Monthly Archives: May 2012

Its not the points, its the system, thats a problem in the points system

Irish second level school students are now in the early stages of their school-leaving examinations, with oral language  and applied science examinations ongoing and the main written exams starting Wednesday 6th with English Paper 1.They take their examination in a relatively good spot , with a dip in the numbers leaving school likely to result in less onerous requirements for university entry.

In Ireland there is a simple system for the allocation of (the vast majority) of university and related places. Students are allocated points (out of 100 in effect) on up to 6 examinations. Having submitted to the CAO their order of preference for courses the system then matches. Take a course in say Science. Lets say there are 1000 applications who have stated that this is their first choice. The system takes all their grades, and ranks the students in order of points. Lets say that the university can take 200 students on this course. Then te first two hundred students in decreasing rank order of their grades will be offered places. The 201st will not. The publication of the points by the CAO is a day of joy and sorry for tens of thousands of students.  The situation is in essence an auction mechanism : students submit “bids” and the system allocates a price that clears. It is simple, foolproof, not susceptible to being gamed (once the grades are in they are in) and subject to vast criticism. The Hyland Report was quite scathing in its analysis.

Leaving aside the issue of stress, and it is real if not as bad as the situation in china where students are hooked up to vitamin and amino acid drips, there are other issues. The main criticisms are twofold. At the very top there is concern that students are taking and retaking courses to ensure “perfect” scores, which are in effect needed for entry into the leading law, veterinary and medical schools (in Ireland these are mainly entered into at undergraduate level not graduate).  Universities formally do not boast of the number of high points courses or the high points needed for courses but the reality is that students and parents associate high points with academic quality. In reality, as a price, the points for courses reflect the intersection of supply and demand. Courses with low numbers of places available (for example, courses that combine a language with a law/business area) will, ceteris paribus, typically clear at a higher point (have  a higher price) than those with greater places. There is a suspicion in my mind at least that over the years there has been a proliferation of such courses not only in response to consumer/social demand but also to allow universities and institutes of technology to show high point courses.

A study of highpoint achieving students was undertaken by the HEA in 2007. At the bottom there are concerns that the points system can result in students gaining entry (having enough points) to third level courses where they find themselves simply unable to undertake the rigours of third level study. This is most often focused on technology courses and results in dropout levels that are worrisome The HEA publishedin 2010 a study on retention and progression and noted that the 2007 entry cohort showed a) that overall in third level there was a dropoff of 15% from entry to the subsequent year , b) that this was significantly higher in Institutes of Technology and in lower points courses generally and c) that this was highly correlated with prior educational achievement.

More generally there is a significant concern that students have crammed and relied on rote learning for the leaving certificate and cannot then easily undertake independent critical thinking at third level.  While this is not unique to Ireland it is an issue that is increasingly noted by academics (Tom Begley, Brian McCraith ) , Industry representatives (US Chamber of Commerce) even students themselves (Gary Redmond ) and of course my boss (Paddy Prendergast)

These are reasonable criticisms in so far as they go but they to my mind miss the point. The issue is not the points system per se but the way we allocate points. At present we allocate almost all university places on the basis of the points system.  True, there has been a change in how students are allocated to medical schools, with students now not only assessed on their leaving cert points but also having to undertake the HPAT test which tests verbal and other reasoning skills. the HPAT is not without criticism (see the criticism by Dr James Reilly, the Minister for Health and himself a medical doctor) in particular the realisation that as students gain more experience of the test they undertake cramming for and take multiple attempts at the examination. The historic situation of free fees for irish university students has resulted in the monies that would otherwise be spent by families on that being in part diverted to feepaying and cramming schools. Free fees manifestly did not result in a significant number of students from lower socioeconomic cohorts attaining university.

What then is to be done? This blogpost was in some degree prompted by criticism of the transition year. In Ireland students typically spend 6 years in second level ; the first three years, the junior cycle, culminate in a state administered examination, and the last two years , the senior cycle, in the leaving certificate. In between schools have the option of what is called a transition year, aimed at allowing schoolkids the opportunity to undertake a variety of structured tasks with the aim of maturing themselves without examination pressure. Personally, I think its a great idea but Friends of the Elderly think otherwise suggesting that we cant afford it and that we should get students to engage in community service (which I thought was a judicial non custodial sanction for lawbreaking). Community service sounds awfully like national service…

Too often we confuse learning with hard skills, the ability to do things, when in fact what many employers need are some of these and some soft skills. Soft skills are behavioural, interpersonal, skills that are recognized as being perhaps more essential and more conducive to employment. Someone with high degrees of soft skills can learn hard skills. And soft skills matter: see here the work by James Heckman , Nobel Laureate in Economics, on this issue. Maligned though it may be Fas did undertake in 2003 a study on soft skills which  is instructive. Noteworthy is the response from some industry representatives that soft skills would become more important. Soft skills include those that underly creativity and flexibility and as such are key to hightech and knowledge industries. See the comments here from the Digital Hub, here from USI, here for a more general survey and here for a study of the views of employers on soft skills.  Increasingly, universities are aware of and incorporating soft skills into courses, but these are expensive and complex to instill and thus we run the risk that as budgets shrink so too will this provision.

