In an exceptional year for tech innovation, not every idea had the brightest bulb. Find out which ones were the absolute worst, with Reuters tech correspondent Jon Gordon. (December 28, 2012)
Monday, December 31, 2012
Advanced economies could wing it through 2013, according to George Magnus, senior economic adviser to UBS, but there are some questions marks about the economic models of some of the world's fastest growing countries. He discusses the global prospects - and risks - for the year ahead with Ralph Atkins, the FT's capital markets editor.
Friday, December 28, 2012
Firearm injury in the United States has averaged 32,300 deaths annually between 1980 and 2006. In 2006, Japan recorded 2 deaths related to guns.
Max Fisher wrote in The Atlantic last July:
"In 2008, the US had over 12 thousand firearm-related homicides. All of Japan experienced only 11, fewer than were killed at the Aurora shooting alone. And that was a big year: 2006 saw an astounding two, and when that number jumped to 22 in 2007, it became a national scandal. By comparison, also in 2008, 587 Americans were killed just by guns that had discharged accidentally."
Bloomberg reported last week that while motor-vehicle deaths dropped 22% from 2005 to 2010, gun fatalities are rising again after a low point in 2000, according to the Atlanta-based Centers for Disease Control and Prevention. Shooting deaths in 2015 will probably rise to almost 33,000, and those related to autos will decline to about 32,000, based on the 10-year average trend.
Gun deaths by homicide, suicide or accident peaked at 37,666 in 1993 before declining to a low of 28,393 in 2000, the data show. Since then the total has risen to 31,328 in 2010, an increase of 2,935, or eight more victims a day.
Germany has a population of 82m compared with the US at 312m.
The number of persons killed in traffic accidents in Germany is expected to fall by more than 7% to some 3,700 in 2012. This is suggested by estimates from Destatis, the federal statistics office, based on data available for the period from January to October 2012. As things stand, the figure will not be smaller than the lowest number of fatalities recorded to date, which is 3,648 persons killed in 2010.
The New York Times reported on December 28th that murders in New York have dropped to their lowest level in over 40 years
The number of murders is the lowest since 1963, when improvements in the recording of data were made.
Of the 414 murders, 14 deaths from previous years were counted as homicides for the first time. In many of these cases, victims of long-ago shootings died of sepsis in hospitals, the police said.
Of the 400 murders in 2012, 223 were gunshot victims, 84 victims were stabbed to death, 43 died of blunt trauma and 11 died of asphyxiation. The majority of the 400 homicides occurred on a Saturday, followed by early Sunday morning. Most occurred at 2 am. People were more likely to be killed outside than in. Nearly 70% of the victims had prior criminal arrests, the police said.
Domestic-related homicides dropped to 68, from 94 in 2011.
"The number of murders this year will be lower than any time in recorded city history," Mayor Michael Bloomberg said, hailing the work of the New York Police Department (NYPD). "It also reflects our commitment to doing everything possible to stop gun violence," he said.
"Murders are down almost 19% this year compared with last year. They are down 35% from where they were 11 years ago when our administration began," Bloomberg added.
The number of shootings in the city also fell to a record low 1,353 this year, down 8.5% from last year, said Bloomberg. The previous low was 1,420 in 2009.
"We're taking 8,000 weapons annually out of the hands of people we stop, 800 of them illegal handguns," Ray Kelly, the police commissioner, said in a statement.
Wednesday, December 26, 2012
Canalys, a research company said, earlier this month that a small number of developers, almost entirely game companies, continue to generate the majority of revenue at the leading app stores - - - Apple’s App Store (iPhone only) and Google Play. Based on daily App Interrogator surveys, Canalys estimates that just 25 developers accounted for 50% of app revenue in the US in these stores during the first 20 days of November 2012. Between them, they made $60m from paid-for downloads and in-app purchases over this period.
The iEconomy series in the New York Times in 2012
In a modern economy where the winners usually take the lions' shares, in 2 of 8 of the iEconomy series, the NYT looks at how the world's most valuable company thrives on the work of the 1m strong Foxconn workforce in China, operating in conditions that could be compared with battery-hen production, with iPhones assembled at $7 to $8 a pop. Meanwhile the Apps Store has been stocked with more that 750,000 items produced by mostly freelance developers who are hoping to win a lottery but aspiration seldom meets reality.
Then there are the web punters who have been spoilt into believing that Santa Claus can work for free (I was going to say 'charity' but that would be misleading in Ireland at least, as running a charity can be a handy earner - - Irish Independent report).
Derek Thompson writes on the Instagram debacle in The Atlantic:
"Think about how their brilliant software delights you, makes you literally happy, fills your spare time, organizes your work time, invents convenience where you never expected it, swallows your boredom in sepia tones, begs hours of your precious attention, does a bunch of other emotionally and productively and ontologically rewarding stuff ... and almost all of it is either vanishingly cheap or utterly free! Not since the cavemen, probably, did the brightest minds in the world turn their attention to making things that nobody had to pay for.
This is rare gift, made possible by at least two things: The duplicability of code, which drives the price of most software products to zero, and subsides from venture capitalists, who are happy to bankroll these ingenious inventors until they figure out a business model. Oops. I said it. Business model. Yes, so we all know these businesses are in fact business. I won't insult your intelligence with the pedantic reminder that 'if you're not paying, you're not the customer, you're the product.' Blah blah blah. People get that, I think. But they hate feeling like the product. It degrades them. And so every time one of these "two-sided" companies announces that they need to start attracting the second side (advertisers) in order to keep things happy for the first side (users), there is a freak-out of biblical proportions.
David Gillen, New York Times deputy editor, leads a roundtable discussion on whether Apple's promise to expand manufacturing in the US will turn out to be good news for American workers.
Friday, December 21, 2012
In the first part of "The Party's Over" (above), first broadcast in December 2011, Robert Peston, the BBC business editor, visits Shanghai, the fastest growing city in China and home to 23m people. Here, he meets some of the city's workers prepared to earn less than their UK counterparts to help fuel the Chinese economic boom.
However, the woes of the West struggling with high debt, ageing populations and the end of the American Dream and its equivalent for other developed nations, will not mean that emerging economies face a long period of plain sailings. Headwinds are evident everywhere.
The United States has an unexpected silver lining compared with just a short time ago.
The United States will become increasingly energy independent in the next three decades as it boosts its production of oil, natural gas and renewable power such as solar and wind. Meanwhile, US crude oil production averaged almost 6.5m barrels per day in September 2012, the highest volume in nearly 15 years. The last time the United States produced 6.5m barrels per day or more of crude oil was in January 1998. Since September 2011, US production has increased by more than 900,000 barrels per day. Most of that increase is due to production from oil-bearing rocks with very low permeability through the use of horizontal drilling combined with hydraulic fracturing (fracking). The states with the largest increases are Texas and North Dakota.
The US Energy Information Administration this month issued its Annual
Energy Outlook 2013 (AEO2013), which highlights growth in total US energy production that exceeds growth in total US energy
consumption through 2040.
The BBC says that in the teeth of the worst financial crisis in living memory, Robert Peston examines how the world got to this point and how the colossal imbalances in the global economy have left the UK in need of a radical economic overhaul.
In this first of two programmes Peston examines how, thirty years ago, momentous decisions were taken which shaped the world we live in today. In China, Deng Xiao Ping opened up the country to foreign capitalists; in Britain and America, the free market revolution was unleashed by Margaret Thatcher and Ronald Reagan. "The Party's Over" compares the lives of workers in a Chinese company with their co-workers in Britain.
Robert Peston interviews bankers, politicians and economists, and concludes that the boom we enjoyed before the crash was based on an illusion, and that the world's economy is now so unbalanced that in the West we face a sobering wake-up call.
