German reunification and the birth of the euro

Otmar Issing, former ECB and Bundesbank chief economist recalls how he warned against the creation of a  currency union between Eastern and Western Germany at the time of unification. “I must confess that we were totally wrong on the political fundament. We could not imagine early February 1990 that in October, we would have a united country,” he told CNBC in Oct 2010 on the 20th anniversary of reunification:

Simon Kuper, The Financial Times columnist, recently speculated that Margaret Thatcher’s early opposition to German reunification, gave President François Mitterrand an opening to demand Chancellor Helmut Kohl’s agreement to the launch the euro. A year before in 1988, Jacques Delors of France, the European Commission president, had set up a committee of central bankers plus himself as chairman, to explore the issue of a common currency.

In an interview conducted for a journalist's PhD thesis, Germany's longest-serving postwar chancellor said that he would have lost any popular vote on the euro by an overwhelming majority.

"I knew that I could never win a referendum in Germany," he said. "We would have lost a referendum on the introduction of the euro. That's quite clear. I would have lost and by seven to three."

The Daily Telegraph said this month that the interview was conducted by Jens Peter Paul, a German journalist in 2002, the year when the Deutsche Mark was replaced by euro notes and coins, but has only been published now.

In it, Kohl describes adopting the euro as an emblem of the European project, which he said had prevented war on the continent. Born in 1930, Kohl's politics were shaped by his country's history in the 1930s and 1940s; his final years in power were focused on promoting European unity.

In the interview, he said: "If a chancellor is trying to push something through, he must be a man of power. And if he's smart, he knows when the time is ripe. In one case - - the euro - - I was like a dictator ... The euro is a synonym for Europe. Europe, for the first time, has no more war."

As for Mitterrand using the euro as a bargaining chip, a man who could be in both the Résistance and Marshall Pétain’s Vichy government at different times, knew how to play his cards.

However, Kohl, Mikhail Gorbachev, the leader of the Soviet Union and President George H. Bush, were the main players.

Kohl could have delayed the euro project but just 14 months after the rebirth of a united Germany in October 1990, the Maastricht Treaty was signed to give effect to a common currency.

Later, at a summit In Dublin in 1996, President Jacques Chirac wanted the new currency called the écu (not to be confused with ECU — the European currency unit) named after a gold coin minted in 1266 during the reign of Louis IX. However, to the Germans, it sounded like the word cow.

This paper details fraught Franco-German relations prior to the euro’s launch.

So, the French saw the euro containing German economic power but didn’t bargain that both consecutive annual budget deficits since 1974 and annual trade deficits since 2002 would weaken itself.

There was no alternative to reunification but the politics got much more attention than the economic impact. However, taking on this project and the euro was quite a lot. Again, the politics were more important than the economics when it came to the euro.

Kohl was thinking of the political benefit for his CDU party by allowing East Germans to exchange their currency for Deutsche Marks at parity but even firms in the East that could have survived during a period of adjustment, didn’t have a chance.

It’s not uncommon for contemporary politicians to be seen as dwarves compared with perceived giants of the past.

The styles of Angela Merkel, current German chancellor, and Helmut Kohl (1982-1998) are polar opposites. Even so, Kohl did not level with the German people when he was embarking on momentous journeys.

I think it is a bit facile to believe that it would have hugely mattered if Merkel was more candid with the German people  about seeking support for huge transfers to struggling economies.

In Wolfgang Schäuble, she has a powerful finance minster who has no reason to have personal loyalty (even after seizing the party leadership, she refused to nominate him for the German presidency in 2004). They appear to agree on the major issues.

The Eurozone could do with strong leadership in its four biggest members.

But for Dominique Strauss Kahn’s sexual escapades, François Hollande’s political career would have continued to have been a litany of disappointment. He did not get a ministerial job under François Mitterrand, in 1981-95 (there were 2 two-year periods where the right had the majority), nor when the Socialists ran the legislature in 1997-2002. As for Spain, an FT article said last January: “Spaniards often describe their prime minister as a typical Galician – reserved, reluctant to give a clear answer, ever keen to keep his options open. Popular lore has it that when you meet a Galician on a staircase, you never know whether he is going up or down.” Italy’s political crisis continues.

