Monthly Archives: November 2013

Ireland – A nation of economic Bourbons?

This is an edited and extended version of a column in the Irish Examiner 30 November 2013.

Dupray-Charles_Maurice_de_Talleyrand-Perigord Tallyrand, the great French statesman and survivor, declared on its restoration that the House of Bourbon “had forgotten nothing and learned nothing” . He referred to the reflexive actions of the new King towards autocracy and revenge. In many ways, the Irish  are economic bourbons – we remember nothing and we forget nothing. We don’t learn from history in  Ireland. Part of the problem is that we perhaps have too much history. There is always an exception, some time that if not different was not quite the same to allow us the out of saying “ah, but this time its different”. From there it’s a short drive turning a corner, carefully not driving over the green shoots to see sound fundamentals and away we go.

De-Valera_Chief_960_2The great economic historian Cormac O’Grada noted in 2011 that this crisis was the fifth major episode of emigration in the history of the state. If we add in the Civil War, that’s one every 14 years, or 1.5 per generation. This is probably a world record for crises.   Lets look at these and see what we can learn. In the 1930s we had a crisis when DeValera, in what I can only think of as an act of economic lunacy declared an economic war with the UK, our then vastly predominate trading partner. Leaving aside the rights and wrongs, the economic war only ended when it became an irritant to the UK in their need to focus on the immanent existential threat of Nazi Germany. Throughout the Second World War the small, import substituting industrial companies encouraged by Dev as part of his drive towards autarky, a sort of 1930s North Korea with priests, were hammered badly. By comparison other neutrals enjoyed commodity booms. We managed to lag the other neutrals by a considerable margin before, during and after the war, in terms of growth. We exported people and cattle, usually in the same boats. The 1950s, dominated by DeValera again, were a grim decade, with declining population and falling living standards. It took decades of hard work to turn the country to a paying proposition and then in the 1970s the weak government of Garret Fitzgerald followed by the Trimalchian banquet of Haughey increased the national debt tenfold in the 1972-82 period. In some ways Haugheys ‘L’etat, cest Moi’ approach to money echoed the mysterious conversion of bonds raised overseas in the 1916-21 period for the state into shares held by Eamonn DeValera in his own private newspaper. In the 1970s and 80s in particular of course we also renewed our love affair with exporting live cattle to Libya and people to anywhere which would take them legally or no. The hard work of the 1990s was of course blown to pieces by the collective folly of the credit boom followed by the Masque of the Red Death that was the fumbled bumble of the Cowan governments decline into national bankruptcy.

debtgdp

Theres a broad thread running through this. It is Fianna Fail. This is not to say that FF are historys most evil monsters. They are not, they are a party that is as perfectly evolved to populist democracy as a great white shark is to devouring anything it can. Democratic to its very core, they time and again hold up a mirror to the Irish electorate ,and get elected. Usually this ends badly, as the nature of democracy is for people to vote for jam today and tomorrow. It is only when the chips are really down that we as a people turn to the unpalatable alternative, usually wrapped in a light blue wrapper. As Pogo stated – we have met the enemy and he is us.

Screen shot 2013-11-29 at 19.52.49We learn nothing. We now see the undeniable starting point of a new, perhaps localized, but undoubted bubble in the housing market. On admittedly low volume we see house prices rising by double digit figures. This is not greeted with horror as it should be. Instead it is seen and hailed as a success. Five years from the bursting of the bubble, the consequences of which took us from a national debt to GDP ratio of 25% to the present dizzying heights of near to 125%, which has resulted in the return of our favourite export Canned Paddy (now in new exciting flavors such as WellEducated Paddy to complement the old favorite Labourer Paddy), we have simply forgotten that rising house prices are not a good thing.

snowman1National Economic Bourbonism exists not just in house prices. There will be a delicious, and literally dark, irony if the day after we exit the bailout a national electricity strike takes hold. We can bluster about cloud computing, waffle about Silicon Docks and plamas about high tech exports till snowmen dance on the plains of Dis but if we cannot guarantee reliable electricity we are and deserve to be seen as not a fully modern society.