Not all plain sailing
The demographic outlook for the BRICs (Brazil, Russia, India and China) varies greatly. The differences in the projected change in the working-age population are very significant in both absolute and relative terms. This will impact not only economic growth prospects, but also savings and investment behaviour and potentially financial market growth prospects. Brazil and India are demographically in a substantially more favourable position than China and Russia. With the exception of India, demographic developments in the BRICs are becoming, or will soon become, a net negative in terms of per-capita growth. The working-age population in India will increase by a stunning 240m (equivalent to four times the total population of the UK) over the next 20 years, compared with 10m in China. However in the big country league, only in Brazil, India, the UK and the US will the potential labour force be tangibly larger in 2030 than today.
China should double its GDP (gross domestic product) by 2020
Hu said in a speech at the opening of the Communist Party’s 18th congress last
month. Hu who handed over the position of party general secretary to Vice
President Xi Jinping a week later, also called for “deepened reform of the
financial system” and more local-level democracy. China was ranked 121st in
gross national per capita income for 2010 by the World Bank, at $4,260, close to
Jordan and Thailand and less than 1/10 of the US’s $47,140. However, on a
purchasing power parity (PPP - - The rate at which the currency of one country
would have to be converted into that of another country to buy the same amount
of goods and services in each country) basis during Hu's presidency, GDP per
capita more than tripled from $2,800 in 2002 to a forecast $9,100 in 2012
according to the International Monetary Fund.
ChinaRealTime, a Wall Street Journal blog, says that rising incomes pushed China into the middle-income bracket of emerging nations. With few signs of democratisation, China also defied expectations that rising wealth would lead to political reform.
Ten years of rapid growth is an impressive record. But much of the credit must go to Hu’s predecessor Jiang Zemin, who shepherded far reaching reforms that laid the foundations of the decade’s growth. The boost from those reforms is now running its course.
China’s entry into the World Trade Organisation in 2001 ushered in an export boom, with exports averaging nearly 30% annual growth from 2002-07. But as China has grown to be the world’s largest exporter, with more than 10% of the global market, the room for further expansion is limited. Rising wages, and a stronger yuan, have also taken a toll on export competitiveness.
Ruchir Sharma, head of emerging market equities and global macro at Morgan Stanley Investment Management, which has about $25bn in emerging market assets, and is the biggest investment rival of Goldman Sach's, says in a recent issue of 'Foreign Affairs,' that the recent slowdown in growth in emerging economies should not be surprising, because it is hard to sustain rapid growth for more than a decade. The unusual circumstances of the last decade made it look easy: coming off the crisis-ridden 1990s and fueled by a global flood of easy money, the emerging markets took off in a mass upward swing that made virtually every economy a winner. By 2007, when only three countries in the world suffered negative growth, recessions had all but disappeared from the international scene. But now, there is a lot less foreign money flowing into emerging markets. The global economy is returning to its normal state of churn, with many laggards and just a few winners rising in unexpected places. The implications of this shift are striking, because economic momentum is power, and thus the flow of money to rising stars will reshape the global balance of power.
Sharma who is the author of the book, 'Breakout Nations: In Pursuit of the Next Economic Miracles,' says that the notion of wide-ranging convergence between the developing and the developed worlds is a myth. Of the roughly 180 countries in the world tracked by the International Monetary Fund, only 35 are developed. The markets of the rest are emerging-and most of them have been emerging for many decades and will continue to do so for many more. He says that Dani Rodrik, the Harvard economist captures this reality well. He has shown that before 2000, the performance of the emerging markets as a whole did not converge with that of the developed world at all. In fact, the per capita income gap between the advanced and the developing economies steadily widened from 1950 until 2000. There were a few pockets of countries that did catch up with the West, but they were limited to oil states in the Gulf, the nations of southern Europe after World War II, and the economic "tigers" of East Asia. It was only after 2000 that the emerging markets as a whole started to catch up; nevertheless, as of 2011, the difference in per capita incomes between the rich and the developing nations was back to where it was in the 1950s.
Excerpt from 'Breakout Nations':
As playwright Arthur Miller once observed, "An era can be said to end when its basic illusions are exhausted." Most of the illusions that defined the last decade -- the notion that global growth had moved to a permanently higher plane, the hope that the Fed (or any central bank) could iron out the highs and lows of the business cycle -- are indeed spent. Yet one idea still has the power to capture the imagination of the markets: that the inexorable rise of China and other big developing economies will continue to drive a "commodity supercycle," a prolonged upward rise in the prices of commodities ranging from oil to copper and silver, to textiles, to corn and soybeans. This conviction is the main reason for the optimism about the prospects of the many countries that live off commodity exports, from Brazil to Argentina, and Australia to Canada.
I call this illusion commodity.com, for it is strikingly similar in some ways to the mania for technology stocks that gripped the world in the late 1990s. At the height of the dotcom era, tech stocks comprised 30% of all the money invested in global markets. When the bubble finally burst, commodity stocks -- energy and materials -- rose to replace tech stocks as the investment of choice, and by early 2011 they accounted for 30% of the global stock markets. No bubble is a good bubble, and all leave some level of misery in their wakes. But the commodity.com era has had a larger and more negative impact on the global economy than the tech boom did.
The hype has created a new industry that turns commodities into financial products that can be traded like stocks. Oil, wheat, and platinum used to be sold primarily as raw materials, and now they are sold largely as speculative investments. Copper is piling up in bonded warehouses not because the owners plan to use it to make wire, but because speculators are sitting on it, like gold, figuring that they can sell it one day for a huge profit. Daily trading in oil now dwarfs daily consumption of oil, running up prices. While rising prices for stocks--tech ones included--generally boost the economy, high prices for staples like oil impose unavoidable costs on businesses and consumers and act as a profound drag on the economy.
That is how average citizens experience commodity.com, as an anchor weighing down their every move, not the exciting froth of the hot new thing. The dotcom sensation broke the bounds of the financial world and seized the popular imagination, attracting thrilled media hype around the world and enticing cubicle jockeys to become day traders. There was the dream of great riches, yes, but also a boundless optimism and faith in human progress, a sense that the innovations flowing out of Silicon Valley would soon reshape the world for the better.
Tech CEOs became rock stars because they promised a life of rising productivity, falling prices, and high salaries for generating ideas in the hip office pods of the knowledge economy, or for trading tech stocks from a laptop in the living room. It was impossible in those days to get investors interested in anything that did not involve technology and the United States, so some of us started talking up emerging markets as "e-merging markets," while analysts spent a lot of time searching for the new Silicon Valley, which they dutifully but often implausibly discovered hiding in loft offices everywhere from Prague to Kuala Lumpur.
A decade later the chatter was all about the big emerging markets and oil, but with a darker mood. Commodity.com is driven by fear and a total lack of faith in human progress: fear of a rising phalanx of emerging nations with an insatiable demand led by China, of predictions that the world is running out of oil and farmland, coupled with a lack of faith in the human capacity to devise answers, to find alternatives to oil or ways to make agricultural land more productive. It's a Malthusian vision of struggle and scarcity: of prices driven up by failing supplies and wages pushed down by foreign competition.
Excitement about rising commodity prices exists only among the investors, financiers, and speculators who can gain from it. Commodity.com has inspired many an Indian and Chinese entrepreneur to go trekking across Africa in search of coal mines, yet it has no positive manifestation in the public mind at all. At the height of the tech bubble millions of American high school students aspired to become Stanford MBAs bound for Silicon Valley; today the growing number of oil, gas, and energy-management programs represents a small niche inside the MBA world. The only popular manifestations of commodity.com are complaints about rising gasoline prices and outbreaks of unrest over rising food prices in emerging markets.