Otmar Issing, the first ECB chief economist, said in 2010 (video above) that in early 1990, he was a member of the council of economic advisers (the so-called ‘wise men’) and the group issued an open letter opposing a West-East German currency union (with parity between both currencies). Issing said all the economic risks they warned about came to pass.

Chancellor Kohl was furious and cut ties between the chancellery and the group.

Merkel is indecisive while Kohl acknowledged acting like a ‘dictator’ in pushing forward the euro project. He certainly seems to be a stubborn person and while it’s not unusual for family to be sacrificed for political ambition, it seems strange to me that a father would maintain an estrangement with his two sons for decades. In 2001, they lost their mother to suicide (she had a rare allergy to sunlight).

In the sweep of history, German reunification will be inextricably linked with the genesis of the euro.

“Reunification is not only one of the underlying causes of the euro crisis, it is also one of the reasons behind our inability to solve it,” Wolfgang Münchau, the FT columnist and a native of Germany, wrote last year. “This is exactly the tragedy of Helmut Kohl: with his great political coup of German unity, he sowed the seeds for the destruction of his greatest political dream of European unity.”

"The hasty reunification cost almost two trillion euros in transfer payments, and it was the greatest example of economic mismanagement in the history of the world. It was a record, which is only now about to be smashed by the euro-disaster. One can hardly be surprised that the (formerly West) Germans, who had to put up with the transfer payments to East Germany (and must still put up with them) want no further transfer union in Europe…Due to the costs of reunification, Germany entered the euro at an inflated exchange rate. The result was that for a whole decade German economic policies concentrated on boosting Germany’s own competitiveness against third parties instead of strengthening the economic performance of the Eurozone as a whole. And that was one of the major causes of the crisis that would come later. 

German and European unification can therefore largely not be reconciled, because they have both turned out badly economically. I believe that future historians will take a critical view of German unification and Kohl’s merits, which is the view today."

Probability of Euro breakup in medium term is very low

I think the probability of a Euro breakup in the medium term is very low. What happens in the longer term after a decade or more, of low growth as Europe adjusts to a lower standard of living than experienced in recent decades, who knows, if we're not dead.

In the medium term, the system would likely be able to handle the departure of a small member, in particular after the July 2012 commitment by Mario Draghi, ECB president, to do "whatever it takes to preserve the euro. And believe me, it will be enough," through unlimited purchases of bonds in the secondary markets; the euro accounts for about 25% of global currency reserves and crucially, the peoples of struggling economies will not rush to re-embrace currencies that were synonymous with gouging by elites, high inflation and poverty.   

Developing economies have cut the share of euros in foreign currency reserves in 2012, reflecting a reaction to Europe’s sovereign debt crisis.

The International Monetary Fund's report on currency reserves held by countries around the world, show that developing economies offloaded some $45bn worth of euros in 2012 and have sold almost $90bn worth of euros since the second quarter of 2011.

The IMF report indicates that the recent downturn in euro holdings marks a break following more than a decade of growth among developing nations. They now hold just a quarter of their foreign currency reserves in euros, a drop from 31% in 2009 and the lowest level in a decade, according to the Financial Times. The dollar has held steady at about 60%.

China would be very reluctant to abandon the euro.

The support of almost three-quarters of Italians for retaining the euro in a post general election poll as reported by Corriere della Sera, at least shows that there is little faith in returning to the lira. Alexis Tsipras, the leader of Greece’s SYRIZA (Coalition of the Radical Left) and maybe the next Greek PM, is not advocating quitting the euro.

Italy is the big risk with gross debt of 127% of GDP (gross domestic product) -- the highest since Mussolini came to power in 1924.

Italy does have a growth crisis having grown an annual average 0.3% of GDP in 2001-2010. However, it has run primary surplus (before debt servicing costs) for many years and its budget deficit is quite small.

Crucially, household debt is under control and while interest on the debt takes 5.5% of GDP, that is half the 1990s ratio.

Italy’s GDP growth of less than 3% in 2011-2010 compares with that of France, with about the same population, by 12%. The gap perfectly reflects the difference in hourly productivity - - stationary in Italy, up by 9% in France. Italy’s disappointing performance was seen in the country as a whole, North and South alike.

In the course of a decade, Italy received foreign direct investment inflows equal to 11% of GDP, compared with 27% in France.