So, back to the leaving cert and points. If we want to include more soft skills in irish graduands and the workplace in general, should we not reward that? We have seen that when we give bonus or additional points for mathematics the number of students taking higher level mathematics rises. People are instinctive economists : as excelling in leaving certificate higher mathematics costs (in terms of time and knock on effect on other courses) more than other courses students will allocate their time wisely and not take it. The reintroduction of bonus points has resulted in a rebalancing with the benefits of taking the higher mathematics course now more closely aligned with the costs thereof. Why not use the market mechanism we have in the points system and introduce points for a variety of  evidenced soft skills? Already there are moves to adapt the examination format to give greater emphasis on continual assessment although this is not without controversy.  But why do we not consider giving points for students that show skills in art through entry to art competitions, in music through bein part of a band, in interpersonal skills through being on a sports or debating team, in creativity through writing or developing apps, etc. Why should students not gain points for being in the scouts, or a political party, or organizing a festival, for being part of a community cleanup day and so on. If we reward people for being rounded, creative, articulate members of society they will adapt to being so. So, my call is for two new leaving cert “subjects” to be introduced in terms of points, one on “community involvement” and one on “personal skill development”.  Let students show evidenced achievement in these, lets crowd source the components and weights and elements, lets use the points system to generate the kind of school graduates we as a society want and need.

Asset allocation in Defined Benefit Pension Plans in Europe

Mercers each year publish a DB survey, which I get a copy of.

The 2012 results are quite interesting, not least from an Irish perspective. They survey over 1300 plans, covering 600b plus assets in europe as a whole.

First, Irish plans show the highest bias towards equities of all countries. However, this equity heavy position (which we share with the UK , not surprising given our similar national cultures : see here for some research on culture and pensions) is declining over time.

Second, breaking this down in more detail, we still display a very high degree of home bias in equities, with 15% of total assets in domestic equities.  Also, reflecting the financing structure of Irish corporations, the striking lack of investment in domestic corporate bonds is also very evident. Given that across Europe as a whole 7-10% of asset allocation to these instruments is not uncommon this seems to be a potentially untapped resource for irish corporate and a useful diversifier for irish pension funds

Third, its not all gloom (well, mostly) as there are some hardy souls who plan to INCREASE exposure to euroarea perioheries.

fourth, we are not badly off when we compare Irish pension fund assets per capita to other european countries. Bear in mind however that these assets need to yield a return for possibly 25  years on retirement and you see that this is relative. Without exception europe is grossly under pension provided.

Finally, despite the bull market, despite reams of research (here, here, here ), and despite there being an increase in asset allocation towards alternative investments, pension funds are leaving diversification opportunities on teh table in the form of not going into precious metal. While this may be included in the commodities section, the likelihood is that were it a significant amount then it would be broken out. Pension fund trustees might consider if it is truly safer to invest in forestry or global macro hedge funds than gold?

Is the Anglo Promissory Note “deal” announced in March 2012 now in tatters?

“NAMA loaned IBRC the €3.1bn for 60 days which expires on 30th May, 2012 – that’s today and it looks as if “the deal” is now in tatters.”

NAMA Wine Lake

If you ask the Government what it has done to deal with this country’s debt, particularly the debt arising from the €68bn* bank bailout, you will get a three-part response. Firstly the Government claims to have saved the State €10bn through negotiating a reduction in the bailout interest rate from about 6% to 3.5% last July 2011, secondly the Government has saved €5bn by negotiating deals with subordinated bondholders at the state-guaranteed banks and thirdly the Government negotiated a deal whereby the €3.1bn payment of the Anglo Promissory Note in March 2012 was deferred.