It is well-justified unrest. If anything, the negative impact of sky-high commodity prices on the larger economy is underestimated. The price of oil rose sharply before ten of the eleven postwar recessions in the United States, including a spike of nearly 60% in the twelve months before the Great Recession of 2008 and more than 60% before the economy lost momentum in mid-2011. When the price of oil trips up the United States, it takes emerging markets down with it. In 2008 and 2009 the average economic growth rate dropped by 8%age points in both the developed and the emerging world, from its peak pace to the recession trough.
The strongest common thread connecting the dotcom and commodity.com eras is the fundamental driver of all manias: the invention of "new paradigms" to justify irrationally high prices. We heard all sorts of exotic rationales at the height of the dotcom boom, when analysts offered gushy explanations for why a company with no profits, a sketchy business plan, and a cute name should trade at astronomical prices. It was all about the future, about understanding why prices in a digitally networked economy "want to be free," while the "monetization" problem (how to make money on the Internet) would solve itself down the line. The dotcom mania, while it lasted, was powerful enough to make Bill Clinton -- who campaigned as the first U.S. president to fully embrace the "new economy" -- a living emblem of American revival, just as the commodity price boom played a role in making Vladimir Putin a symbol of Russian resurgence and Inácio Lula da Silva the face of a Brazilian recovery. When the rapture is over, the nations and companies that have been living high off commodities will also share the sinking feeling that followed the dotcom boom.
Excerpted from Breakout Nations: In Pursuit of the Next Economic Miracles, W.W. Norton & Company. Copyright © 2012 by Ruchir Sharma.
Sunday, December 16, 2012
The reviewer in the Times of Gene Kerrigan’s new book, ‘The Big Lie: Who Profits from Ireland’s Austerity?,’ says : “It doesn’t purport to explain where we are going next, or how to get there, but it gives a lucid account of why we are where we are.”
Whether right or wrong, Gene Kerrigan writing on the Irish crisis has more credibility than for example Shane Ross.
There is the European dimension but also the local one where for example in Ireland, the people without countervailing vested interest power are unfairly targeted.
So after a 20-year credit binge, credible alternatives to some form of fiscal adjustment in Europe, are seldom aired. In Ireland, those who are the victims of the crash are seldom heard from. Excluding the property boom, there was no growth in Ireland in the past decade. However, bubbletime gains and pensions are still available in the public sector. The British Empire's guarantee of employment in the civil service which dates from that 1850s continues to exist in the Irish civil service alongside premium pay and pension benefits. Meanwhile, Labour Party TDs hypocritically protest against welfare cuts, while senior civil servants can get retirement bonanzas worth several million euros.
The Federal Reserve has been the most active central bank among developed countries but last month, the broad measure of US unemployment was 14.4%, down from 15% in Nov 2011. Nevada, like Ireland had a big housing bust, and its rate is 21%.
Banks have done well from the low central bank lending rates.
Mario Draghi, ECB president, does deserve credit for stabilising the euro.
Europe’s 3 biggest economies, Germany, France and the UK, are projected by the IMF to have gross debt to GDP ratios of 81.5%, 92.1% and 93.3% in 2013.
What level of stimulus would be required to return the continent to 2007 growth?
Michael Hasenstab of Franklin Templeton who has purchased €8.5bn holding in Irish bonds, is quoted as saying: “Ireland is now the second fastest if not the fastest growing economy in Europe, along with Germany. The PMI (Purchasing Managers' Index) numbers in Ireland are in fact better than in Germany.”
The first part of the quote isn’t true; the second part is but if he really understood the Irish economy, he wouldn’t be quoting PMI data.
Estonia is projected to grow by 2.1% this year and 3.1% in 2013 — this is another small economy where headline data is misleading.
Some 20% of Estonia’s 2012 budget comprises EU transfers, which will start running out in 2015. As regards exports, a small number of firms are part of European supply chains while re-exports are also significant (goods imported via Estonia by Russian firms, from third countries).
Friday, December 14, 2012
Barcelona and Argentina forward Lionel Messi has broken Gerd Müller's 40-year record of 85 league and international goals in a calendar year. WSJ's Joshua Robinson has been keeping tabs.
Tuesday, November 27, 2012
From Bengal tigers to unproven actors, Ang Lee's "Life of Pi" pushes the limits of book-to-film adaptations. WSJ Off Duty talks to one of the stars, actor Irrfan Khan, and takes a look back at famous animals in movies. Plus, WSJ Film Critic, Joe Morgenstern, reveals his picks for most "inspired" and "idiotic" film adaptations. With host Wendy Bounds.
Monday, November 26, 2012
Ireland Unemployment: 188,000 were unemployed continuously for 12 months or more in Oct 2012.
The following was a contribution to a thread on the Irish Economy blog:
As regards the lack of part time data on public sector staff, it maybe be a state secret to avoid a focus on full time equivalent numbers — down 5,406 since 2007 - - which looks less impressive than the claimed reduction in numbers.
Wonder how many former staff have been given nixers as consultants?
The Irish Times reported on Saturday on the bonanza for the former head of Aer Rianta International, the DDA (Dublin Airport Authority) unit.
“exit package comprised a lump sum of €437,000 and a payment of €68,000 annually for 6.3 years to bridge the gap to retirement.
The DAA confirmed yesterday that Mr Foley now worked as a paid external consultant with ARI and served on the boards of certain subsidiaries.
People who want to retire should be left go with no strings attached.
Have your cake and eat it elsewhere! The country is banjaxed!
“The graveyards are full of indispensable men,” is a quote attributed to General Charles De Gaulle.
The Wall Street Journal reports today:
When Samuel J. Palmisano retires next month, he’ll enjoy a generous goodbye present: The former IBM chief will earn $20,000 for any day he spends four hours advising his longtime employer.
That means hypothetically he could pocket $400,000 a year for 20 half-days of work—twice what his predecessor, Louis V. Gerstner Jr., makes per day under a similar consulting arrangement. Mr. Palmisano’s contract is open-ended and doesn’t specify the number of days he will work. Mr. Gerstner’s 10-year consulting contract expires in March.
This is simply a shakedown for the super-rich.
As regards the Irish self-employed, many are freelancers, not by choice and of course, they lack political clout.
Apple the most valuable company in the world has the best of both worlds — Foxconn’s battery-hen army in China costing as little to assemble an iPhone 5 ($8) as it recently forced HTC of Taiwan to pay per smartphone sold in respect of disputed patents and another army of apps developers lured by the prospect of winning a lottery but slaving for very little return — even for those who earn a few crumbs, Apple takes 30%:
Thursday, November 08, 2012
Average annual earnings fell to €35,905 in 2011 from €36,117 in 2010, a decrease of 0.6%. This compares with a revised fall of 1.9% between 2010 and 2009, according to the Central Statistics Office.
The comment below was made on a thread on the Irish Economy blog:
In 2001 the Exchequer net pay and pensions bill (ex local authorities) was
€10.2bn; it was €16.2bn in 2006 (the peak year of the bubble); €17.6bn in 2007;
€18.7 in 2008 and is estimated to be €16.9bn in 2012.
These figures are net of pension contributions (normal and emergency).
So to compare with 2007 when it was clear to those of us who weren’t afflicted with Walter Mitty syndrome, that the game was up, there is a saving of €700m. However, we don’t know how much the current cost of the €1.5bn in allowances has risen in the period.
Let’s say €300m. That leaves €400m and then just note that in 2009, the State assumed direct responsibility (a bail-in or bail-out?) for the Trinity College pensions’ deficit of €315m!
The pay and pensions bill takes 42% of net current spending of €40.5bn which has risen by €3.5bn since 2007.
