Sunday, February 28, 2016

Peak-End Politics

Daniel Kahneman (Nobel prize etc) developed the Peak-End Rule to explain how people evaluate any given experience, defined as follows:
... a psychological heuristic in which people judge an experience largely based on how they felt at its peak (i.e., its most intense point) and at its end, rather than based on the total sum or average of every moment of the experience. The effect occurs regardless of whether the experience is pleasant or unpleasant. According to the heuristic, other information aside from that of the peak and end of the experience is not lost, but it is not used. This includes net pleasantness or unpleasantness and how long the experience lasted. 
If we apply the Peak-End Rule to our recent General Election we can go some way to explaining what has just happened. People were asked to evaluate the experience of being governed since the last election in 2011. So what was the most intense point?  That's right, the really horrible stuff that happened during 2011 and 2012: the Troika, taxes/charges, job losses, emigration and burning saving the bondholders.

How did it end? With platitudes, slogans and whinging whingers.  All the 'other information' - signs of recovery, fastest growth in Europe, falling unemployment etc - simply didn't figure in the electorate's Peak-End calculation. No wonder Fine Gael/Labour got hammered (though FG would have done better if they had gone in November last, but I doubt it would have made any difference to Labour). Luckily for Fianna Fáil, both the Peak and the End came together in Micheál Martin's election performance: or maybe they were channelling Kahneman?

The Peak-End Rule applies to politics outside Ireland as well of course. Brexit in June will come down to what has been the 'peak experience' of Britain's membership of the EU in recent years (no doubt Calais will loom large), while the end... sort-of-depends.

Then there's the US Presidential Elections: if anyone understands psychological heuristics it's Donald Trump (Scott Adams' Trump Persuasion Series is the best guide out there). Trump keeps delivering the 'Peaks' (remember it doesn't have to pleasant or unpleasant), as the pearl-clutching commentariat (in Ireland especially) keep reminding us. How it ends, of course, is something we'll all be watching with some fascination come November.

The Peak-End Rule isn't great for forecasting: though I suspect we're in for a lot of 'peak experiences' in the weeks and months ahead.







Thursday, February 25, 2016

Quantitative Squeezing

QE or the disincentive effects of zero then negative interest rates, from the comments in the FT via Tim Price:
For any human being making economic decisions, everything changes at 0%. The decision making for savers, consumers, SMEs, etc. grinds to a standstill. If you are prudent and don’t want to speculate on buying various financial assets, 0% kills any reason you may have had to take any positive action. If all you can expect to get from your efforts is to still have the same as when you started, why bother? We as humans need a positive “Narrative” to get out of bed in the morning, work, take risk, etc. Risk free interest at 0% translates into a clear statement that there is no future to discount cash flows over or to believe in. If an individual cannot imagine a positive result from his/her actions, he/she prefers to do nothing. Prolonged periods of 0% rates and no positive (inflation) price movement will lead to reduced economic activity. Not exactly the stated purpose of the QE experiment. QE will go to the history books as one of the greatest mistakes in history. 

Wednesday, February 24, 2016

Workers of the World...

... take fright.

Possibly the scariest thing I have seen in years:



I for one welcome our new masters...

Tuesday, February 23, 2016

Fissile Space

Today's Quarterly National Household Survey is a sobering reminder of just how far we still have to go to 'get back' to the way things were before the crash. Take, for example, the employment rate, i.e.: the percentage of adults aged 15 and over in employment expressed as a percentage of the total adult population (the CSO excludes over 75s from the denominator, as is normal international practice, but I think they need to be included as there's going to be a lot more of them in future).

The chart shows the trend since 1998 up to the end of last year:


The rate peaked at 62% in Q3 2007 before falling to just under 51% in Q1 2012. At the end of 2015 it had recovered to a little under 55%.

Rising is better than falling, but at the present rate of recovery it will be 2022 before the employment rate returns to its 2007 peak. But it isn't going to happen.