Italy could leave the Euro and have an exports bonanza just like the UK got from the collapse in sterling with its rounding error exports value to China?

Italy's unemployment level is as bad as it was in the mid 1990s and the youth unemployment crisis has been unchanged for 40 years.

So austerity could be ended but what happens then?

While Italy has several global brands and 70% of the workforce are in the service sector, The Economist said in 2011 that unlike Germany, it has run a current-account deficit every year since 1999 and a trade deficit since 2005. Italy may still have the world’s sixth-largest industrial base, but Britain, often portrayed as an industrial weakling, makes and exports more cars than Italy does.

So to the inconvenient truth, Italy’s destiny is mainly in its own hands. Outsiders can only have a limited impact on a dysfunctional system and the resultant stunted economy.

The rulers tend to be old and nepotism is rife in a system where family-owned businesses are significant.

The average age on taking office of Italy’s 12 prime ministers since 1990 was over 62. 

Italy has been electing clowns for decades and at last month it elected a professional clown.

“The big problem of the economy is a society that combines elements of the Indian caste system with that of the medieval guilds,” Enrico Letta, the PD’s (the centre-left Democratic Party) deputy leader told the Guardian in 2011. “Our watchword is social mobility, particularly for the young, who suffer most if people are co-opted into jobs instead of gaining them by fair competition.”

Absent the euro, at least the clowns would have only themselves to blame.

So many problems to handle: The secondary school dropout rates are about 20% in Italy, and 25% in Portugal and Spain. Spain and Portugal have cut the rates from over 30% by reducing education expenses.

Whether it is fast, slow or no adjustment in the face of challenges ahead, there are no guarantees that current European standards of living can be maintained. There are over 7m with mini-jobs in Germany that enable people to earn €400 monthly without any tax deduction. There are 120,000 Germans over 75 years of age, with mini-jobs because of inadequate pensions.

Don’t criticise the Germans because that is what is also ahead for the outsiders in Ireland.

Irish Fever: Myths, Riverdance & Plastic Paddys

The Wall Street Journal on the Irish: Was St. Patrick even Irish? Will drinking green Guinness make you a Plastic Paddy? And can you learn to Riverdance in Converse sneakers?

New York Times -- Irish Soda Buns: Melissa Clark shows how to make an American version of a St. Patrick's Day classic:

Music sales rose in 2012 for the first time in years

Industry report 2013

Apple's Steve Jobs: The Crazy Ones

Steve Jobs narrates the first Think different commercial "Here's to the Crazy Ones". It never aired. Richard Dreyfuss did the voiceover for the original spot that aired. However Steve's is much better 1997.

Albert Einstein, Bob Dylan, Martin Luther King, Jr., Richard Branson, John Lennon (with Yoko Ono), Buckminster Fuller, Thomas Edison, Muhammad Ali, Ted Turner, Maria Callas, Mahatma Gandhi, Amelia Earhart, Alfred Hitchcock, Martha Graham, Jim Henson (with Kermit the Frog), Frank Lloyd Wright and Pablo Picasso.

The young girl at the end is Shaan Sahota

Apple's iPhone 5 v Samsung's Galaxy S3

A Samsung US commercial poking fun at Apple, that would have driven Steve Jobs, Apple's co-founder, nuts if he was alive:

It has been a bad few weeks for Apple which reported flat holiday quarter earnings last month even though it sold 28% more iPhones and 48% more iPads, its two biggest products, than the year ago final quarter of 2011 - -  the firm sold a record 47.8m iPhones in the quarter.

Samsung Electronics of South Korea reported that its quarterly profit  jumped 76%, as its Galaxy smartphones beat Apple's iPhone in each quarter of 2012. Apple's shares are off 33% since hitting an all-time high of $705.07 on September 21 last, just as the iPhone 5 launched in stores and in January, ExxonMobil, the oil giant, reclaimed its crown as the world's most valuable public company. Apple's market value is however back on top and at close of business last Friday, Apple was worth $446bn compared with Exxon's $399bn. Samsung Electronics' market cap on Friday was $196.5bn.

Samsung is estimated to have held 28% of the global smartphone market last year - -  the key growth sector that is also the most profitable -- up from 20% a year earlier, according to IHS iSuppli. Apple's share, meanwhile, just moved up from 20.5% in 2012 from 19% a year earlier.