It’s one of several issues of importance in seeking to develop a sustainable economy.
I do cover the others as well!
I have yet to see a justification for the continuation in modern times, of the 1850s era British Empire guarantee of employment.
Among EU Member States, in 2010 the mean (average) gross annual earnings of
full-time employees in enterprises employing ten employees or more were highest
in Denmark (€58 840), followed by Luxembourg (€49 316), the Netherlands (€45
215), Ireland (€45 207, in 2009), Belgium (€43 423) and Germany (€ 42 400). On
the other hand, the lowest mean gross annual earnings were registered in Romania
(€5,891) and Bulgaria (€4,396) – see Table 1.
In 2006, median annual earnings showed a broadly similar ranking across the Member States (see Figure 1), with mean earnings higher than median earnings in 2006 for all countries (as very high earners exert a greater influence on the mean than the median). The proportion of employees considered to be low wage earners in 2006 was highest in Latvia, at 30.9 %, while more than one in four employees were also considered as low wage earners in Lithuania, Bulgaria and Romania
Wednesday, October 24, 2012
Irish Economy: Sir Mervyn King, governor of the Bank of England, gave a speech last night in which he said: "Such is the scale of the global adjustment required that the generation we hope to inspire may live under its shadow for a long time to come."
Many look to Brussels, Frankfurt or Berlin for solutions and the 'more qualified' (as used by a contributor on another thread or what David Begg might term 'people of standing' - - Jim Larkin had a point: "The great are only great because the rest of us are on our knees") tend to eschew radical solutions for what is under our control, while young people are targeted to bear the adjustments.
The recent report on food deprivation highlighted an issue I alluded to yesterday. Ireland does not have the English allotment tradition and what is striking are the current very high subsidies for farming for even watching the grass grow, which has resulted in a big change from the 1970s when most farmers grew vegetables. Ireland produces 5% of the Dutch output of potatoes.
Today, staples are likely to be imported and pricy while the tradition of the country cousins bringing produce to their urban relatives no longer applies.
On a bigger scale, the fact that 5% of Americans are responsible for almost 40% of consumer outlays (including consumer spending, interest payments on installment debt and transfer payments) while the bottom 80% by income account for another 40%, shows the level of dependence on a small number in an economy where consumer spending accounts for almost 70% of GDP.
In his 1776 book, 'An Inquiry into the Nature and Causes of the Wealth of Nations,' Adam Smith, a social democrat of his times, noted: "No society can surely be flourishing and happy, of which the far greater part of the members are poor and miserable."
It's strange that a plutocrat has an excellent chance of becoming the next president.
The heartland used be radical and the death this week of George McGovern, former US senator of South Dakota, highlights this change which Thomas Frank discussed in his 2004 book, 'What's the Matter with Kansas?' - - why relatively poor folk vote against their economic interests.
In 1896, the 36-year old William Jennings Bryan of Nebraska captured the Democratic Party's presidential nomination with his 'Cross of Gold' speech arguing for a bimetallic currency standard to help rural residents who had endured 3 decades of deflation [in 1925, Bryan made a fool of himself when he was the prosecutor in the trial of a Tennessee teacher, for teaching evolution. See the impressive Spencer Tracy as the defending lawyer in 'Inherit the Wind' (1960)]
Finally on austerity again, this is from the latest Stability Programme Update, produced by Ireland's Department of Finance:
"While taxation receipts in 2012 are projected to be just above 2004 levels, the gross voted expenditure of Government Departments and Offices in 2012, at an estimated €56 billon, is projected to be 37% above the level it was in 2004, despite the very significant adjustments to both revenues and expenditure since mid-2008. While the gap between the State’s revenues and expenditure is clearly on a downward trajectory, it remains at an elevated level and it will need to continue to be addressed by economic and fiscal policy over the coming years."
The foregoing is a contribution to a thread on the Irish economy blog.
Note how that specie known as the “rural TD” is much more identified with the wish lists of the IFA and vintner groups than desperate urban dwellers they represent; note how a charge for septic tank inspection to ensure safe water became a cause célèbre while the 30% increase in average farm income in 2011 was an unmentionable. Public welfare comprised 73% of average family farm income in 2011 - - a reduction from 97% in 2010. National Irish Farm Income Survey 2011 [pdf]
Monday, September 24, 2012
Colm McCarthy, UCD economist, wrote in The Sunday Independent yesterday: "Spare a thought for Clare County Council. On Monday, it emerged that the council was seeking confirmation that the €100 household charge had been paid by families seeking student maintenance grants.
Their lead was being followed by other counties. The typical maintenance grant for a student studying more than 30 miles away from home is €3,025 per annum. In addition, students at colleges in Ireland face fees which are only a fraction of the full cost of third-level education, so there is a double-subsidy for those receiving the maintenance grant.
Yet the council was roundly denounced by several TDs for checking whether the €100 due from each household had been paid. It is truly remarkable that politicians, including representatives of supposedly progressive political parties, can countenance the sheer chutzpah of applying for a €3,025 grant while dodging a €100 charge that is legally due."
Finfacts article: Irish Economy: Minister for Status Quo again targets future workers
The following are 3 comments I made on the Irish Economy blog thread on the article:
1. The argument about the impact that cuts in public spending could have on consumer spending is self-serving as is the one trotted out about a payoff for industrial peace.
So Anglo Irish Bank (IBRC) should remain one of Ireland’s biggest indigenous firms on that basis with 1,000 employed when 100-150 at most should be able to handle the ‘business’ of a shuttered bank? It’s out of business.
Read the Croke Park implementation body’s claimed ’savings’ from bubble levels while the Minister for the Status Quo gets away with stressing pay savings while ignoring rising pension costs.
It’s not only the PS are part of the continued misgovernance but sheltered professionals are continuing to make a killing from the wreckage of the collapse.
GPs who are also drawing from the public trough, have jacked up fees since the crash for private clients.
Up to now, the unemployed and tens of thousands of self-employed (many not by choice in the modern economy) are struggling at subsistence level and those who want to maintain the status quo, are in effect telling them to eat cake.
You are weak; you’re not organised and you have not the muscle of the IFA to put the frighteners on that specie known as the ‘rural TD.’ So be happy with your lot.
It will soon 6 years since the onset of the US subprime crisis; many are clueless as to where significant numbers of new jobs will come from.
Force majeure should have been declared on public spending across the board. Drip, drip drip as hope is drained from those in the private sector who should be given the opportunity to see some hope and set up startups.
Most new net jobs in a modern economy are created by firms up to 5 years old. Surviving firms more than offset the high level of failures.
2. At the Fianna Fáil Ard-Fheis in 1970, Seán Flanagan (1922 – 1993), minister for lands, who was captain of the Mayo All-Ireland football winning teams in 1950 and 1951, did a rare thing in Irish politics. He called publicly for his department to be abolished.
It was indeed rare for an insider to put the public interest above his own and this month, The Sunday Independent reported:
The president of University College Cork, Dr Michael Murphy, who is paid €232,000 a year, has described how the heads of Irish universities “are as challenged at paying their bills as anyone else”.
He continued: “Many people won’t understand this because of the scale difference. But the stress on people is the same.“
This man’s background is in medicine.
The politicians are unfit for purpose and so many others at the trough are either in denial or see self-interest in keeping the trap shut.
James Downey wrote in the Irish Independent on Saturday:
If the Government had come into office promising to slash and burn and started slashing and burning straight away, people would have accepted it on two conditions.
The first is called, not quite accurately, fairness. People are not so foolish as to expect perfect fairness, merely the perception of a government doing its best.
Secondly, a reason to believe in the possibility of recovery. In the last 18 months the population has felt it has seen that possibility receding instead of coming closer.