lagging

The exit of the Troika should be seen as an opportunity to become better than we have been. In 1921 the per capita national income of Ireland as a % of western European was 57%. In 1971 it stood at… 57%. Ireland had approximately the same per capita income in 1921 as Norway, Sweden and Austria and more than 50% more than finland. We have at least as much in terms of national resources as most of these. All are now considerably wealthier than us now and that is on GDP levels. Our GDP figures are puffed up by a MNC sector that is overly large and on which we are both overly dependent (its both totemic and a shibboleth) and yet unable to harness for tax or jobs. If we adjusted downwards the present day figures to GNP we would see the differences that much starker. We need to stop forgetting and take a long cold look at ourselves in the mirror. And we need to stop remembering and reminiscing and start wondering – what is it in the national culture that keeps us engaging in periodic bouts of economic self harm.

Galaxy S3 + Android 4.3 = Horrible Rolling FUBAR Disaster

A longtime mac fanboy, I changed last year to the Galaxy S3. I was offered and upgrade by Vodafone to the then new iPhone5 and thought : if I have to change chargers, I may as well go to what looks like the best in class at that time.

I liked, and like, the phone. After a day or so sorting out transfer glitches, it was smooth and slick.

Then came Android 4.3. Its still “Jelly Bean” but “Heap O’Crap” might have been a better name. It bricked the phone. As in, it would not wake up when it went to sleep. Push the home key and wait….and wait… sometimes for minutes at a time. Hear the phone ringing, and see the screen blank. Watch your WiFi signal fade in and out as you stand beside the router delivering 100mb to the rest of the house. See the call, and paw at the screen to no avail. After much googling (theres a meta irony right there) I found hordes of people with the same problem. I eventually tweeted Vodaphone, and a very nice response came back : take out the battery, then disable S-Voice aka “I cant believe its not Siri…oh, wait, I can”. That kinda worked. It is still slow to respond, and still hangs. One thing that this disabling hasnt fixed is the astoundingly poor battery life. Its now 4.30pm. The phone is on its second recharge of the day, having gone to 10% in a few hours of very light usage. Its back to 12% now, and I can almost hear it declining. Im not an especially heavy user even.

4.3 Sucks. BigTime. Dont download or install it. Google and Samsung are showing signs with this of the old Microsoft approach of letting paying customers beta test products. Mind you, they have now it seems pulled the plug on the S3 US update…

Are Irish Economists Shy?

Far and away the largest repository of social science working papers is SSRN. Its excellent, even if it at times seems frustratingly hard to navigate. Its big

What is curiously missing are irish economists or economic departments.  Harvard have over 500k papers downloaded from SSRN, Tilburg 438k, MIT 400k etc.  The economics papers dominate SSRN, with 300k papers in all areas of economics. The next largest is Finance with 144k papers.

Where are the Irish economists? Its not that they are not doing good work. Its that they are not using this portal to showcase it. And thats a pity as the whole point of SSRN is that its a social science related portal. Economic research institutes etc in Ireland seem to prefer ideas.repec.org/. While its also a great site, theres nothing to stop cross posting. Maybe economists herd with other economists while avoiding anthropologists, poly scientists and so forth. Thats a pity.

Open up to the world. Post to SSRN as well as IDEAS.

Not Data but data.

Hard to disagree that effective oppositional politics needs th grounded in reality as well as aspirational.

53 degrees

Courtesy Mark Malone. Over the last two weeks or so I have been coding, collating, inputting and analysing the data coming from the questionnaires from the recent Left Forum meeting in Dublin ‘Does Ireland need a new left party?’ When the prospect of distributing a questionnaire arose in the organising group’s conversation I had to get involved. My area of expertise as a paid social researcher is compiling and analysing questionnaires. I am a trained sociologist and I have always seemed to gravitate towards the quantitative. I’m not one who believes in the innate power of numbers and I have spent some of my doctoral work arguing against the politics of numeric fetishisation in the social sciences. In my near-two decades of involvement with Left politics in Ireland, this is the first time I have seen anything resembling an analysis of needs and wants. Speaking with someone last week who is involved in…

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Some thoughts on Europe, Banking and European Banking

So I spent the last few days in Portoroz, on the Slovenian coast, at the 15th Portoroz Business Conference. My talk was on the future of banking post crisis. The slides are attached.