Bloomberg reports that Apple said last week that the board and management are discussing the return of more money to shareholders, after a proposal by hedge fund manager's Greenlight Capital Inc.’s David Einhorn to pay out more of its $137.1bn in cash and securities, possibly with higher-yielding preferred stock.

Gross margin fell to 39% last year from 45% a year earlier and was caused by the introduction of the iPad mini, other products with higher costs and price cuts for existing products but as competition intensifies. Apple's world premium price will be under relentless pressure.

Almost 20% of China's gross domestic product (GDP) in 2012 was spent on transporting goods. In recent years, high fuel prices, labour costs and road tolls have boosted logistics' costs. This compares with an estimated 13 to 14% in India in 2011; 8.5% in the US; 12.5% in South Korea [pdf]; about 10% in France and 18% in Ireland [pdf].

China's labour costs surged 15 to 20% on average. Fuel prices tripled from that in 2000, while road charges made up one third of the total logistics costs, according to the China Federation of Logistics and Purchasing (CFLP).

The New York Times reports today that Samsung has emerged as a potent challenger to Apple, the top consumer electronics maker. The two companies are the only ones turning profits in the highly competitive mobile phone industry, with Apple taking 72% of the earnings and Samsung the rest.

Yet these two rivals, who have battled in the marketplace and in the courts worldwide, could not be more different. Samsung Electronics, a major part of South Korea’s expansive Samsung Group, makes computer chips and flat-panel displays as well as a wide range of consumer products including refrigerators, washers and dryers, cameras, vacuum cleaners, PCs, printers and TVs.

Where Apple stakes its success on creating new markets and dominating them, as it did with the iPhone and iPad, Samsung invests heavily in studying existing markets and innovating inside them.

The once mighty Sony of Japan, inventor of mobile music and modern television technology, is struggling badly in Samsung's wake.

With Samsung showing success in offering a range of phones at varying prices, Apple is reported to be planning to launch a cheaper iPhone. In the meantime, the main battle is between the iPhone 5 and the Galaxy S3.

The Apple has the same impressive design that it introduced in the Apple 4. Some reviewers have judged the S3 to be more plasticy. However, it is argued that the S3 using Google's Android operating system does a lot more for less money. Apple even changed the power adapter in the iPhone 5 to raise more revenue.

However with its world price, it appears to have made a big miscalculation in particular in Asia.

50 Reasons Why Galaxy S3 Is Better Than iPhone 5

In this video, 50 reasons are detailed as to why the Samsung Galaxy S3 is better than the iPhone 5. The reasons include both hardware and software features that the Galaxy S3 that the iPhone 5 does not (or if it does, it doesn't work as well).

Keep in mind that not everything in high tech works as well in reality compared with the marketing claims.

Samsung Galaxy S3 vs. iPhone 4S Drop Test

Can the Samsung Galaxy S3 pass the drop test against the iPhone 4s?

Global mobile phone sales fell in 2012

William Dalrymple on Afghanistan's first quagmire for the West: 1839-1842

The historian and author of "Return of a King" describes the hasty British takeover of Afghanistan in the 19th century, and the bloody defeat that soon followed

A review in The Daily Telegraph says: "In April 1839 Britain invaded Afghanistan for the first time. When the British Army left in 1842, after first suffering and then avenging its worst military disaster of the 19th century, a contemporary wrote that it was 'a war begun for no wise purpose… Not one benefit, political or military, has been acquired with this war. Our eventual evacuation of the country resembled the retreat of an army defeated.'”

China's rise and the fall of capitalism?

Will China's rise lead to the end of capitalism? Will armies of robots replace the world's workforce? And will China be able to block Facebook and Google forever? Risk expert Ian Bremmer and Dr. Doom, Nouriel Roubini give their 2013 predictions for politics and the economy to Reuters digital editor Chrystia Freeland

Finfacts: Jan 15, 2013: China's remarkable rise and challenges -- Part 1

I was in Guangzhou last week-end. It is the capital of Guangdong province, in the Pearl River delta, north of Hong Kong, which is China's industrial heartland. The province is responsible for about 30% of China's exports.