On the first you might rightly point out that the interest rate reduction was secured on the shirt-tails of Greece’s woes and that Ireland had to give corporate tax concessions for the reduction, something Portugal didn’t have to provide even though Portugal got the same interest rate reduction on its €52bn EU bailout (Ireland’s EU bailout…

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Value at Risk – the construct

a nice blog on the historical evolution of value at risk


International and European banking supervisors are allowing banks to rely on their own internal Value-at-Risk (VaR) models to calculate their capital requirements. However, many observers who do not belong to the inner circle of financial analysts and commentators are puzzled by the concept. On the one hand, in exactly quantifying a potential loss the methodology seems to offer a sound basis for risk management and financial decisions. On the other hand, critics are numerous and events such as the recent loss of JP Morgan’s “London Whale” raise questions and reinforce distrust.

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The Art of the Crisis

So. Somehow I got persuaded (took, ooh, three seconds) by Con Kennedy (he of the wonderful Punt Nua meme) to launch an exhibition of art on the crisis.

The exhibition details?

Venue: darc space, North Great George’s Street, Dublin 1

From: Tuesday May 29th 1830h

The exhibition will be fun and provocative, with visual artists addressing the crisis, the Troika, and so on.

Some highlights of the exhibitions include the below, but there are a dozen artists and exhibitors. This crisis is too serious to be left to the economists and politicians, and its great to see the artistic community coming into the fray in a slightly oblique manner. Go along, support the artists, buy a piece, and expand your view of how society responds to the crisis.  As Steve Jobs said

“Creativity is just connecting things. When you ask creative people how they did something, they feel a little guilty because they didn’t really do it, they just saw something. It seemed obvious to them after a while. That’s because they were able to connect experiences they’ve had and synthesize new things. And the reason they were able to do that was that they’ve had more experiences or they have thought more about their experiences than other people. Unfortunately, that’s too rare a commodity. A lot of people in our industry haven’t had very diverse experiences. So they don’t have lots of dots to connect, and they end up with very linear solution without a broad perspective on the problem. The broader one’s understanding of the human experience, the better design we will have.”

So go out and get broadened.

Kevin Devine unveils his new board game, NAMapoly (Austerity Edition)















Stephen Ruane has a series “past present future”

Eugene Langan has some really nice giclee prints on austerity ….

and there is a set of Vacuum Sealed Emergency Green Underpants to ensure you are not only green of jersey but green of undergarment from Fergus O’Neill….

The real problem country in Europe….

This is an extended version of an opinion piece published in the Irish Examiner Saturday 25 May 2012

So another European summit concludes inconclusively, with the poor ole can again booted down the road, hopefully avoiding the fork that said road will take when, as seems probable, Greece departs the euro. To be fair, while inconclusive in terms of its outcomes there was a clear sense that the ground has shifted, away from the coordinated austerity for all pushed by Germany for the last two years towards a more balanced approach. Perhaps we should recall and amend the words of Churchill, substituting European for American and noting that Europeans will do the right thing only when all other alternatives are exhausted. Eurobonds, where a central or pooled treasury issues bonds and then doles out the cash to members of the pool, are at least back on the table, there is a recognition that growth needs to be at least as much a focus as fiscal discipline and there is an acceptance that bank recapitalization costs cannot fall only on the taxpayer.

However there is still a massive problem. Europe is mired in recession. Recent PMI indices, indicators of future economic activity, are all pointing recently to a deep slowdown. Spanish banks are treading the same dreary path as did Irish banks, with each deep look at the depth of the damage caused by its property boom revealing deeper and deeper holes, and the state adopting sequentially more and more drastic action to stem these holes. At least so far they have avoided a NAMA or bank guarantee fiasco. Meanwhile Greece continues to fester and the dreadfully dangerous precedent of an exit from the monetary union (which would render it no more than a fixed exchange rate zone, and we know how the last one of those in Europe ended) inches closer.

There can be no doubt looking at the economic history of the last decade that the biggest winner from the adoption of the euro was and is Germany. It has achieved massive relative competitive advantages over the other nations, mainly it must be admitted by the less than optimal actions of these countries, but also by reducing the labour share of the German cake. From close to 70% in the 2000 period employees compensation as a % of GDP is now closer to 60%, and German net exports to the Eurozone rose nearly fourfold in the ten years to 2006. A very crude characterization of the euro might be that the core lent money to the periphery that bought core goods and now the bills have come due.

The reality is that in this environment sides, the core and the periphery (which now seems to be everybody bar Germany and Finland…) are locked in a symbiosis. Coordinated austerity is not going to allow the peripheral nations to grow and in not growing they will neither consume core goods nor indeed repay core credits advanced to stem the losses arising from the credit bubbles or to shore up fiscal ssytems that were not fit for purpose.

