Monday, March 31, 2014

What's That Hissing Sound?

Ireland's economy has a flat tyre. Today's Central Bank statistics suggest that, instead of pumping air into the flat economy, it's still leaking out. Indeed, February's decline in the amount of credit advanced to Irish households was the 60th successive month in a row in which consumer credit (excluding home loans) declined. Separately, home loans have 'only' been declining for 52 consecutive months.

Just to put that in context, what it means is that Irish consumers in only the past twelve months have repaid €1.6bn more in personal loans (excluding mortgages) than they have taken out in new loans. And in case you think they're sitting on their cash you'd be wrong. The same Central Bank statistics tell us that the value of deposits held by Irish households has declined by €0.8bn over the same period. So one group of people is paying off debts as fast as they can, while another group is drawing down savings just to make ends meet.

All this should, of course, mean lots of extra money in the banks to lend to businesses. Emphasis on 'should'. In fact, again according to the Central Bank, net lending to businesses (excluding the financial sector) has declined by a cumulative €4.7bn in just the past 12 months. Indeed, repayments have exceeded borrowings for 55 straight months in a row. Amazingly, deposits held by businesses in the same banks has risen over the past 12 months by €3.7bn.

Consumers and businesses are, in fact, sucking money out of the economy in a desperate attempt to reduce their debt levels. We're liquidity trapped, even as the lions of deflation and bank stress tests are approaching.

Despite all this, we appear to be enjoying something of an entrepreneurial renaissance in Ireland - if the latest numbers on start ups are to be believed. I'm inclined to take them with a pinch of salt - a lot of these new businesses are registered for transactional/financial reasons and aren't really start ups with owners, staff and plans. But most of them probably are - so what's going on? Some of it is down to necessity - people without jobs simply starting their own business out of desperation. According to the 2013 GEM Report, about 18% of all Irish, early-stage entrepreneurs became business owners last year out of necessity than any real choice or sense of opportunity. Still, the vast majority are compelled by more than brute necessity.

But are more entrepreneurs a good thing overall? Most won't go on to hire a single additional employee - and will simply provide employment for the owner manager alone. Worse, becoming self-employed is a fast track to poverty for many. Becoming rich through entrepreneurship may not be quite up there with the odds of winning the lottery, but it isn't far off if you're eyes are set on being the next What's App. Indeed, even pure tech start-ups have a pretty dismal success rate.

My best guess is that we're stuck in a 'zero sum recovery' and will be for the foreseeable future. There are and will be plenty of opportunities to succeed for start ups and established businesses alike. But in an economy in which even the money supply (M2) shrank last month, then it's going to become a negative sum game pretty soon (if it hasn't already), and those with the most cash - or the least need for cash - will be the ones who'll survive.

Thursday, March 27, 2014


John Derbyshire is worried about the future:
Yes, folks, it’s official: The future—the quite near future—will have less and less use for human workers. Software or gadgets will do the tasks that millions of people now do for modest middle-class salaries. The software and gadgets’ creators will get tremendously rich without employing many people. WhatsApp, whose entire payroll headcount seems barely to have made it into two digits, sold for $19 billion. 
It’s all happening very fast. The field of Artificial Intelligence was dominated for decades by Moravec’s Paradox: Tasks that are very difficult for human beings, such as playing grandmaster-level chess, are fairly easy to get computers to do, while tasks any two-year-old can accomplish, such as distinguishing between a cat and a dog, are ferociously difficult to computerize. 
That’s beginning to look quaint. 
If he's right, what does it all mean? For starters, it means that low interest rates are here indefinitely - according to Larry Summers - because there aren't any capital intensive investment opportunities left and so the supply of capital is already exceeding demand. Great if you're a borrower, not so good for savers.

But that's just the macro-economic picture. What about the micro-economic one: specifically, what jobs are at risk from the demise of Moravec's Paradox? Carl Benedikt Frey and Michael A. Osborne have worked out the vulnerability of 702 different occupations to automation and therefore to imminent mass redundancy for current practitioners. Ranking them from the least likely to be automated at number 1 (recreational therapists, in case you were wondering) to the most likely to be automated at number 702 (telemarketers, so you know). Luckily for economists, they are reckoned by the authors to be the 282nd least vulnerable occupation to computerisation, with a probability of just 0.43 (out of 1). On the other hand, market researchers rank nearly half way down the list at 337, with a probability of computerisation score of 0.61. Not great.