Irish long-term unemployment - - at least a year or more — is at 60% of the total. Along with Slovakia, this is among the highest rates of the 34 mainly developed member countries of the OECD.
The think-tank estimates that Ireland would need to create 307,000 jobs to return to boom time levels of employment..
The lack of urgency is striking. Slow-motion remains the default mode.
Last year the OECD said the Irish school system is characterised by limited accountability mechanisms. It said the inspection of the work of individual teachers falls almost exclusively on primary teachers on probation, and that limited data on comparative school performance is made available to the public.
The OECD said the authorities should set up mechanisms to systematically evaluate teachers’ and schools’ performance, and make the results public when adjusted for social-economic background. It added evaluation results should have implications for career progression, and inform any needed corrective action in relevant areas - notably extra teacher training at primary and secondary level, especially in maths.
How dare they run down our fine systems!
3. Sweden and Finland reformed when they had to. In conservative Ireland, the tide will have to rise higher to imperil the thresholds of the comfortable.
A lost decade or more is going to be the cost of a failed governance system and a parish-pump electorate.
A lot of things can be tedious. Getting to the 100th rejected job application must be the threshold of motivation for some. Nevertheless, high unemployment is going to be a reality for years.
Ireland produces little wealth itself. Excess payments made on the froth of a housing bubble are a rent on the rest of society — medical consultants, PS, lawyers.
State guarantees of employment come at a high cost like banking guarantees.
There is little general interest in reforming failed systems. Many want bizarrely named ‘centres of excellence’ on their door steps, as long as someone else pays.
Productivity data is faked because of MNC distortions.
A small number of people account for the bulk of exports. So where will hundreds of thousands of new jobs materialise from to support bubbletime costs including future pensions?
Friday, September 07, 2012
Eamon Gilmore, Ireland's Tánaiste (deputy prime minister) this week told an international audience via CNBC, that Ireland has emerged successfully from the EU-IMF bailout because it faced up to the crisis including making quick decisions on bank recapitalisation.
There has been some progress but apart from demands by the so-called bailout Troika, there have been no significant reforms and there is unlikely to be as Gilmore, the junior partner in the governing coalition and leader of the Labour Party, will not challenge public sector trade unions that have made common cause with counterparts in the professional trade unions (medical consultants, lawyers etc.) in resisting change.
Irish Economy 2012: Howlin lauds sham cost savings in Croke Park public service agreement
Irish Times: Sept 07, 2012; Government should act and ditch Croke Park deal
The following is a response to a question on the Irish Economy blog on when the euro crisis will end?
In the grim summer of 1932, John Maynard Keynes, the most renowned economist of the twentieth century, was asked by a pressman when on a visit to Washington DC, whether there had ever been anything before like the Great Depression and he replied: “Yes, it was called the Dark Ages, and it lasted four hundred years.”
Next February, it will be 6 years since HSBC announced multibillion dollar losses on US subprime mortgages.
There is at least a decade of angst and turmoil ahead - - despite a likely improvement from the current situation in coming years.
Global growth may improve but from recent evidence, the Chinese will be cautious about the switch of the balance from investment to consumer spending. Stagnant US middle class incomes will continue and there will be no house equity to boost consumer spending.
The big successful companies employ a fraction of their counterparts in the past.
General Motors had over 618,000 employed in the US in 1979 - - in well-paid jobs; today, General Electric employs 133,000 and Apple 47,000.
The French newspaper ‘Ouest-France’ this week chided the government for presenting an unrealistic outlook of times ahead.
John Shoven, director of the Stanford Institute for Economic Policy Research (SIEPR), recently said: “People cannot expect to finance 20-25-year retirements with 35-year careers. Not in Greece [or] the United States.”
The credit boom masked the reality of a growth crisis in Europe.
The turmoil will be in response to inevitable change because countries will have to adjust to paying their way without the aid of fast rising debt.
The insiders will fight to retain their priviliges but at some point in a country like Ireland, the collective power of the sans-culottes will get the attention of political leaders.
It happened in 1979 after the Government cravenly gave in to farmer demands to rescind a planned tax levy. PAYE income tax reform followed one of the biggest street protests in the history of the State.
There is a reason why there is seldom serious attention given to the issue of job creation.
Politicians tend to keep their fingers crossed with the next election in mind. Nevertheless, the speed in which François Hollande dropped his growth agenda is surprising.
However, a country that is close to the end of the road soon finds that the cliff beckons.
Monday, August 20, 2012
The Irish Economy blog has a thread on a comment article today in the Financial Times by two Spanish academics, who call on the prime minister to take radical action.
This is my comment:
The most alluring solutions are often ones that cannot be credibly implemented, at least in the short-term.
In 1994, Spain also had an unemployment rate of 24%+ In Andalucía, the rate exceeded 30%.
The peseta wasn't able to provide magic solutions and the unemployment rate was 21% in 1997.
According to the IMF, high unemployment was persistent in some regions because of centralised wage setting, giving business no incentive to move to areas, where inevitably there would be a shortage of skilled workers. Collective bargaining dating from the Franco regime mostly takes place at the industry or province level and collective agreements have the status of a law, affecting all workers and firms in the relevant area. This leaves little scope for small firms to adjust wages. Temporary jobs represent on average one third of employees because of the high cost of cutting permanent staff .
The construction boom began and unemployment fell to a record low of 8% in March 2007.
Excluding construction, Ireland had no real growth in the past decade; Italy only managed 3% in 2001/2010 - - 0.3% per year; US 16% (worst since 1945); UK 15%; France 12%; Germany and Japan 8%. Japan had a per capita annual GDP of 1.6%; US 0.7%; France 0.6% and Germany 0.8%.
In Italy, household incomes are lower than they were ten years ago. The public debt is larger. In the US, the inflation-adjusted median wage of the full-time American male worker is at the 1969 level.
John Authers of the Financial Times has written that Spain enjoyed a construction splurge in the middle of the last decade, egged on by low interest rates that were appropriate for the German economy (sluggish at the time), but not for a country where credit was growing fast. Just as the US credit bubble was helped by low rates driven by Chinese demand for US Treasury bonds, so Spain’s domestic property bubble had its roots abroad.
He asks why is Spain now in crisis, while the US is not?
Because its banks have not yet admitted the scale of the writedowns they must take in the wake of the bubble. In terms of their book value (the value of assets minus liabilities on balance sheets), have multiplied eightfold since 1998, according to an analysis of MSCI data by David Morris of Global Wealth Allocation in London. That is twice the growth for the rest of Europe, and 80% more than in the US.
The FT reported last week that Spanish and Italian commercial property markets have virtually collapsed with only three property transactions registered in Spain during the second quarter, down from 58 deals in the previous quarter. In Italy just two buildings were traded during the period, down from 56, according to data from Real Capital Analytics.
The total value of transactions for offices, shops and industrial property in Spain was €67m for the second quarter, down 74% from €260m in the first quarter. The inactivity meant Spanish property transactions were below those of neighbouring Portugal for the first time.
Tuesday, July 10, 2012
There is little appetite for change in Ireland despite the crash.
University College Dublin has published research on governance systems and the content below is my contribution to a thread on the issue in the Irish Economy blog:
A culture changes very slowly and issues such as reform are not a priority in a conservative society.
Process is boring and cannot match the level of interest when there are perceived nefarious foreign forces to blame. We love to talk but the record of running things is poor.
The level of transparency is also very poor; the available useful data on public spending is primitive and conflict of interest remains a strange concept in Ireland.
RTÉ, Ireland's State broadcaster, sees no problem in board members pitching for work to former colleagues: "It would not be in the interest of any public broadcaster, nor the public, for independent producers of experience and skill . . . to be either barred from board service or, if appointed to a board, to be barred from seeking to maintain their business and livelihood by being disallowed from competing for programme commissions."
