Last Sunday, just about this time, as we were enjoying the last few innocent hours of the weekend, little did we know that as we were preparing to sleep soundly, deep in the bowels of the Irish Times a truly shocking piece of economic analysis was being printed. The piece was written by Morgan Kelly, Professor of Economics at UCD Dublin and one of the very few economists in Ireland or indeed anywhere to have come out of the crisis with increased credibility. He correctly predicted the scope and scale of the property collapse in Ireland and shortly thereafter called the banking crisis equally correctly, unfortunately.
As we slept soundly in our beds this Apocalypse was hitting the printing presses. If we did not lose sleep last Sunday, we certainly did last Monday. While I agree with much of his analysis, I don't agree with all of his conclusions, many of which are political guesses and out of the reach of most mortal men. Professor Kelly makes the assumption that politicians may act like economists, and that is a big assumption. My guess is that the politicians are putting a brave face on the current chaos. They have no more a clue than we do, but they feel it would be uncaring to admit this in public. Modern finance, and indeed ancient finance, is built on confidence. Right now there is very little confidence, so when they tell you they what is going to happen in five years time they are mad or lying or both. Most politicians would do well to guess what might happen by Christmas. If a week is a long time in politics...
I do agree with Morgan Kelly. We are wtihin a few weeks of losing financial Independence. Morgan believes we have passed the tipping point. I don't. We can turn things round if....the Irish politicians can find a way of working together and seeing the awful budget of December passed. The opposition may think that by opposing the budget they will box cleverly. There will almost certainly be a new Government within six months although the composition is not likely to feature a Labour/Fine Gael coalition who cannot even agree the day of the week or time of day. But the new Government of whatever hue will be but the sub office of the IMF and the European Central Bank.
Many in Ireland are so close to capitulation that they are suggesting this might even be a qualified 'good idea'. Having the IMF in your sitting room is like your parents dying and being brought up by well meaning but stern foster parents who have every chance of killing the child in an attempt to make him better.
International financial intervention is a recent science and is where medicine was about two hundred years ago when the received wisdom was to blood let - to purify the body of impurities by bleeding the patient almost to death. I do not welcome the advent of the IMF, not because they are bad but because they are mad.
When I went to school in the simple monochromatic fifties and sixties in Dublin, all of Irish history was depicted as an eight hundred year struggle to gain independcne from the British. This often flawed and simplistic account at least saw the benefits of British culture, our roads, railways, towns, literature, music and so on.
What will the IMF bring to Ireland?
Answers on a post card.
We have to regain the upper hand.
We have to be in a position where de don't need to go back to the bond market for two or three years.
Banking has always been that impossible science of lending only to people who really don't need it. We need to show that we don't need to borrow.
Like a spendthrift husband we need to cut our expenditure to match our income and live with the consequences.
Then we will have economic freedom and pride. The consequence may be that we cannot pay back some loans ontime as previously expected - but these can be renegotiated.
You know the story - it is very difficult to get a new loan from the Bank Manager when your track record is lousy, it is much easier to hold the loan you have and send a note of apology. What you have, you hold. Possession is, after all, nine points of the law.
We shall see.
Friday, November 12, 2010
Why the recession may not be all bad news.
By way of Introduction
This recession is not all sweetness and light.
I do not wish to be insensitive to
- those who have lost their jobs
- those who fear for their jobs
- those in fear of losing their homes
- those who are forced to emigrate or whose loved ones are forced to emigrate
- those middle class who are struggling to put bread on the table
- those who are dependant on benefits that will be reducing
- those in the third world who are suffering more than ever
- those who were formerly rich of whom the majority were and are decent.
I am conscious that we are at but the start of a long, probably permanent and painful period of change and that we are unlikely to ever know the same level of material comfort. I hope to suggest that it need not be all bad, keeping in mind St. Paul who famously said - 'primum vivere, deinde philosophare' - 'we must live first and then philosophise' - Maslow would no doubt agree...:
1. The accelerating rate of consumption in the world was simply unsustainable. An exhausted world would soon have to give up trying to sustain a population of currently 6.9 Billion souls and growing at 6m babies every month. By reducing the size of our meals, more can feed at the table.
2. Looking through my wardrobe I find clothes never worn, my library contains over three hundred books of which less than 50% have been read, our garden hut is full of bikes no longer used, furniture that is surplus.
3. The developed world has too many houses and shops and offices and books and shoes and CD’s.
4. The underdeveloped world has too few.
5. We were running out of a raison d’être – just how many cars can we drive?
6. People at the top of organizations were getting paid one hundred times the wages of the people at the bottom. A scale of more than five times is madness. No human being's economic contribution is worth a hundred times another's.
7. Wealth was being transferred from the people who created it, from entrepreneurs, and from the workers to grossly overpaid hedge fund managers who created nothing and bank traders who created even less.
8. Families are learning to save for Christmas, for furniture and for holidays. The joy of saving and anticipating is greater than the unconscious spending of the noughties.
9. Children are being spared from over indulgence that was leaving them morally and economically incompetent.
10. We are rediscovering the joys of entertaining modestly at home where the food is often better, the wine cheaper and the welcome warmer.
11. We are more compassionate - realizing that our hold on wealth and health is but by a slim thread.
12. We are spared the nonsense of discussing house prices and our neighbors’ third skiing trip.
13. We are back looking for value and rewarding those who maintained price sanity in good times and in bad.
14. The joy of sharing has been rediscovered, a shared car trip into town, a summer home lent out, a pasta meal handed over a garden wall…
15. Our eyes have been opened to the fact that ‘nobody knows..’ not the Church, not the Government, not the economists. We realize that our ‘certainties’ divide us as humans while our doubts unite us.
16. We think twice about that trip to Cork, or London and the fuel it will use. We go on fewer trips that are more meaningful.
17. Driving speeds have dropped, at least in our area. We have the luxury of making a decision over a day when before it had to be in an hour.
18. We have discovered music channels on the radio and history channels on the TV and have turned off the incessant chat shows that take calls from unhappy people.
19. We have rediscovered that all the best things in life are free – peace, joy, love, forgiveness, birdsong, sunset and daffodils.
20. We have learned to be grateful for what we have got and to count our many blessings.