Friday, October 31, 2014


Judas Iscariot on the meaning of the word politics:
"Poli from the Greek word meaning 'many'; ticks meaning 'blood sucking organisms'."
A line from Simon Callow's magnificent performance of The Man Jesus last night in the Pavilion Theatre in Dun Laoghaire. Catch it if you can.

Friday, October 24, 2014

The Physics of Debt

I recently came across Keith Weiner's theory on interest and prices. He likens zero interest rates to a black hole:

First, zero interest is like a singularity. I have repeatedly emphasized the fact that debt cannot be paid off; it cannot go out of existence. It is only shifted around. Therefore, regardless of whatever nominal duration is attributed to any bond or loan, it is in effect perpetual. At zero interest, a perpetual debt has an infinite net present value.

The next part of the analogy is the strong gravitational pull from a very far distance. The rate of interest has indeed been falling since the high of 16% in 1981, and it was pulled in to a perigee of 1.6% before making an apogee (so far) of 2.9%. The analogy still holds, objects spiral around and into black holes; they do not fall in directly.
With a growing part of the global economy struggling to pull away from both deflation and zero interest rates, it's obvious that something unprecedented is happening right now. It's happening in Ireland too:

Source: Trading Economics

What is the source of 'gravity' that is pulling our economy towards the event horizon? The answer, obviously, is debt. Ireland is in the premier league (along with Japan) when it comes to total national indebtedness (households+government+businesses): which by analogy means we're trying to escape the gravitational pull of a super massive black hole. Ultimately the developed world is learning the hard way that - in Andy McNally's phrase - 'debt is a sociopath', one that starts by killing equity and then moves on to the rest of the economy.

So how do you escape from a black hole? The first thing you do is stay away from them. Which in Ireland's case meant not joining the euro. Unfortunately, as Megan McArdle points out, it's too late for that - path dependence has its own gravitational influence:
As I noted the other day, the fact that you can avoid some sort of terrible fate by stopping something before it starts does not mean that you can later achieve the same salutary effects by ceasing whatever stupid thing you have done. It would have been painless just to not have the euro. But it will be painful indeed to get rid of it.
So now we're close to the event horizon what are our options? In Weiner's model, the actual event horizon is when debt passes the point where it can no longer be amortized - the interest on total accumulated debt becomes can no longer be funded via tax revenues and additional borrowing. We're not there yet, so maybe there is still time to escape.

As a small open economy we can still do things that a larger economy - or eurozone - cannot do. For example, creating new, parallel currencies is one option. A balanced budget is another (Budget 2015 forecasts a net increase in borrowing of €5.2bn), which would at least slow our trajectory down. And the biggest option of all is debt forgiveness - though alas that'll only be tried when it's probably too late.

Where's the warp drive when you need it?

Wednesday, October 22, 2014

Political Chernobyl

"The simplest way to explain the behavior of any bureaucratic organization is to assume that it is controlled by a cabal of its enemies." Robert Conquest's Third Law of Politics
Irish Water looks like one of those issues that's going to run and run - or leak and leak, depending on your preferred metaphor.

But here's a thought that should exercise the minds of our political masters and betters: just think what will happen when the first Irish Water bills arrive in January 2015, along with a severe winter the like of which we haven't seen since, oh, 2010?

Add large, unaffordable bills to thousands of burst pipes and you get... Political Chernobyl.

Best pray for global warming so.

Tuesday, October 21, 2014

Passionate Intensities

Work has prevented me from blogging lately, but sometimes I do get the chance to explore ideas at gatherings and conferences etc.

Below is the text of a talk I gave recently - more of the scaffolding than the final building, but you should be able to get the gist of it. The theme was ‘changing lifestyles, values and behaviours – what’s happening below the radar’.

Passionate Intensities

I thought a handy title for my talk would be ‘Passionate Intensities’, a play on that well known passage from Yeat’s ‘Second Coming’, written in 1919:

Things fall apart; the centre cannot hold;
Mere anarchy is loosed upon the world,
The blood-dimmed tide is loosed, and everywhere
The ceremony of innocence is drowned;
The best lack all conviction, while the worst
Are full of passionate intensity.

I want to talk about some of the passionate – and sometimes dispassionate – intensities shaping the moods and lives of Irish people today as I observe them through my work, and to speculate about what they might mean for the future, both near and far.

But I don’t want to be all gloomy, even if I do subscribe to the old Russian adage that ‘a pessimist is a well-informed optimist’! So I will talk about change below the radar in terms of the good, the bad and the ugly, with a view to stirring your own passionate intensity for further discussion!

The Good

Resilient Recovery
Yes, there is a recovery, especially in Dublin. Economic sentiment is a little ahead of economic reality, but it helps in terms of most people seeing a better future ahead, and it’s all quite recent.
Young people in particular are positive about their prospects and choices, even if they’re not quite sure how they’re going to get to the future they want.

