc, 7pc and 9pc a year. These figures are being reduced to 2pc, 5pc and 8pc after concerns that the current projection rates gave an unrealistic view of the potential investment growth.
The ongoing impact from the financial crisis has forced a rethink on growth prospects for pension funds and the wider economy. But they still expect things to get to normal, eventually. As explained in a background paper that informed the change to projection rates.

This is hugely important from an Irish perspective, not least because of the enormous overlap between the financial industries (including pensions) in both Ireland and the UK. We can expect similar changes to projections rates for Irish pensions, which is seriously bad news for the 70% of defined benefit pension schemes that are in deficit (to the tune of €10 billion in the biggest schemes alone, according to LCP Ireland). Lower projections means bigger contributions, or you'll be breaking the law as operated by The Pensions Board.

The problem, in a nutshell, is growth. Everything from Troika bailouts to the pensions of Cabinet Ministers is predicated on economic growth. Moreover, on growth rates closer to the FSA's old standards than to their new standards. But isn't going to happen. The realities of a balance sheet recession of epic proportions (especially in Ireland) combined with the prospects of very low growth rates over the long term, means that even the gold plated pensions of our public servants will prove unsustainable.

The reality gap - between what we want and what we get - will only get bigger. Expect more announcements from the FSA and others in the years ahead.

Thursday, November 1, 2012

Reluctant and Truculent

I crossed over from France to Spain at the weekend, walking the first leg of the Camino de Santiago through the Pyrenees from St Jean Pied de Port to Roncesvalles. The guidebook told us there would be a simple stone sign telling us we had entered Spain from France. And there was, but it didn't mention Spain. Instead the stone sign - pictured - simply said Navarra/Nafarroa. We hadn't entered Spain, we had entered the autonomous community of Navarre, with the Spanish and Basque spellings there to remind us of its history and its neighbours.

I was surprised at first. Then it struck me that borders in Europe are fluid things, especially those involving mountain ranges and lines on maps. On both the Spanish and French sides of the border there are two and sometimes three languages on display in public spaces: reminding us again of differences and past disputes (often very bloody at that, according to the guidebook).

One thing all the different countries, regions and communities we crossed have in common is their currency: the euro. But the stone sign in the Pyrenees is a reminder of the power and continuity of differences rather than similarities. With countries like Finland openly discussing the idea of 'parallel currencies' - a new 'marrka' to operate alongside the euro - then we might begin to see money taking on some of the same characteristics as language in the eurozone. Something I've previously advocated we do in Ireland, by the way.

The ECB is taking note: they've just published a fascinating research paper on virtual currencies. This is wise because parallel currencies don't even have to be paper-based like in the past: they can run on smart cards, mobile phones and gaming platforms. The monetary mono-culture that is the eurozone will eventually go the way of other unions that tried to forge together the reluctant and the truculent. Unless we recognise the signposts: and allow for differences as well as similarities.

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