When it was disclosed in 2010 by The Irish Independent that the wife of Eamonn Gilmore, Labour Party leader, had sold a two-and-a-half acre site in Galway for €525,000 to the Department of Education, a LP spokesperson said: "She is a private citizen and it is her money, not his."
The planning tribunal wound up after 15 years, lawyers became multimillionaires and the corrupt land-rezoning system remains untouched.
Changing the power balance in the Oireachtas would help over coming decades but the main interest of members will remain at the parish-pump level for the foreseeable future.
Research resources have been improved in recent years, TDs have been given additional staff (more opportunities for family jobs) but there is no evidence of improvement in teh standard of output. 37,397 Parliamentary Questions (PQs) were tabled in 2011 and Dáil Éireann registered second highest out of 18 Parliaments. The Irish figure is approximately three times the average number of questions tabled of 12,515.
As for civil servants standing up to ministers, again unlikely to happen and there are specialists in the area of science in enterprise agencies and in the Enterprise Department, but it doesn't seem to matter.
The enterprise agency heads when they speak in public, it's usually babble supporting the official line.
To borrow from 'The Irish Mind' fairytale, it permeates the 'eco-system.'
How likely is it in UCD that an insider would even question a pet project of a professor that is wasting public funds?
Look no further than the public science budget over 10 years of €23bn to wonder about governance: Oireachtas (houses of parliament) committee members not interested because it's over their heads; university presidents vying for funds but showing no interest in value for money issues; State agencies supporting ministerial delusion that Ireland could clone a Silicon Valley where so many others have failed; tech companies and IBEC welcoming lavish funds and captured journalists dazzled by stories of Facebook, Apple etc.
Monday, July 02, 2012
Irish Economy 2012: Daft.ie reports today that while the average asking price in the capital did fall in Q2 (by 1.2%), taking the first half of the year as a whole, list prices in Dublin fell by less than 1%, compared with a fall of 10% in the second half of 2011.
The following are 2 posts to a thread on Irish house prices on the Irish economy blog.
2) During the bubble, Irish land became the most expensive in Europe partly because of the very low supply.
Farmers on CAP welfare were able to supplement their income by working in construction etc. while via the IFA, the farmers were also able to arrange a shakedown of the State in respect of land for roadbuilding, grabbing almost 25% of the national roadbuilding budget.
In the current market, mortgages approvals were at about a 1968 year low in the first quarter of 2012 while the evidence from auctions shows that cash buyers can get discounts of 25% or more from what are regarded as current official price levels.
What was typical of our ’slightly constitutional’ governance system was a tribunal sitting all through the bubble period, investigating planning corruption, while local poltroons continued to create an artificial scarcity of land for development, in a country that was 4% urbanised.
Has anything really changed? — a corrupt system eventually becomes endemic and every development spawned Sunday morning craw-thumpers, whited sepulchres and many more, seeking to squeeze what they could from the system.
This is from the Irish Independent in May 2000:
The strategic planning guidelines constitute a mandate for continuing urban sprawl which will create an ever expanding metropolis around Dublin at lower density than any comparable urban area in Europe, DKM Economic Consultants warns in its report.
According to Colm McCarthy, of Davy Kelleher McCarthy, the predicted number of new dwellings will require that development occurs over an area more than twice the size contained within the M25 around London, which has a population of eight million.
He maintains that suburban development at six units to the acre would accommodate the required 165,000 dwellings in an area of 118 sq kilometers, or seven miles square.
“The process of urban sprawl around Dublin has already spread throughout north and mid Leinster, beyond even the large area envisaged by the Strategic Planning Guidelines”, he warns. Due to speak at the Irish Homes Builders’ Association convention in Edinburgh this morning, Mr. McCarthy suggests an alternative policy by aggressively zoning and servicing all undeveloped land within ten miles of the city centre for housing and mixed-use development.
2) In 2001, the Irish State agency, the National
Roads Authority (NRA), said in relation to a campaign for an increase in
compensation for land acquired by Compulsory Purchase Order, which was led by
Tom Parlon, then president of the Irish Farmers Association (IFA) that
pronouncements by senior IFA officials, including Parlon, had claimed that:
1) the State, through the actions of local authorities, has no right to appropriate farmland;
2) the compulsory acquisition of farmland for the national roads building programme is unjust, inequitable and seriously damages the livelihood and viability of 8,000 farm families;
3) CPO legislation is outdated and compensation paid to farmers is inadequate;
4) compensation should be paid at development land prices given the intended use of land for road schemes and not at market value for agriculture land
The demands of the farmers were met - - nothing strange in that.
The amount the State was forced to pay out for
land compensation was described as "disturbing" by the head of the National
Roads Authority in 2006.
It accounted for 23% of the cost of roads projects in Ireland, but just 12% in England, 10% in Denmark, 9.4% in Greece and 1% in Iceland. A further 2% of the €18.5bn provided in the Government's Transport 21 for road building over the decade was go to archaeologists.
RTÉ’s Prime Time programme in November 2007 disclosed statistics about the involvement of elected representatives in the land development and property business.
A total of 22% of councillors dealt in or developed land through their day jobs as estate agents, landowners and builders. In Mayo, that figure rose as high as 45%, in Offaly it was 44% and in eight other counties it was 33% or more.
Prime Time found that in Clare, declarations of interest showed that 97% of elected members have no beneficial interest even in their family home. In ten counties, two-thirds or more of the councillors have not declared an interest in the family home.
Economist Jerome Casey, who was editor of the 'Building Industry Bulletin' in a report in 2003, said that site costs accounted for 42.5% of the cost of a house nationwide. Casey said that typically in the mid 1990s, Durkan Brothers sold apartments off O'Connell Street for £35,000 to £40,000 (€44,440 to €50,790) for which the site cost was £5,000. A decade later, both the Irish Council for Social Housing and private house builders were reporting city house site costs at up to 50% of the house price. Outside the cities, site costs amounted to up to 40% of the house price. For the country as a whole, site costs in 2003 were about 42.5% of the house price, an increase of almost 30 percentage points on the pre-boom position. In Dublin that increased to 50%.
In the US land accounted for 20% of the total cost of a house. In Denmark the figure is similar while in Portugal the land factor drops to 15%.
The Irish Times reported in March 2012 that the State spent €30m goodwill payments to landowners for not obstructing agricultural land sales for road projects between 2007 and 2011.
Payments for not obstructing - - shakedown is surely an apt term.
A so-called goodwill payment of €5,000 for every acre of agricultural land sold for road projects was made as part of a deal to ensure farmers co-operated with compulsory land purchases under the second National Development Plan (NDP).
An estimated €30m was added to the €1.4bn cost to the State for land purchase under the second NDP because of the goodwill payment. The fee applied to the purchase of approximately 6,000 acres of land.
Thursday, June 21, 2012
Meanwhile, Irish politicians who have one of the world's best pension schemes, linked to earnings, are presiding over the accelerated death of defined benefit (where there is a guaranteed payout related to earnings) schemes for the minority of private sector workers who have an occupational pension.
The Irish Pensions Board says that 80% of Irish defined benefit schemes are in deficit and it has set new minimum funding standard (MFS) rules which require pension schemes to have enough assets in place to secure pensioner liabilities and other accrued benefits if the scheme were to be wound up.
In 2010, Irish pension funds still held average equity allocations of 50% compared with Netherlands pension funds, which held an average equity allocation of 26% and in Switzerland 30%.
In the UK, average allocations to domestic and non domestic equities fell by 4% (from 47% to 43%) in 2011. In Ireland the current average allocation to equities is 44%, down 6% from last year and down over 20% since 2008 (Finfacts Premium).