Slovenia is facing a banking crisis, mostly down to crony capitalist lending to politically connected firms. Sound familiar? They had the Governor of the Central Bank and the Finance Minister there to grill over that, along with at least two other ex FinMins in the audience. They are setting a NAMA up also. Slovenia has a banking system fairly much deposit based with Euro area deposits and loans almost matched. It doesnt have much in the way of bonds. Its a clean system in that sense. But the great fear there is that the hole in the bank lending might be as much as 4-6b, which in a country with a GDP of 35b or so is a fair whack. Slovenia has  public debt levels of 54% GDP so they should be able to raise this if needed.  The alternative is a fullscale bailout. Right now their 10y bond is hovering at 6%.

The spectre haunting the CEOs and CFOs at the conference is that of another peripheral country recently involved in bailout negotiations, where deposit bailins became real. Such was admitted as being unlikely but the genie is out of the box. Slovenia is a beautiful country, with spectacular scenery, lovely people, great food and enjoyable in every way. It has a trade surplus, and is undergoing reforms at a steady pace. The absence, now or prospectivly, of a proper banking union is a major problem for them. The irish experience, of a sovereign state beggared for the banks, is not one that cheers them.

Bitcoin Bubble(s)

Bitcoin is soaring. I have previously noted a new test (The generalized sup-ADF test of Phillips for the technically minded : see https://editorialexpress.com/cgi-bin/conference/download.cgi?db_name=CEF2010&paper_id=69 if interested) for bubbles. Applied here we see not one but two bubbles in bitcoin. The shaed series is the test statistic, the light green line its critical value – when the test statistic is above the critical value, it suggests a bubble. Also imposed are the closing values of bitcoin v $US (from MtGeox exchange).
I leave the (pretty obvious) interpretation to yourselves…

Is there any point teaching innovation and entrepreneurship given the state of irish universities?

epicfailThe web summit having come and gone, innovation and entrepreneurship are again at the forefront of the government and media attention. We have moved without much if any debate, to an apparent consensus that Irish universities and third level colleges must be the engine of innovation in the economy. The reality is however that it is probable that this is doomed to fail. In failing this impossible task the sector will inadvertently provide more ammunition to its critics. The perception of lazy academics engaging in selfpleasuring research of no use to man or beast while studiously avoiding contact with students will continue to be perpetuated. The moves to make universities into secondary schools for big kids will intensify at the same time as the sector is penalized for not achieving a set metric in an external environment where such massification is penalized. The lack of forward looking joined up thinking is alas not startling to anyone who has observed Irish ‘policy’ making in action.

3323907697_c02017a084_zA first question we should ask is whether we can in fact teach innovation. It is inate perhaps in some people that they will, regardless of their backgrounds, go forth and innovate. Innovation is the name we give to certain behaviours after the fact. In Ireland we have become lazy in our thinking about it and see it as a function of business enterprise. While on this subject we might well distinguish between innovation and entrepreneurship. The two are used interchangeably and universities are tasked with fostering both. Thus we have the growth of entrepreneurship courses, startup labs, incubators and so forth. Innovation is about new ideas, new processes, new ways of serving needs. Entrepreneurship is about starting a new business or new unit to deliver services or goods. Crucially these need not be innovative. A Kerryman Richard Cantillon described the entrepreneur perfectly – he buys something for a known price and sells it to the market at an unknow price. Entrepreneurship is about starting a new business or new unit to deliver services or goods. Crucially these need not be innovative A lot of hard work, persistence in the face of failure, communication skills and time management are involved in that effort.  Interestingly, these already should be outcomes of every third level course regardless of its discipline.

wq-iceberg-underwaterThere is little evidence that innovation, per se, can be taught. Skills that useful when one is innovating might be teachable. There is a large dimension of tacit knowledge that doesn’t transfer well in classroom environments. Ultimately some people have it and some don’t. What can be taught are processes and skills to allow people to hone innate innovative skills.  The difficulty is that this is expensive. Courses in critical thinking, problem based learning and 360 feedback, reflective learning, these all help. But they cannot be done without significant up-skilling of those delivering the courses, they cannot be done in large classes and they are very manpower heavy. An example would the conservatory style education systems of budding writers, musicians and artists. In a resource constrained environment it is therefore difficult to see how we can move forward. But it is easy to see how in not doing so the sector will be criticised and penalised.

stiglitz A further problem for Ireland is that the external environment is antipathetic to the fostering of an innovative or entrepreneurial culture in the third level. It is hardly possible to deliver skills for either innovation or entrepreneurship if the organizations are themselves immune to innovation and entrepreneurship. Universities are knowledge organizations. The organizational and management structure that is optimized for these is one that is open and not one of command and control. Joseph Stiglitz recented stated in a keynote address to the World Bank that we need to foster learning economies for growth and how we have geared our universities towards short-term patentable gains has resulted in the static and dynamic ineffeciencies that thwarts growth. A key policy therefore would be to make universities more open, not less.