Irish finance chief says: Tell Germany we will quit euro if no bank debt deal

Conor Killeen, the chief executive and founder of Key Capital, says Ireland's real leverage with the Germans is the currency exit option and default. "And I know that everyone will say 'But we can’t leave. We would be rudderless and a cork on a stormy ocean' etc. But, excuse me, we can most certainly leave. And we should not be afraid or embarrassed to say this. After all, we are the guys who have done everything asked of us. We are the country being reneged on."

This doesn't seem very clever unless we are prepared to actually quit  - - wonder would Key Capital advice its clients to keep its euros in Ireland for conversion to punts.

Colm McCarthy, the economist, opened a thread on the Irish Economy site on the issue:

These are 2 of my contributions:

Post 1:

There was a guy on Thursday called John Boehner who got his old job back and broke down in tears.

He had reason to as he and his fellow gang members haven’t been very good at hostage taking. They have had a record since 1995 but have usually caved-in, ending up shooting themselves in the feet.

John Boehner was re-elected as Speaker of the US Congress Thursday. His friends in The Wall Street Journal said:

“We’ll support efforts to cut spending and reform entitlements, but the political result will be far worse if Republicans start this fight only to cave in the end. You can’t take a hostage you aren’t prepared to shoot. Do the two GOP leaders have a better strategy today than they did in 2011, and do they have the backbench support to execute it?”

So the key missing ingredient in Conor Killeen’s argument is that it’s obvious that Ireland is not prepared for an exit from the euro. Would the threat to leave the euro have credibility and what would be the consequences of the threat even if wasn’t serious? After all, in terms of project management and decisions made in haste (Sept 2008?), the record isn’t good. It took 49 years to build a motorway from Dublin to Cork!

Wonder how the exit or threat of it, could be managed in a panic situation!

Like so many proposals made in recent years, there is the luxury of not having to consider the downsides.

We cannot generate sustainable jobs ourselves to maintain an advanced country standard of living.

Newt Gingrich, the architect of Grand Old Duke of York US fiascos in 1995 and 1996 cautioned this week:

“They’ve got to find, in the House, a totally new strategy. Everybody’s now talking about, ‘Oh, here comes the debt ceiling.’ I think that’s, frankly, a dead loser. Because in the end, you know it’s gonna happen. The whole national financial system is going to come in to Washington and on television, and say: ‘Oh my God, this will be a gigantic heart attack, the entire economy of the world will collapse. You guys will be held responsible.’ And they’ll cave.”

Killeen says:

"Regaining our national self-esteem or reaffirming our sovereignty is not optional. It is necessary.

The point is, all things being equal, we will have to default without a deal on our bank recap debt. Therefore, best accept this and accelerate the discussion to generate the best outcome for Ireland.

As soon as we get serious about planning an exit, chaos will break out in many markets."  

Self-esteem and sovereignty are relative terms when most of the new FDI jobs in the past decade have been in the foreign-controlled financial services sector.

Even if 40% is chopped off the value of exports to discount for MNC tax strategies, indigenous exports would still only account for 20% of the total!

Post 2:

Let's not forget that the State bank guarantee was issued on the day of Anglo's financial year end to effectively save it. Just over 4 months later in Jan 2009, when it was decided to nationalise the bank, Ireland had ZERO leverage with Europe, having unilaterally disarmed on Sept 30, 2008.

It is of course more than a trivial issue that during the bubble, none among the local denizens of finance had the cojones to publicly address the sartorial shortcomings of the little emperors and NCB Stockbrokers, Conor Killeen's old firm, housed some of the most ardent devotees of demographic fetishism, who provided the theological underpinning to the then famed Maestros of Merrion Street. 

Jean-Baptiste Say (1767-1832), a businessman who was the first professor of political economy in France, and who is said to have coined the word entrepreneur ('l'entrepreneur d'industrie'), is identified with the claim that supply creates its own demand. However the short-run and the long-run should of course be distinguished and Colm McCarthy pointed out in 2008 that: "If rapid population growth were the key to economic prosperity, sub-Saharan Africa rather than East Asia would be the current Wirtschaftswunder."

What is extraordinary is the enduring surrealism in the debate on the national economy.

