Sunday, June 30, 2013

This Time Isn't Different

Chris Martenson recently interviewed Neil Howe, co-author of The Fourth Turning. Howe explains his (Talcott Parson's inspired) model of social change, driven by recurring cycles across generations. He discusses why America has entered the The Fourth Turning (again), and what it means (from crisis to war to regeneracy). America's last Fourth Turning, in case you're curious, included the Wall St Crash, Great Depression, and climaxed in World War II. So hold on tight and don't worry, it'll all by over by 2029...

I find cyclical models of history fascinating, even if most historians dismiss them. One of the greatest theoretician of history's cycles was Oswald Spengler. John Michael Greer (my favourite blogging druid) has recently written a series of fascinating posts about Spengler and the implications of the civilization model first described in Spengler's book, written one hundred years ago, The Decline of the West.

Spengler outlined a wider-sweeping story of human history, and the repeated cycle of Pre-Culture, Culture and Civilization that he observed right up to the start of the 20th century. He sees Civilization as the phase in which things start to get worse rather than better due to insurmountable internal as well as external pressures. Spengler was not exactly optimistic about the trajectory for Western Civilization - this time isn't different - and he expected democracy to give way to what he called Caesarism (i.e.: dictatorship) as the problems of holding everything together became too much for politicians to handle. Of course, he didn't expect it to happen overnight (he reckoned it could be a two hundred year process before we got to total despotism). Then again, he was projecting forward from a century ago...

Indeed, Greer himself posits a process by which our technology-obsessed civilization might fail in the form of a catabolic collapse. Following on from Spengler he does not expect everything to fall apart overnight. Instead, he anticipates a period of downward, step-change adjustments in living standards, played out possibly over decades, with accompanying changes to political, social and economic structures along the way. But he definitely expects Spengler to trump Howe this time round. Alternative explanations might include peak innovation - but either way, Western Civilization won't be getting a pass on the fate of previous civilizations just because we have science and they didn't.

What does all this mean for Ireland? Given how integrated we are into the wider world economy, then inevitably our fate is tied up with the rest of the West. Appropriately enough, Spengler ended Volume 2 of The Decline of the West, quoting Seneca:

Ducunt Fata volentem, nolentem trahunt.
Which translates as:
The Fates lead the willing one, the unwilling one they drag.

Ireland won't so much have a ring-side seat as a stool in the corner of the ring.

Saturday, June 22, 2013

Freedom's Greatest Enemy

I had the great pleasure of meeting Os Guinness recently. In his writings and talks he reminds me of a C  K Chesterton or a C S Lewis. Hence this quote of the day:
The greatest enemy of freedom is freedom. Freedom requires an order, or a framework, and the only appropriate framework for freedom is self-restraint, and yet self-restraint is precisely what freedom undermines when it flourishes.
More here. And here.

Friday, June 14, 2013

Gone Galt

The latest business lending data indicates a turn for the worse. The chart shows the annual rate of growth in personal lending for business purposes - what the Central Bank calls Finance for Investment, defined as:
... lending to private individuals for purposes such as debt consolidation, education, etc. Lending to individuals, on a personal basis, for investment in a trade, business or profession, including lending to purchase a trade or profession, to acquire a share in a partnership, or to finance investment in long-term risk capital ventures. Lending to active partners to invest in their partnership. Lending to directors/employees to acquire shares in, or otherwise finance, their company. Lending to individuals for third-level or other specific educational expenses.
It's a bit of a mixture, but it's a handy indicator of the extent to which individuals are willing to have some 'skin in the game', and related therefore to entrepreneurial/start-up behaviour. The bad news is that the rate of decline in Finance for Investment jumped from -11% in Q4 2012 to -22% in Q1 2013.

However, this is separate to direct lending to businesses, also published by the Central Bank. The chart overlays business lending (excluding financial intermediation and property sectors). Not surprisingly, it's in negative territory too (though the decline isn't accelerating):

There are many explanations for the trend - ranging from the banks aren't lending to people are prioritising debt repayments. But I think there's something more profound going on. I think people in business (or those thinking about getting into business) are making a rational decision to... do nothing.