2699.strip.sundayAt present we have the phenomena of an external body engaging in ever deeper dives into the management of the process, of top management (by which I mean the HEA and Dept of Education) expanding their control over the minutiae of staffing and product line innovation. If we want these organizations to be innovative and entrepreneurial we need to let them breath, not suffocate. When the minister and the HEA determine that there shall be such and such number of courses in area Y and so forth that kills innovation dead. When they then ask why universities are not innovative, they engage in doublespeak. We might not like that universities are knowledge organizations. But that they are is a fact. Part of that involves the fostering of innovation and creativity in the knowledge providers. This is also known as research. We neither encourage nor mentor adequately in this area, and we are in danger via the tenor of the discourse of suggesting that only a small part (the patentable tomorrow stuff) of a section (STEM) of the university is valued. The soft skills generated within the rest of the university are equally as valuable as those in the sciences. A key part of these skills emerges from the research endeavors of staff in the Arts and humanities, but these have played a fifteenth fiddle to the hard sciences. To change this will require resources however.

he-did-it-cheezburgerA more problematic issue revolves around the culture of blame in the media and politics. To be innovative is to fail, hard and repeatedly. But failure is costly. Society is now sufficiently jaded about the various organs of the State that they are unwilling to accept that any failure is the result of lady fortune and not the national cipher of a county councilor on the make, criminal negligence or someone leaning on the shovel.A university that fails in a new initiative will be accused of wasting public resources. Journalists who are unable to resist inserting themselves into the story will opine on the lazy wastefulness of the dons. Politicians who would not know an innovation from an inoculation will make speeches on the need to align universities with corporate needs. Failure, so long as it is directed and purposeful, needs to be rewarded and encouraged. Business, media, sport are all replete with examples of persistent failures who eventually succeeded. We need to foster this.  Whatever social funds are deemed appropriate to the public good provision of third level should be given to the university presidents and then they should be let run their organizations.

entrepreneurship_demotivatorA final issue relates to the internal culture of universities. They are not cultures that reward innovation or entrepreneurship. Committees’ spawn, meaningless administrative positions are created for academics instead of hiring professional managers, paper chases are created for the most minor activity, the pace of movement is sub-glacial, a proliferation of brass hats ensures that nobody owns a product and thus innovation proceeds haltingly. There is a paralyzing fear of failure in middle management, and a deep conservatism which serves mainly to protect the comfortable.  We only need to look at the UK to see the end point: a wasteful process of micro-evaluation and industrial unrest. A radical culture change to make universities truly innovative organizations is required, as well as changes in the external environment. Stiglitz said we need to foster learning societies in order to grow. Despite the presence of our Troika overlords we have never asked them what we need to learn and how to become perpetually learning societies. Our budget said we like tax breaks, building and real estate. If we want innovative universities and an innovative society we need to make a break with the past and start learning.

8 reasons to be cautious about Ireland’s “clean exit” from the Bailout

This is an expanded version of a comment piece published in the Irish Examiner 15 November 2013.

The decision of government to exit the bailout ‘clean’ is a curates egg. The good element, and it is an unalloyed good, is that this signals that the worst of the effects of the noughties credit binge on the macrofinances of the state are trul behind us; that the catastrophic bank guarantee has washed through; and that we are capable of contemplating standing on our own two feet again. However, there are downsides.

The context of this is that we are now going to have to go to the markets for money. And we need a lot of money. In 2014-2017 we face up to €30b of government bonds to be repaid. These will be rolled over, which means that we need to borrow that much before we borrow a penny more for any deficits. Exchequer borrowing requirements of upwards of€20b are also required. Thus we will have to borrow approx. 12.5b per annum on average just to stand still. And do it on our own. So what are the downsides?