So a glut of capital meets a glut of labour together with a glut of really cheap, increasingly smarter computing power. That's a lot of glut. One picture of the future that might emerge is highlighted in Sarah Kessler's essay Pixel and Dimed. She tried living in the so-called gig economy now being created by the likes of TaskRabbit and Amazon Mechanical Turk. Basically you get paid to be a 'micro-entrepreneur', i.e.: a piece rate worker. It's a pretty depressing scenario, and she was very glad to get back to her job as a journalist. Though she better watch out for the rise of the robot reporters.

Where might it end? Martin Hutchinson thinks we might end up back in the era of Downton Abbey. Sounds terrible until you realise that not only was there less income inequality back in the 1920s, but so also productivity and real interest rates were higher.

Mind you, waiters rank 592nd in the list, with a probability of computerisation equal to 0.94. Perhaps Mr Carson will have to re-brand himself a recreational therapist?

Still, we can always hope that our politicians and policymakers - in Dublin, Brussels and Frankfurt - will come up with a solution. Though as Francis Bacon once observed:
Hope is a good breakfast, but it is a bad supper.

Wednesday, March 26, 2014

Hubris meets Nemesis

Hubris brings nemesis, but hubris takes many forms. One is the belief that the need for vigilance has been abolished because everyone now has the same worldview as ourselves, that the end of history has come, and we are it. Theodore Dalrymple

Saturday, March 22, 2014

Our Future Masters

"Mammoth productive facilities with computer minds, cities that engulf the landscape and pierce the clouds, planes that almost outrace time - these are awesome but they cannot be spiritually inspiring. Nothing in our glittering technology can raise man to new heights, because material growth has been made an end in itself, and, in the absence of moral purpose, man himself becomes smaller as the works of man become bigger. Gargantuan industry and government, woven into an intricate computerized mechanism, leave the person outside. The sense of participation is lost, the feeling that ordinary individuals influence important decisions vanishes, and man becomes separated and diminished." Martin Luther King, Jr

I listen to about 10-12 podcasts a week, and I rarely listen to the same podcast twice. Rarer still is the podcast that I'll listen to three times. Gregory Clark's recent talk to the RSA on The Truth About Social Mobility is a 'three-fer'. Clark sets out a meticulous case for why elites endure across centuries in every society - from free market America to socialist Scandinavia. The self-preservation powers of elites are quite extraordinary. They are capable of sustaining a privileged position for themselves and their offspring over the course of centuries. Clark illustrates this fact with reference to the surnames that keep showing up in elite colleges, leadership of political parties, major businesses etc.

However, the explanation for why elites preserve themselves so well across 20 generations and more is not about how they use their power. Power is a perk of belonging to the elite. Rather, Clark applies Occam's Razor and concludes it is mainly down to genetic inheritance:

The notion of genetic transmission of “social competence” — some mysterious mix of drive and ability — may unsettle us. But studies of adoption, in some ways the most dramatic of social interventions, support this view. A number of studies of adopted children in the United States and Nordic countries show convincingly that their life chances are more strongly predicted from their biological parents than their adoptive families. In America, for example, the I.Q. of adopted children correlates with their adoptive parents’ when they are young, but the correlation is close to zero by adulthood. There is a low correlation between the incomes and educational attainment of adopted children and those of their adoptive parents. 
These studies, along with studies of correlations across various types of siblings (identical twins, fraternal twins, half siblings) suggest that genetics is the main carrier of social status.
However, Clark does hold out the 'consolation' (for the rest of us) that all elites are subject to regression to the mean. In other words, over time, the off-spring of enough elite/non-elite parental pairings will dilute the genetic transmission of social competence and a new elite will emerge with a higher genetic quality than the regressing, old elite. Give or take 300 years or so...

This raises a couple of interesting issues. The first one is about inequality. Clark starts with the fact that you cannot legislate away elites (or even shoot them all, e.g.: the Chinese Communist Party is now dominated by people with surnames belonging to elite Chinese families in the 19th century, despite the Cultural Revolution etc). His view is that public policy must mitigate the worst effects of unavoidable elites on income distribution by following the Scandinavian model of focusing resources on the lowest status groups. Even if you know they'll never become part of the elite (though their great, great, great, great grandchildren might).

However, a more interesting question - that Clark prefers to avoids - is what might happen if contemporary elites becomes 'self aware' of the drivers of their own longevity as elites, thanks to insights from science and studies such as Clark's? A singularity for the aristocracy, if you like. Arguably it's already happening. In the United States, assortative mating (doctors marrying doctors rather than doctors marrying nurses) is a significant driver of rising income inequality.