A few factors will stop the employment rate returning to a level above 60% anytime soon, including:

  • An ageing population - the denominator is going to get steadily bigger every year for the next 20, 30 or 40 years, especially among the over 70s population.
  • The male employment rate (61% on my measure) is still ten percentage points below its 2007 peak and has been fairly static these past few years with little prospect of rising absent a recovery in the construction sector.
  • Digital disruption, automation, AI, robotics - call it what you want but it's going to reduce employment significantly (7.1 million jobs lost between 2015 and 2020 according to a World Economic Forum report).

Which all adds up to a very different future to that envisaged in some of the 'fantasy politics' debates about 'fiscal space' that we've been subjected to in recent weeks.

General Election 2020 will be a lot more combustible than 2016, and fiscal space will be the least of our concerns.



Sunday, February 21, 2016

Poetry, Prose and Opinion Polls

Politicians are supposed to 'campaign in poetry, govern in prose'. In the course of General Election 2016 our politicians appear to have bypassed both poetry and prose and gone straight to polls as the basis for their campaigns. I miss the poetry.

The 1916 Proclamation gave us poetry, the 1937 Constitution gave us prose. It is remarkable - to me at least - how absent poetry is from a general election campaign in the centenary year. Instead of a vision for Ireland in which all its citizens can flourish together with their families and communities, we get little more than glorified shopping lists. 

I think this explains much of the ennui we have seen over the course of the campaign, and why so many intend voting independent - if at all. It's as if we are electing a county council, such is the absence of any sense that we are shaping the destiny of our nation.

Of course, the ennui may be justified. Ireland is a small economic region in the eurozone, and a minor political constituency in the European Union. Yes, we do get to tweak our taxes and welfare arrangements a little (subject to Brussels approval), and to change the words in our constitution (subject to the European Court of Justice). Perhaps we really are electing a county council of sorts? 

But there is more to it than that. Much of contemporary political discourse - in the Western World, not just in Ireland - is framed by a managerialist ethos in which 'the fittest govern and the governed consent'. The problem is: how do you define fitness? Technical competence is the most obvious definition: but since when have we elected politicians on the basis of their technical abilities? Another might be quotas: if the presence or absence of a Y-chromosome can determine a person's appropriateness to govern then why stop there? Why not simply appoint a randomly selected group of citizens to run the country, representative of the nation as a whole? A bit like an opinion poll come to think of it...

And there's the rub: if politics only matters because it is the process by which we select those charged with managing the country, then why limit ourselves to such an arcane practice as a General Election? Do we really need all those political parties; do we really need all those candidates; do we really need all those voters simply to appoint new management for this part of our small island?  What need have we for an 'august destiny' when the task is merely one of divvying up the 'fiscal space'? 

So back to poetry, and back to 1916. The Proclamation wasn't a shopping list, nor was it tested in focus groups. Rather it articulated the motivations and vision of an eclectic group of poets, shopkeepers, intellectuals and trade unionists that did not say 'leave it to us' but rather called on the entire nation, on all of us, to play our part in creating a better future. The prose came later.

It's not too late for poetry.




 



Sunday, February 7, 2016

Political Atrophy

Peter Hitchen's compares the forthcoming UK referendum on leaving the EU to that of a prisoner who accidentally finds himself outside the prison and soon longs to return there. His main point is that Britain simply no longer has the indigenous competence to be an independent country once again:
Anyway, how many active adults, now participating in the political process, can remember what it was like being in an independent country, whose Parliament was sovereign,  whose embassies flew its own flag and nobody else’s, whose head of state wasn’t a citizen of someone else’s country,  which chose its own economic policy, had its own fishing grounds, decided how to subsidise its own farms, issued its own passports, controlled its own borders, made its own alliances and trade agreements, did not abandon its traditions and its particular special ways of doing things to conform with some great overarching plan?
If I was English I'd certainly be tempted to vote to leave the EU: the European Project is now akin to building a bigger mainframe computer in a world of smartphones and iPads. It has outlived its purpose (or perhaps forgotten it) and is increasingly in danger of making things worse for European citizens rather than better. As Bryan Ryan recently put it in a new paper from Theos, Europe has lost its soul and needs to rediscover it. Though he, like I, thinks it may be too late.