With a daily news stream of former millionaires being chased around the world for the personal guarantees they gave at the height of the boom, a lot of wannabe millionaires are having second thoughts. Business is personal for most SMEs - the founders and directors are personally liable for most of their debts. And so, therefore, are their families. Add to the risk of failure the very high bar required to succeed - when nominal interest rates on many business loans are running at 4-5 times nominal growth in the domestic economy - and you can see why doing nothing might be the most financially prudent course to take. In such a climate, entrepreneurship may be more a sign of desperation than ambition.

Just as we have the Paradox of Thrift, we are now experiencing the Paradox of Prudence. With more and more businesses deciding not to invest, hire or expand then the macro-economic consequences in terms of employment, incomes and growth are plain for all to see.

Unfortunately, I don't see either paradox being resolved any time soon.

Tuesday, June 11, 2013

Second Half of the Board

A recent edition of Global Business featured Peter Day interviewing MIT's Erik Brynjolfsson and Andrew McAfee about their book Race Against the Machine. In the interview they refer to an old Persian story about an Emperor who wished to thank an old man for inventing the game of chess. The old man humbly asked for a grain of rice for the first square on the board, then two for the second, four for the third, doubling thereafter on each square until all 64 were filled. The Emperor gladly agreed (figuring he had the better part of the bargain), until they got to the second half of the board. Then he, his empire and the planet ran out of rice (the final square required 18,446,744,073,709,551,615 grains of rice - a pile the size of Mount Everest).

It's a story about exponential growth and unforeseen consequences. According to Brynjolfsson and McAfee we're now on the second half of the technology board (thanks to Moore's Law and the doubling of computing power every two years or so). Despite concerns on the part of Robert Gordon and others that the West is 'post growth', there are those who think we have a few more squares to fill as technology squeezes more productivity out of the system.

I think they're both right. The collaboration economy will certainly increase productivity (after all, working for free is very 'productive' from an employer and even a customer perspective); but it won't deliver growth thanks to The Great Decoupling.

Unfortunately we still have an economy, political system and labour market that's still operating like we're on the first half of the board. They say the Emperor got very angry as the rice piled up and he realised he had been outwitted. The old man and his head parted company shortly afterwards. The second half of the board has that effect, it seems.

Monday, June 10, 2013

The Military-Digital Complex

It's bad when even retired spooks think things are going too far:
"It’s capacity-driven. We have this enormous capacity to collect and sort data. We do this because we can, and because it’s the one area where the government can really overmatch its terrorist adversaries. What now seems extraordinary is soon accepted as normal, and becomes the baseline for the future. Over a period of time, this baseline shifts, and these new intrusions accumulate and reinforce one another—and that fundamentally changes things. In the past, at the end of the emergency, the balance has shifted back and a lot of those powers were ended. But we’re in a situation now that doesn’t have a finite ending. If there isn’t an end, then these powers accumulate and accumulate and accumulate. This is a fundamental difference. What we put in place becomes a permanent part of the landscape." Brian Jenkins
A recent report from the UK's Defence Academy (part of the Ministry of Defence) on The Global Cyber Game - which came out before the recent debacle - provides a brilliant analysis of what's going on (they do ask permission to install cookies on your computer, by the way :-). They explore the bigger picture of our new, post-Westphalian age of international diplomacy and declining national sovereignty, using the analogy of a cyber power board game to explore trends and scenarios. The chart below shows the board, and the various areas of co-operation and conflict now playing out:

The Military-Digital Complex (my play on Eisenhower's Military-Industrial Complex) represents that interface between commercial co-operation/competition and plain old coercion/co-option.  Their scenarios for how things evolve from here are sobering. We've been living through the 'free lunch' phase of the digital economy, and are now in the 'rising alarm' phase (in case you hadn't noticed):

After that, things will get better... or they will get worse. How much better (and how very much worse) is set out in the MOD's report.

I'm inclined to see things getting worse. And not because I'm a techo-luddite (far from it), but mainly because I've been reading Oswald Spengler's remarkably prescient Decline of the West. Written precisely one hundred years ago.

A bigger topic, for another post.

The Land of GAFA

After last week's/this week's revelations about PRISM and Total Information Awareness, below is an apt reminder of how our world has changed. Turns out we're living in the land of GAFA - Google, Apple, Facebook, Amazon:

ht: Only Dead Fish
original: The Economist

Sunday, June 9, 2013

The Great Disappointment

America's enemies (and even some friends) refer to the United States as The Great Satan. Following this week's revelations about PRISM I find myself thinking of America as The Great Disappointment. Why? Because never before has a free people relinquished so much freedom so quickly, and so easily. Or as Dale Price put it:

"The good news? It's getting increasingly hard for anyone to hate us for our freedoms."