But we're still only in the early days of the 'genetic singularity'. Even doctors who marry doctors will eventually see a regression to the mean among their descendants over just a few generations. Unless elites figure out how to reverse the regression. Which is where genetic engineering comes in. Brian Wang expects China's tiger moms - newly released from the constraints of the one child policy - to drive the demand for invitro fertilized (IVF) babies from about 400,000 worldwide at the moment to potentially 8 million in ten years time.

Wang references a large intelligence study of thousands of geniuses by the Beijing Genomics Institute. By identifying the alleles (there could be up to 1,000 positive and negative influences on intelligence) associated with IQ, it may soon be possible to screen human embryos for the least number of negative alleles. Indeed, a human with no negative alleles could - by Wang's rough estiimate - have an IQ of 550: about as rare as a 13 foot tall human...

China is only one of several countries taking the cultivation of an intelligent elite seriously. This from a fascinating article on the education of gifted children, and policies to identify them for special treatment:
Other countries are already making that bet. Korea, Taiwan, and Singapore have national laws requiring that children be screened for giftedness, with top scorers funneled into special programs. China is midway through a 10-year “National Talent Development Plan” to steer bright young people into science, technology, and other in-demand fields. In a 2010 speech announcing the scheme, former President Hu Jintao called talent “the most important resource and...a key issue that concerns the development of the Party and country.”
Should self-aware elites figure out a way to preserve their status indefinitely - by removing the random influence of genetics and regression to the mean - then the 'consolations of history' which Clark cites for the rest of us will no longer prevail. If we're lucky our future masters will be like those in Gattaca. If we're unlucky, they might be more like a smarter version of the Eloi...

Do listen to the podcast. Then listen to it again.

Friday, March 21, 2014

Zero Sum Recovery

A lot of business people I've been speaking to recently have all been asking the same thing: "where's the recovery?" We've all seen the pick up in the consumer confidence indices - but very few are seeing it in their sales data. The January retail indices from the CSO were telling: four of the thirteen sub-categories showed a decline in the value and/or volume of sales year-on-year (seasonally adjusted). Worse: twelve categories showed the value of sales rising by less than the volume - implying deflation.

It feels like a 'zero sum recovery' - with gains for one operator, company or sector coming at the expense of others. My guess is that February's numbers (due out at the end of next week) will show a year-on-year decline in retail sales (excluding motors) for volumes and probably for values , which everyone will blame on the bad weather. Fair enough. But if the indices for March due out at the end of April show a further decline then we'll know that the zero sum recovery has become a 'negative sum recovery'. Which means there isn't one...

image cred

Monday, March 17, 2014

St Patrick's Carnival

"The trick is not to arrange a festival, but to find people who can enjoy it". Friedrich Nietzsche 
St Patrick's Day is the closest we get to a carnival in Ireland. Plenty of parades but fewer masks. The quote is via another German philosopher Josef Pieper, who lamented the loss of a true capacity for leisure in Europe. Maybe Ireland is the last redoubt for the old meaning of leisure, festivals and carnival - or perhaps we could be.

As Pieper observed:
The antithesis between holiday and workday, or more precisely, the concept of the day of rest, tells us something further about the essence of festivity. The day of rest is not just a neutral interval inserted as a link in the chain of workaday life. It entails a loss of utilitarian profit. In voluntarily keeping the holiday, men renounce the yield of a day's labour. This renunciation has from time immemorial been regarded as an essential element of festivity. A definite span of usable time is made, as the ancient Romans understood it, "the exclusive property of the gods".
So instead of our politicians aiming to be 'the best small country in the world to do business in by 2016' or 'the best country in the world for scientific research excellence by 2020' and other such crap-titudes, why not aim to be Europe's home of festivals, culture and celebration? Just create five new bank holidays a year for 9-10 years and we'll have plenty of time to 'pay the gods' their due respects.

It might even attract a few (hundred thousand) votes...

Tuesday, March 11, 2014


 Unedited version of my article in yesterday's Irish Independent:

Have you given money to charity recently? Or has the recent news about the Central Remedial Clinic, Rehab etc caused you to hesitate? If it has, you are not alone. In fact, a recent survey by Amárach shows that 6 in 10 adults in Ireland have changed how they think about charities because of the news about the CRC and other charities. More worrying is the fact that more than half say the recent news has changed their willingness to donate to charities at all.