First, we close off options when we do this. Options have value. A major part of the value of an option comes from not exercising it. Determining that we will exit clean removes any chance that we have of a transition. Should the world economic situation worsen and drag up our borrowing costs, should a major bailout of Irish banks be required , should any unforeseen event come to pass that requires us to seek assistance, this will be a new game. Having gotten away , having to go back would in all likelihood result in harsher conditionality than a tapering off.

Second, there is the cost of debt. We pay an approximate interest rate of 3-3.5% on our existing debt. That is just about the level at which we might now be able to borrow, assuming we can do so. A very large part of the driving down of the interest rates on peripheral country debt is down to the ECB stance. For how will this stance prevail? For how long will rates stay low ; if and when rates rise then so too will the costs. Thus we are likely to see these costs of borrowing of the required 50b rising above the cost of repayment at present. This will result in added strain on the government finances

Third, we face conditionality in any case. We are signed up to a variety of EU level agreements that require us to be overseen. If we are to be overseen then it would be as well to get as much as we can for it, including some cheap cash.

Fourth, we have a poor historical record of managing the economy, over decades. Mass emigration is back, removing the potential pressure value that in most countries causes revolution and evolution of the political system. With no external stick to beat the domestic elites there is a significant danger that they will revert to the bad old ways pdq.

Fifth, much good work in reforming closed shops and technocratic regulatory improvements has been undertaken over the last few years, but all at the behest of the troika. With no external oversight this will cease. We have seen the remarkable resilience of the legal and medical professions, for example, to meaningful change, even with the piper trying to call a tune. What hope a domestic piper?

Moreover, the banks remain, rotting away and poisoning the national flow of funds. Irish SMEs in particular remain under strain, as evidenced by the ECB Access to Finance survey published this week. In a remarkable display of lack of confidence the government have contracted with a German development bank to work towards restoring credit flow. This does not auger well for the health of the pillar banks

Sixth, without any oversight beyond the Six and Two pack, we are on our own. We have given up a tool that could, potentially, have stablised our economy in the event that things go swimmingly and we decide to revert to our bad habits of “when I have it I spend it”

Seventh, we are stating that we are back in business, hale and hearty. Although I never believed it was likely, this makes it even more vanishingly unlikely that we will get any monies from anyone to repay the monies placed in the shattered pillar banks. Why would anyone give us money when we are fine?

Eight, we are no longer eligible for the ECB OMT programme. While the markets shrugged their shoulders at this on announcement, the OMT cannot now protect our bond yields. We have seen how swiftly sentiment can move against a country and we are willingly exposing ourselves to that volatility

The government have decided to jump without a parachute. Lets hope for all our sakes that there is a nice soft landing…. Now where have we heard that before?

Bloodboiling double standards in Ireland regarding bankruptcy

You are a NAMA  Family

  • Bad luck. Bankrupt eh?
  • Phew. Your in luck… Your reasonable standard is defined in the High Court, by expensive barristers
  • You can claim (2 adults, a car, three second level school kids) €9k per month as reasonable
  • Err who takes public transport?
  • You can maintain a gold club subscription of €165 per month.
  • You can have €1644 per month for the three kids private school fees
  • Its perfectly reasonable to pay €3750 for rent for a house that is “attractive and desirable”
  • This is not “a celtic tiger lifestyle”

You are a regular Family

  • Bad luck. Bankrupt eh?
  • Your sh!t out of luck. Your standard is set down in a leaflet by the insolvency service
  • You can claim (2 adults, a car, three second level school kids) €2461 per month as reasonable (per Table 6).
  • Oh, you cant have a car if you live where there is public transport
  • Sport?
  • You can have €194 p month for the three kids for all educational needs
  • Daft.ie is your friend. Lots there for €1k per month… See ya on the Luas for an hour each way
  • “we all partied”

download (2)This is bloodboiling stuff. Honestly. I would say more but I dont want to be up in front of Mr Justice Bermingham (who was once a FG TD) for contempt. I doubt that anyone in the Dail or Seanad will raise this – if they do they will be told to STFU as “its a matter for the courts”. Article 40(1) of the constitution says “All citizens shall, as human persons, be held equal before the law”. I guess…