Irish pension fund returns May 2012
Meanwhile, the Irish Government has a 40-year plan to reform public pensions that are unfunded but the annual cash cost is heading for €3bn. Read more here.
This week, John McManus, business editor of The Irish Times wrote on plans to hoover up private pension funds that will increase the risks for funds that will struggle to produce returns in teh coming decade.
The following was my comment:
Ireland is among countries where private sector workers face huge falls in pensions income. In the period 2001-10 in the 34 mainly OECD developed countries, real (inflation adjusted) pension fund performance was a paltry 0.1% yearly. Meanwhile, Irish politicians who have one of the world's best pension schemes, linked to earnings, are presiding over the accelerated death of defined benefit (where there is a guaranteed payout related to earnings) schemes for the minority of private sector workers who have an occupational pension.
It has been official policy to keep employer social security low but the politicians have feathered their own pensions nest well and those of public sector staff.
In 2010, Irish pension funds still held average equity allocations of 50% compared with Netherlands pension funds, which held an average equity allocation of 26% and in Switzerland 30%.
Almost 2 weeks after HSBC Bank revealed huge losses on subprime mortgages in the US, Irish bank shares hit an all-time record on Feb 21, 2007. How many well-paid fund managers bet with others savings that the
The Irish free lunch fairytale was going to continue?
Responsibility for semi-State and university pensions was assumed directly under the Financial Measures (Misc. Provisions) Bill which was rushed through the Dáil in just three days in 2009. The National Pensions Reserve Fund is now responsible for these funds and the deficit in the funds exceeded €1bn according to a 2010 response to a Dáil question by the then Minister for Finance, Brian Lenihan.
The university deficits amounted to about €630m led by Trinity College at €315m.
While the majority of Irish private sector workers have no occupational pensions and those who do face the prospect of meagre payouts, it has been an exception in universities for both academic and non-academic staff to retire without additional pensions years allocated.
This is an expensive perk and of course coming from the public treasury, there wasn't much to worry about.
In a report, the Comptroller & Auditor General said additional years had become a feature of pension awards in universities. By way of example, in UCD 78% of staff retiring between October 2007 and September 2008 had years added to their service for pension purposes.
Similar provisions apply in other universities - - Trinity College stated that since 1972, on the basis of custom and practice the award of added years has become a legitimate de facto entitlement under its Master Pension Scheme and that Scheme members were advised that they had been granted added years.
How can a civil servant in a bankrupt state retire at the age of 57 with a lump sum payment of €428,011, a special top-up of €142,670 (for senior civil servants who retire early) and an annual pension of €142,670?
Brian Cowen, former taoiseach, retired at 51 and his ministerial and TD's pensions gives him about €150,000 per year. Cowen also received a tax-free pension lump sum of around €150,000 (three times the value of his TD's pension) and a termination lump sum of around €16,000.
The net cash cost of public pensions (after an employee's normal deductions) was €876m in 2001; €1.4bn in 2006; €2.0bn in 2009 and €2.3bn in 2011 and will rise to €2.7bn in 2015.
I was recently informed that the Irish unit of Atlas Copco, a Swedish multinational, was winding up its existing pension scheme and cutting benefits. I worked in AC for 12 years. The group is in fine shape but it suits under Irish law to claim poverty and screw potential pensioners like me.
So private sector workers who are lucky to have pensions, take a hit while the shortfall in university pensions is borne by the taxpayer and of course that has coincided with academics calling for the burning of bondholders and maybe consequently also some private sector pensions.
Monday, June 04, 2012
An article by Derek Scally, German correspondent of The Irish Times, on Chancellor Merkel, was published on June 02, 2012.
This was my comment:
It's ironic that it was France that pushed Germany to support the creation of the euro as a quid pro quo for support for German unification but despite the euro in existence since 1999, it has not balanced its budget in any year since 1974 and its national debt to GDP (gross domestic product) ratio rose from 22% in 1975 to 90% in 2010. In addition, it has had a trade deficit in every year of the last decade.
France in 2011 had a deficit of €70bn compared with Germany's surplus of €158bn - - only 12% of the latter related to the Eurozone and two-thirds was ex-EU27. In effect, Europe would have been poorer without the global success of Germany's world class companies.
"Did I mention that -- after unification -- the Germans tried (against their will, they had to) more than a decade of massive fiscal stimulus, and subsidization of consumption, starting with well under full employment, and yet with mediocre results? That wasn't long ago," Tyler Cowen, a US economist, commented in 2010. "And yet somehow it is a mystery, or a strange annal in some long book of Dogmengeschichte, that the Germans are not more interested in Keynesian economics."
Despite massive public spending since 1991, GDP per capita in the former East Germany is about 70% of the level in the former Federal Republic. Convergence within Germany or in the Eurozone, is a very long process.
Even if the weakest German regions were to grow a steady 4 percentage points faster than the strongest regions, it would them take more than 45 years to catch up.
In Europe, without checking the facts, commentators and economists can wrongly assume that the Germans are Europe's biggest savers and have no memory of the fact that as recently as 2003, Prof. Hans-Werner Sinn of the Ifo institute, had a book published: 'Ist Deutschland noch zu retten?' (Can Germany Be Saved?) - - Its blurb read:
“Taxes keep rising, the pension and health insurance systems are ailing. More and more companies are going bankrupt or are leaving the country. Unemployment has reached alarming levels. Germany is outperformed by its neighbours. It’s growth rates are in the cellar, and it can’t keep up with Austria, the Netherlands, Britain or France. Germany has become the sick man of Europe. “
The sick man of Europe!
The benefits of reforms with flexible wage agreements were seen during the recession and up to 1.5m people were kept at work with the help of public subsidies. It's not all roses and in the services sector, there are too many on low pay dependent on public top-ups.
In France, President Chirac ventured into the minefield of reform in 1995 but he soon threw in the towel.
The UK's gross debt/GDP ratio is expected to be 88% this year compared with 145% in 1956.
Sir Samuel Brittan, veteran economics columnist of The Financial Times has commented: "The second world war was financed in the UK with a 0.5% bank rate. Why should it be more alarming for governments to get into debt to put people into useful work satisfying human needs than to borrow for guns and tanks whose only aim is to kill other human beings?"
Governments tend to do a lot more these days and a French male typically retires at 59 - say entering the workforce at 24 and living until 80 - - - 45 years of dependency. The French have a social security tax on wages of an average 40% (30% paid by the employer) and no country can now afford cradle to grave 'socialism' - - and in China, unlike France, most people have to purchase health services.
In countries such as France, Spain and Ireland, some groups have disproportionate benefits while young workers maybe lucky to get temporary work. In Ireland, the majority of private sector workers have no occupational pension while public sector workers have pay premia; guaranteed employment and a pensions scheme linked with earnings.
It all adds up and in 2011, the public pay and pensions bill (ex-local authorities) was over €17bn -- compared with €16bn in 2006 -- the peak year of the boom - - and €10bn in 2001. The social protection budget was €8bn in 2001 and €21bn in 2011.
There is need for reform because the global market is no longer Western Europe, US, Canada and Japan.
What is often ignored in Europe is that the growth crisis is not new and pre-dates the euro. Until the bitter truth is faced, the remedies will not match the challenge.
Eurozone countries like Italy, Spain and Greece have had trade deficits with Germany since at least 1980 -- 20 years before the euro launch. The International Monetary Fund (IMF) says the euro is a continuation rather than a structural break and the Fund's statistics show that since 1999, Germany's trade surplus with the rest of the world has grown faster than its surplus with the other Eurozone countries -- and faster still with European nations that have not adopted the euro.