I remember a conversation with a devout Stalinist, shortly after the Berlin Wall had fallen, lamenting that the invention of the personal computer came too late for the Soviet Union. If only they had had better computing power then the socialist economy could have been made to work without the rationing and shortages... I'm sure there are former members of the Stasi who only wish they'd had PRISM back in the day. As the movie 'Lives of Others' reminds us, spying used to be a labour intensive business: one spy, one spied-upon. Now, thanks to Moore's Law, the NSA can collect 97 billion pieces of intelligence in just one month.

We should beware of geeks bearing gifts. Edward Luce observes that:

"One of the geekocracy’s main characteristics is a serene faith in its own good motives."

Motives lacerated by Evgeny Morozov in his review of a book by Google executives Eric Schmidt and Jared Cohen. As Morozov sees it:
The goal of books such as this one is not to predict but to reassure—to show the commoners, who are unable on their own to develop any deep understanding of what awaits them, that the tech-savvy elites are sagaciously in control. Thus, the great reassurers Schmidt and Cohen have no problem acknowledging the many downsides of the “new digital age”—without such downsides to mitigate, who would need these trusted guardians of the public welfare? So, yes, the Internet is both “a source for tremendous good and potentially dreadful evil”—but we should be glad that the right people are in charge. Uncertainty? It’s inevitable, but manageable. “The answer is not predetermined”—a necessary disclaimer in a book of futurology—and “the future will be shaped by how states, citizens, companies and institutions handle their new responsibilities.” If this fails to reassure, the authors announce that “most of all, this is a book about the importance of a guiding human hand in the new digital age.” The “guiding hand” in question will, in all likelihood, be corporate and wear French cuffs.
If PRISM and the age of Total Information Awareness is a consequence of IT economics, then maybe we need to look again at the economics? At one level, we are witnessing a digital tragedy of the commons. Only this time it is national governments who are under-mining our collective welfare through their selfish acts. If enclosure solved the problem of overgrazing back in the 18th century, then perhaps something similar is required now?

The answer is the same: replace 'collective' ownership with private ownership. Give every citizen ownership of their own data. All of it. It's already got a name: The Intention Economy.

This is an opportunity for Ireland: to become a global 'trust hub', pioneering data privacy, data ownership and new data sharing models that avert the digital tragedy of the commons. Come to think of it, we've no other choice if we want to hold on to the little freedom we have left...

Tuesday, June 4, 2013

Our Potemkin Economy

There are seven shops vacant on Main Street, Blackrock. Double that number if you include the side streets and nearby shopping centres (including my favourite restaurant Dali's, now sadly no longer with us). Blackrock is still an affluent place in comparison with much of the rest of the country. And yet, in nearly twenty five years living here, I can't recall anything as bad as this.

The sheer duration of this recession is partly to blame. Most businesses can survive a bad quarter or two, even a bad year, but five years in a row is too much for many. Unfortunately, recovery won't be the balm to heal all wounds. In the UK, they're talking about more than a fifth of stores closing between now and 2018 due to their own economic difficulties and the rise (and rise) of internet shopping. Back in Ireland, at the height of the boom, we had the second highest shopping space per capita after the Netherlands. So I suspect we'll be tracking UK retail trends for a while, if not getting ahead of them...

We now have an increasingly surreal street scape in some parts of Ireland (North and South) as 'fake' shop fronts appear to mask the empty stores behind. Mike Krieger talks about the Potemkin village feeling in Fermanagh ahead of the forthcoming G8 summit. Like the one in the photo I took in Beacon shopping centre at the weekend.

Empress Catherine II may have been suitably impressed by the original Potemkin villages during her visit to the Crimea in 1787, but Irish consumers (and quite a few retailers stuck with upward only leases) will be much less impressed by our home grown attempt.

Meanwhile our banks, pension funds and landlords will have to come to terms with the reality that fake shops containing fake customers amount to nothing more than fake property valuations. A Potemkin economy is just that: a fake.

Saturday, June 1, 2013

Money in the Mattress

An innovative response to the banking crisis from Spain:

Though a Swiss mattress might be better...

ht JWT
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