Of course, we Irish are a generous lot when it comes to supporting charities, so maybe a little slippage is of no consequence? Then again, maybe not. Back in 2005, the average Irish man or woman typically donated €15 a month to different charities by various means (street collections, standing orders etc). Fast forward nine years and a recession later and that average has fallen to €10 a month. Though that only includes those who give to charities. In 2005, just 1 in 10 adults in an Amárach survey said they don’t give to charity. Today, that number stands at 1 in 4 adults. It seems the recession has hurt Irish generosity and not just the economy. 
Some things haven’t changed, however. Fewer men give to charity than women - just like in 2005. However, among donors, men give more on average than women - also like in 2005. Over 55s are still the most generous age group when it comes to supporting charities (over €12 a month on average), and Dubliners are among the most generous regionally (€13 a month). 
Another thing that hasn’t changed is the type of charity people like to support. It tends to be health related charities that are the most popular with Irish people. Indeed, nearly half of those who still give to charity give to the Irish Cancer Society, while one in five give to both the Irish Heart Foundation and to the Irish Hospice Foundation. But we haven’t turned our backs completely on those in need outside of Ireland. A quarter of donors give to Concern, and one in five gives to Trocaire.  
Moreover, people who give to charity tend to give to more than one. Among people who give to the Irish Cancer Society, just under a third give to Concern and just over a third give to the Irish Heart Foundation. Similarly, two thirds of those who give to Trocaire also give to the Irish Cancer Society and so on. Whatever about the decline in average amounts given - or rise in the numbers of those not giving at all - the fact is that people usually try to support more than one charity, and more than one type of charity. 
But back to the fallout from the CRC and similar news stories. Before we asked anybody directly in our survey about the impact of the CRC news on their behaviour we first asked a more general question: ‘have you reduced the amount you give to any charities in recent months?’ The findings are alarming: among those who give to charities, 50% say they have reduced the amount they give in just the past few months. When asked to say which charities they have stopped supporting it would appear to be a broad mix of both health-related and development-related charities. No one particular charity has been affected disproportionately more than any others according to our survey findings. 
So what’s going on? Part of it is the recession, of course. Despite signs of an improving economy, most people have yet to see it have any positive impact on their pay packets or their bank balances. People are still making cut backs and avoiding unnecessary expenses where they can. 
There might, though, be a more worrying trend. Perhaps the recent scandals concerning some charities in Ireland have given many people an excuse to give less: without feeling guilty about it? There is no doubt that trust in Irish charities has been badly damaged. Trust in most institutions in Ireland is fragile at best. Charities - despite their noble intentions and good works - are not immune from a catastrophic loss of trust. But once lost it can take a long time to recover: as several banks, political parties and churches have learned.  
However, the fact remains that the vast majority of Irish people continue to give and to give generously relative to their diminished resources. But the leaders of Irish charities must not take that generosity for granted. They must answer the questions before they are asked about what is done with the money they raise. Questions including how much of the money goes to running the charity itself (including staff costs), and how much actually goes to delivering the services to those in need. The sooner they start answering these questions the better.

Monday, March 10, 2014

Digital Icebergs

The day job has kept me away from blogging lately. But I did manage to fit in a visit to the Titanic exhibition in Belfast recently - well worth a visit. It's as much a paean to Belfast's industrial past as to the Titanic, reminding us how much the economy of this island has changed over the past 100 years.

I remember earnest debates about the 'de-industrialization' of Northern Ireland back in the seventies and eighties. Back then, the demise of Harland and Wolff (the photo is from just outside the exhibition) was deemed to symbolize the problem as thousands of highly skilled, well paid jobs (for, ahem, part of the community anyway) we're being replaced by low skilled, low paid jobs. Or no jobs at all.

Here in the second decade of the 21st century a lot of the same debate is taking place, only about the impact of global changes underway. From concerns about a new age of slow/no growth, to premature de-industrialization in developing economies, to an addiction to cheap money - even to concerns about a 150 year decline in average IQ - it seems to me that a lot of the regional economic concerns that I grew up with have now gone global.

Meanwhile in 2014, the biggest economic challenge for Ireland - as Constantin Gurdgiev recently noted - is that we lack new long-term sources for growth. Ship building may be out of the question, but exhibitions and interpretive centres won't do it either. A recent report on the future of work in 2030 has lots to say about how we will work in the future (harder, longer and smarter apparently) but not so much about what we will be doing. The hope is that technology and innovation will increase productivity hence providing the basis for higher growth and standards of living. The fear is that technology and innovation will prove to be digital icebergs as the 'destruction' part of 'creative destruction' gathers speed.

If only the Titanic had slowed down...
Related Posts Plugin for WordPress, Blogger...