What might make me hesitate - in the event I was voting on Brexit - is the state of England itself. The England I knew when I lived there in the 1980s is mostly gone. Benjamin Schwarz argues in a brilliant essay that the deliberate project of cultural revolution via mass immigration instigated by the first New Labour government under Tony Blair in the 1990s has 'succeeded' in that 'England' and what it means to be 'English' isn't what it used to be, and never will be again. He observes (before quoting one of England's greatest socialists, George Orwell) that:
In the context of the enlightened cosmopolitan values that hold sway in Britain today, once the majority’s views are thus ruled beyond the pale, liberal democracy permits—in fact demands—that the majority be excluded from political consultation. At the very best, it is safe to say that the confines of acceptable public debate on culturally determined ethnic differences, national identity, and mass immigration are exceedingly narrow. The consensus of the bien pensant can, of course, be just as effective as outright censorship in its stultifying political effect, as Orwell explained: 
"At any given moment there is an orthodoxy, a body of ideas which it is assumed that all right-thinking people will accept without question. It is not exactly forbidden to say this, that or the other, but it is ‘not done’ to say it, just as in mid-Victorian times it was ‘not done’ to mention trousers in the presence of a lady. Anyone who challenges the prevailing orthodoxy finds himself silenced with surprising effectiveness. A genuinely unfashionable opinion is almost never given a fair hearing."
Hitchen's gloomy assessment of England's atrophied abilities to ever again be an independent nation is a timely reminder as we endure a General Election debate here in Ireland about non-issues such as 'fiscal space'.  Our own 'orthodoxy' leaves us dangerously unprepared for the disruption likely in our next door neighbour in the coming months and years (even if they vote against Brexit).  I hope the English vote to remain in the EU for Ireland's sake (at least in the short run), but I'd applaud a vote to leave if it meant the England I admire might be saved.

And who knows, it might even create an opportunity to save Europe's soul. Stranger things have happened.






Thursday, February 4, 2016

The Groundhog Election

Tuesday 2nd February was Groundhog Day, and an excuse to watch the movie again - one of my all time favourites. It's a story of redemption and a reminder that we mostly live on the surface of life, ignorant of the riches beneath. It brings to life Gandhi's advice to: "Live as if you were to die tomorrow, learn as if you were to live forever."

The main trope of the movie is that Phil Connors (Bill Murray in one of his best roles) gets to relive Groundhog Day over and over again: gradually maturing from a selfish nihilist obsessed with his own desires, to eventually become a compassionate, creative man caring for those around him.

Which brings us to General Election 2016, or what already feels like the Groundhog Election. Of course much has changed (mainly for the better) since 2011, but what hasn't changed is how little control over our collective future we actually have as a small, open economy, locked into the eurozone. Ireland has less say in how our politicians raise taxes and spend the proceeds than we (or they) realise.

But the 'deja vu all over again' feeling isn't about economic and fiscal policies. Indeed, some things are better left unchanged. Rather for me the feeling comes from seeing what Dan Klein calls The People's Romance in action again. That strange 'madness of the crowd' surge of sentiment that this time - together - we can set out on a new course, chart a different direction and finally, finally reach the promised land of [insert your favourite policies here] when "all shall be well, and all shall be well and all manner of thing shall be well." It's a delightful idea - I'm as partial to it myself as the next idealist - but in the end I do know it's fiction, just like in the movie.

That said, do checkout out Smartvote - a sort of Tinder for Irish voters. And keep the romance alive...


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