The sad reality for Europe is that we have a weak german leader in a strong german economy who for too long was propped up by an even weaker French leader in a weakened france. The European experiment, of which the euro is the latest embellishment, is predicated on france and Germany being strong and democratic and working together to keep each other in check and at peace. In that it has succeeded but the reality now is that to get Europe out of the mess Germany is the only feasible paymaster. It will have to pay in one or more of four ways. First, there is a debate on an arcane interbank settlement system called Target 2. In essence there is nothing to be worried about absent a break in the euro, but were that to happen then Germany would be left with a large hole in the bundesbank. While that might appear problematic it can equally be argued that the net cost would be minor. But that would in any case be unthinkable to the money hawks in the German economic apparatus. A break of the euro would entail the return to the DM, which would result in a massive appreciation, resulting in lower German exports and lower German economic growth. While Germany has shown that it can survive and even thrive with a hard currency the dislocation would be large. Again, a break in the euro would also result in massive losses to German financial institutions, running potentially into hundreds of billions of euro, which would have to be recapitalized by the German taxpayer. The alternative to these is some form of Eurobond (which is constitutionally difficult and politically anathema to Germany) resulting in a rise in German borrowing costs, or a fiscal union including transfers from Germany and eventually France. . The latter in particular would insist that there be tax harmonization in some guise as a condition of entry.

Thus, we face more weeks of high political economy drama and economic highwire acts . Germany and to a lesser extent France need to accept that the costs of saving the Eurozone are going to be (short run and ongoing) high, and weight these against the incalculable disruption and losses of it collapsing. A Greek exit would be in my view an irreparable damage, as it would show that the Eurozone is not a monetary union. For Ireland the question will arise sooner than later: what are we willing to give up to remain in the enhanced European system, or do we take our chances on the outside. The stakes could hardly be higher.

For Europe as a whole and Germany in particular we might do well to recall the words of that most supreme political operative, Cicero , who stated :

“Six mistakes mankind keeps making century after century:
Believing that personal gain is made by crushing others;
Worrying about things that cannot be changed or corrected;
Insisting that a thing is impossible because we cannot accomplish it;
Refusing to set aside trivial preferences;
Neglecting development and refinement of the mind;
Attempting to compel others to believe and live as we do.”

Germany under Merkel has committed most of these follies, insisting that only german management of the economy is the right way (6), that there must be no increase in money supply regardless of the pressing need (4), that Eurobonds or debt monetization are so anathema to them that they are impossible (3), that if only the rest of Europe were German then there would be Germanic economic ordoliberalism prevailing (2) and that we must all simultaneously engage in austerity while exporting to each other (1, 2, 4 and 6).

At least German culture remains as refined as ever. Maybe we should reach into the shared common stock of European culture and recall the words of Voltaire, as echoed by Uncle Ben Parker in Spiderman, who noted that with great power comes great responsibility. It is time that Germany took that responsibility as seriously as its power demands.

What will be the Feta Greek-Irish economic relations…..

So Michael Noonan, our finance minister, apparently is unconcerned about Greek exit from the Euro, joking last week at an investment conference that we didn’t actually import anything from Greece much, apart from Feta Cheese. So that’s ok so…. I suppose the analogy of the Greek economy with a crumbly animal byproduct that is an acquired taste and not really very popular was too tempting to avoid.

It was still rather a bizarre statement. If Greece were (when it does?) leave the Euro, the effect will be to make Greek exports cheaper and imports to Greece more expensive. Ceteris paribus we would expect to see the trade balance between Ireland and Greece shift in Greece’s favour. We would export less to them and import more from them. While that is all very helpful to Greece it is less so to Ireland and makes the blithe insouciance of the finance minister puzzling. I suppose its about confidence….

The other puzzling element is that its not even true. We export several hundred million dollars worth of goods to Greece each year, which in a grexit will be much less competitive. And we import a small amount, its true, but Feta isnt even the largest amount.

The import/export profile of Irish trade with Greece is as below (in $). FWIW there is a nice tool here from the OECD that allows one to look at bilateral trade

total Imports  38,673,897
Exports  406,650,122
Food and Live animals Imports  7,513,252
Exports  42,917,508
Beverages and Tobacco Imports  5,455
Exports  8,835,026
Crude Materials, Inedible, Excluding Fuel Imports  384,758
Exports  25,762
Mineral fuels and related Imports
Exports  122,750
animal and vegetable oils fats and waxes Imports  144,984
Chemicals and Related Imports  16,950,172
Exports  314,978,978
manufactured goods Imports  4,480,229
Exports  2,147,716
machinery and transport equipment Imports  2,434,467
Exports  17,761,196
Miscelleaneous Manufactured articles Imports  6,030,702
Exports  16,051,474
Commodities and transactions not eslewhere specified Imports  729,877
Exports  3,809,711