Still, we’re in a better place than a year ago, let alone five years ago.

Digital Empowerment
Digital technology – broadband, smartphones, online services etc – has transformed people’s lives, mostly for the better. People feel more in control, that they have more choice and that the quality of their lives is better because of technology and despite the recession.

Technology hasn’t just got cheaper these past few years, it has made lots of other things seem cheaper was well – even as incomes stagnated.

People aren’t waiting for the government to solve their problems: they’re giving up on the HSE & VHI and getting on with running, going to the gym, better diets and other ways of investing in their own health and wellbeing.

It’s about taking control – or taking it back – and replacing fatalism with a renewed sense of resilience, purpose and ambition that doesn’t rely on politicians or the return of the Celtic Tiger.

The Bad

Discounting the Future
People may believe things are getting better, but they don’t expect them to get good any time soon. Most are hanging on from month-to-month, not thinking about pensions, pay rises or more kids. We’ve become a ‘high time preference’ society, focused on now and the immediate future, not giving much thought to the future. It’s partly cultural (living in the now), and partly psychological (why think about something you have no control over or certainty about?)

Money is still very tight for an awful lot of people, who have little or no capacity for savings, pensions or rainy day problems.

Selfie Destruction
There’s a shadow side to our digital rapture: we’re losing connections with reality and each other. From low attention spans to cognitive problems in children raised by screens, we’re only beginning to figure out the mental and emotional toll of living in the digital simulacrum. Perhaps the highest price is an epidemic of loneliness, even among young people with 300 ‘friends’ on Facebook.

A lot of people think it’s a problem, nobody know what to do about it, and we haven’t been here before.

Losers & Winners
The future is a zero-sum game in the minds of many people nowadays. They don’t expect the cake to get bigger any time soon, so they know that gains for some will mean losses for others. Most are prepared to make the trade-offs, and to do the political triage as necessary. They know they can’t have their cake and eat it too in the current climate: whether it’s helping families at the expense of the elderly… or vice versa.

Voters are ahead of politicians in this regard: if more tough decisions have to be made… then they’ll be in favour of making them…

The Ugly

The traditional life path for most young people – job, spouse, kids, house – appears increasingly unattainable for many, and undesirable for many more. They are ‘route-less’ in the sense of not having a defining route forward in their lives.  That might not matter at the level of individual choices, but it has profound implications at a societal level in terms of economic output, productivity, population growth and the sustainability of welfare provisions. Think of it as the social equivalent of the 'paradox of thrift': more like the 'paradox of choice'.

A lot of young people aren’t ‘growing up’ because they can’t – or they won’t.

Deeply Indebted
The Irish love affair with home ownership has now given way to divorce proceedings. Many remain trapped in negative equity, either for their PDH or their business. And with little or no prospect of a healthy period of inflation to rapidly erode the real value of their debts (quite the reverse in fact), then the ‘squeezed middle’ (mostly 40 & 50 somethings) will continue to be squeezed.

Hence the allergic attitude to further borrowing, which means less investment and weaker balance sheets for our banks (who might best be described as ‘sleeping pygmies’ since they’ll have very few customers when they are ‘really’ open for business…)

Politics without Purpose
People aren’t cynical about politics and politicians – they’re way beyond that. Everyone knows ‘it’s a game’, they’re trying to buy our votes with other people’s money. We no longer have leaders, only managers – and the political opposition campaign on the basis that they are more competent managers than the incumbents.

The rise of the independents and high share of ‘don’t knows’ in political polls all point to an electorate that feels increasingly disconnected from the governing class, and increasingly open to alternatives to the status quo.

The Second Birth
Yeats originally called his poem ‘The Second Birth’, to reflect the other, famous stanza from his poem:

That twenty centuries of stony sleep
Were vexed to nightmare by a rocking cradle,
And what rough beast, its hour come round at last,
Slouches towards Bethlehem to be born?

Yeats was writing at the end of the First World War, in the midst of the Irish War of Independence, as Europe was convulsed by the Spanish Flu, Russian Revolution and the collapse of empires. He had good reason to feel a sense of foreboding about the future.

But 2014 isn’t 1919 – Ebola isn’t the Spanish Flu nor is ISIS the Bolshevik Red Army. Nor, for that matter, is Paul Murphy TD the equivalent of Michael Collins!

Yet, in a sense people today are ‘trapped in the present’, waiting for the future to resume, and not sure if it will. A the same time, people are optimistic right now – for Ireland, for Europe and, to a lesser extent, for themselves. The question is: despite all that is ‘bad’ and ‘ugly’ in the landscape will the ‘good’ prevail? Or will the hour come round at last for the rough beast to slouch its way and birth a different future to one we would wish for and prefer?

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