We have ministers being deluded by spin: last year the minister for finance opined that growth would take off 'like a rocket' when an international recovery takes hold (are there fools forecasting rocket growth in Europe and the US?) and this week, the deputy prime minister dabbled in  astrology  predicting "enormous potential for growth to our economy" in 2014 when "the political and economic landscape will alter radically."

Then its easy to be fooled by those huge 'exports' that Google and others magic up for us.

Here are headlines from Friday: Surging exports spur Irish services on in December - PMI (Reuters); Services buoyed by surging exports (Irish Times); Surging exports spur Irish services on in December - NCB (RTÉ); Services activity remained strong in December -- with some help from tax strategies (Finfacts)

Colm McCarthy made some other perceptive comments in 2008 which should be used to counter the growth fantasies of Noonan, Gilmore and their echoes in the media, universities and so on:

"Some well-heeled friends of mine held a pre-Christmas bash to mark the passing of the Tiger, which had been kind to them, but I think they were about six years late. Between 1994 and 2000, Ireland's real GNP rose by more than six per cent every single year. But since then, the rate of GNP growth has exceeded six per cent only once, in 2006. That was the year we (unfortunately) built 88,000 houses, an unsustainable figure which artificially boosted the growth rate.

On this reading, the true Celtic-Tiger period ended about 2001, since which time the economy has been operating around a more modest growth rate of four to five per cent, with excessive reliance on a credit-fuelled housing sector. The growth rate will be nowhere near this figure in 2008, and the return of the eight and even 10 per cent GNP growth rates of the mid- to late 1990s is a pipe dream."

Adam Davidson in the NYT today concludes a story on the prospects for the US economy:

"The story of this recovery may be unusually opaque, but the brightest forecasts are built less on a return to old consumption levels than on, for example, fracking. And that’s not necessarily a bad thing. There was so much bubbly growth in houses, cars and appliances during the mid-2000s, that it’s hard to see how any kind of return to those levels would lead to a healthy economy. The best thing we could hope for, paradoxically, is a return to 1999."

http://nyti.ms/W1E2qK

Worst tech ideas, flops in 2012 - - Video

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)

Best Rough Cuts of the Year 2012 - - Video

From amateur and security camera footage to images shot by professional journalists, here is a look at some of the most incredible video of 2012 from around the world - - Reuters.

2013: The global economy may surprise on the upside or may not! - - Video

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.

Annual Gun Deaths: Japan 2; US 32,300

In the wake of the Sandy Hook school massacre, legislators have returned to the debate over gun rights. Adam Winkler, a professor of constitutional law at UCLA and author of "Gun Fight," breaks down the myths surrounding the Second Amendment and the history of gun control in the US:

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.

See chart of trend from 1953.

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.

Apple's top Apps of 2012 including Ireland and the App lottery

Choose an App Store top 10 chart:  by country, free, paid, and category

Choose the Top 100 with Google Maps in the current lead among free apps

iPhone 5 leads Time Magazine's Top 10 gadgets of 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.

How the US Lost Out on iPhone Work

As Boom Lures App Creators, Tough Part Is Making a Living

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.

The West's pre-2008 economic world will not return; No plain sailing for emerging economies

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.

Part 2

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 President 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.

Irish Austerity: Many critics but few if any alternatives proposed

Herbert Hoover, US president (1929-1933), came up with the term ‘depression’ because it was more soothing than panic or bust. The term ‘austerity’ wasn’t promoted by a marketing type.

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).

Lionel Messi breaks goals scored in year record in 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.

"Life of Pi" unplugged: A test of animals & actors

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.

Ireland Unemployment: 188,000 unemployed continuously for 12 months or more in Oct 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.

Modern work……

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%:

http://www.nytimes.com/2012/11/18/business/as-boom-lures-app-creators-tough-part-is-making-a-living.html

Irish average earnings fell to €35,905 in 2011

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.

Irish Economy: Average annual earnings at €35,905 in 2011

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.

Irish Economy 2012: Howlin lauds sham cost savings in Croke Park public service agreement

EU-comparison of labour costs and non-wage costs

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

Eurostat: Wages and labour costs

Irish Economy: All solutions are not in Brussels, Frankfurt or Berlin

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]

Ireland: Howlin -- Minister for Status Quo - - gives up on reform

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..

“What crisis?”

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?

Ireland: How long will economic turmoil last?

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.

Spain and the allure of returning to the peseta

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.