Marco Annunziata, an Italian economist, says that implausible as it sounds, Italian voters have put up with an average youth unemployment rate of 30% for the last 40 years; Spanish voters with a rate of 32%. Italy experienced “strong” economic growth during 1994-2000, with GDP rising at an annual average of 2%. During this boom period, the youth unemployment rate still averaged 33%. In other words, one young person in three was unemployed when the economy was at its strongest. The rate never dropped below 20%.
Spain’s economy grew at an average of 3.6% between 1995 and 2007. During this impressive run, the youth unemployment rate averaged 28%; it was below 20% for just three years, with a “best performance” of 18% in 2006.
In 1994, Spain's total jobless rate was over 24% in 1994, 21% in 1997 and 8% in 2007 and back to 24% in 2012. Italy's jobless rate was higher in 1996 than it is now.
Italy's economy grew at an annual rate of 0.3% in the last decade. Ex-property booms in Spain and Ireland and a credit boom in Greece, there would have been no growth.
Much of UK growth was an illusion powered by public spending and the financial services boom.
Ireland's jobs in the internationally traded goods and services are below the 1999 level. In the period 2000-2007 -- the bubble years -- no jobs were added as employment grew in other sectors by 430,000.
Indigenous trading firms typically export about 35% of output and the sector added 10,000 jobs but the FDI sector lost 10,000 net jobs.
More on the Irish jobless exports surge here:
Reform is a dirty word in many countries in Europe because vested interests rightly fear change.
The World Bank's 'Doing Business 2012' rankings of the ease of doing business in 183 countries puts Greece at 100, behind Yemen and Vietnam and just ahead of Papua New Guinea. This compares with Italy at 87, just behind the former communist ruled Mongolia; Spain is at 44; Portugal at 30 and Ireland at 10.
There can be a case for long-term investment in current times. However, EU funds have supported significant improvements already in Greece, Ireland, Spain and Portugal.
Despite superior infrastructure, inward FDI as a percentage of Greece’s GDP averaged only about 1% from 2004 through 2010, compared with an average of 8.1% in Bulgaria, Turkey and Romania.
A solution will have to be a two-way street.
Monday, May 28, 2012
He said in yesterday's Sunday Independent: "Many of us, passionately pro-European, want to support the European project. We want to vote 'Yes'. We cannot because we are being compelled to vote in a twilight zone."
Stephen Collins, political editor of 'The Irish Times' wrote in April 2011 in reference to people such as Shane Ross who were cheerleaders of the most reckless bankers of the bubble: FitzPatrick of Anglo Irish Bank and Fingleton of Irish Nationwide Building Society: "It is probably no accident that some of the cheerleaders of the boom have now turned into leading prophets of doom. The same reckless, gambling instinct that fuelled admiration for Seán Fitzpatrick also underpins the 'burn the bondholders and damn the consequences' philosophy."
"I sometimes had to act against the preconceived opinions and first impressions of my constituents...I value solid popularity - - the esteem of good men for good actions. I despise the bubble popularity that is won without merit and lost without crime" -- Thomas Hart Benton, US senator of Missouri, 1850.
We are in an age where telling the truth can evoke outrage and it's reported that the Facebook page of Christine Lagarde, IMF chief, was bombarded with 10,000 messages in response to daring to point to extensive tax evasion in Greece.
In Ireland, it's rare for politicians to tell home truths to the public. Public pandering is the default route but is often against the public interest.
Senator Benton took an unpopular stand in his home state saying the "incurability of the evil is the greatest objection to the extension of slavery" to new federal states. A colleague on one occasion pulled a gun on him on the floor of the US Senate.
Uncommon valour is not expected of Irish legislators but they should reflect on the words of Irishman Edmund Burke to the electors of Bristol in 1774:
"You choose a member, indeed; but when you have chosen him, he is not a member of Bristol, but he is a member of Parliament. If the local constituent should have an interest or should form a hasty opinion, evidently opposite to the real good of the rest of the community, the member for that place ought to be as far, as any other, from any endeavour to give it effect."
... finally back to Greece and the truth:
"In a study done last year, the OECD described government-run Greek hospitals as deeply corrupt. It concluded that we could save 30 percent of the costs, which is enormous. The hospitals generated a deficit of €7 billion last year. Imagine what an unbelievably large amount of money we could save by simply introducing computers into hospitals. Until now, there has been far too little control over the purchasing of medications and equipment. In Germany, a stent for heart operations costs about €500. In Greece it costs €2,000 to €2,500. The fault lies with corruption" - - George Papandreou, Greek prime minister, Feb 2010.
Monday, May 21, 2012
Last month, the Department of Finance said that while taxation receipts in 2012 are projected to be just above 2004 levels, the gross voted expenditure of Government Departments and Offices in 2012, at an estimated €56bn, is projected to be 37% above the level it was in 2004, despite the very significant adjustments to both revenues and expenditure since mid-2008.
The Department said [pdf] that while the gap between the State’s revenues and expenditure is clearly on a downward trajectory, it remains at an elevated level and it will need to continue to be addressed by economic and fiscal policy over the coming years.
A report from Davy Stockbrokers [pdf] published on Thursday says the important figure is "net debt," after allowing for assets held by the government, such as the pension fund, and Ireland's favourable net position is often ignored.
Our current Davy forecast is for the debt/GDP ratio to rise to 122% in 2013, a little higher than the official projections for debt to peak at 120%.
Prof John McHale of NUI Galway and chairman of the Irish fiscal council, which is an independent body which issues reports on government budgetary policy.
On the Irish Economy blog, Prof McHale presented a scenario on the outlook to 2020 for the Irish economy.
Michael Hennigan's posts:
I think it would be wiser to focus on real world scenarios rather than metrics for the EU and the markets.
This is comparable with an Excel template for a business plan and the tweaking can produce the desired result but it may not be a realistic one.
The Department of Finance says in its Stability Update last month that while taxation receipts in 2012 are projected to be just above 2004 levels, the gross voted expenditure of Government Departments and Offices in 2012, at an estimated €56bn, "is projected to be 37% above the level it was in 2004, despite the very significant adjustments to both revenues and expenditure since mid-2008."
The DOF projects a fall of €5bn in gross voted expenditure between 2012 and 2015: from where will these cuts come from?
Minister Howlin has touted cuts in the central government paybill by 2015 (note pensions excluded). If 2006 is the benchmark and public staff pensions are included, there will be ZERO savings compared with 2006, the peak year of the boom.
Conall Mac Coille of Davy says a 1% annual shortfall in the nominal GDP to 2015 would add 10% to the gross debt/GDP ratio.
You assume spending rising at half the rate of nominal GDP but there are no reforms to suggest that this outcome is credible.
There is no obvious jobs engine and unemployment will remain very high for years; how realistic is annual capital expenditure of just €3bn in the remainder of the decade?
There is a growing young population coupled an expanding dependent population.
In an internal debate, GNP growth and the debt/GNP ratio should be used even though GNP also reflects MNC accounting manipulations.
We will have 8 years of cuts by the time the ‘fiscal consolidation’ works!
A 40% cut in the public procurement budget — legal firms, DPP contractors, IT contractors, doctors, health insurance payments, severance payments and in respect of pay, that percentage would apply above a threshold for current and former civil servants — should have been introduced in the first year of the crisis.
That would have required ministers in giving up scandalous bonanzas — too much to expect.
Was life that bad in the late 1990s that we could not use it as a base?
During the bubble, the outsize gains in private sector areas were in business sectors where public contracts were available.
The State pays half a billion euros annually to lawyers. Does it have to? Is there such a market demand to justify the current rates?
We need to get real about what can be afforded in order to build a sustainable economy.Ireland: GDP or GNP? Which is the better measure of economic performance?