26/9/2013: Framing Budget 2014: Village Magazine September 2013

This is an unedited version of my column in the Village Magazine, August-September 2013


With early Budget looming on the horizon, the circus of the 'austerity is overdone' politics has rolled into town. The Labour and the FG backbenchers are out in force trying desperately to salvage the little popular support they still might command in the streets. Not to be outdone, Fiana Fail, freshly converted into the Church of Socialistas has been unleashing torrents of newly-discovered social consciousness. Things are getting so hot on the anti-austerian' speaking circuit that Siptu was able to get even Jack O'Connor a gig. Their star performer was last seen thundering at the MacGill Summer School a potent brew of outlandishly misinformed comparatives between the European and the American policies for dealing with the Great Recession and calls on the imaginary Government to… no prizes for guessing… end 'human rights-violating' austerity.

Problem is, once you come back from all of the highs of this Keynesian Lollapalooza, Irish Government continues to run an insolvent state with spending not matched to revenues and with the expenditure programmes outcomes not matched to the needs of the society at large. Delivering neither fiscal sustainability, nor growth, nor value for money, our fiscal house is grossly out of shape five years into various reforms. Worse, the fiscal mess we are in has nothing to do with the lack of economic growth and everything to do with the policy institutions that the current Government inherited from the decades of political clientelism presided over by its predecessors.


Let us look at some numbers.

In the first six months of 2013, Irish State has managed to spend EUR27.12 billion on current expenditure, just EUR352 million shy of the level of spending in the same period of 2012 and EUR3.2 billion more than we spent in the six months through June 2011. Meanwhile, tax revenues rose from EUR15.3 billion in January-June 2011 to EUR17.6 billion this year. Crunchy austerity based on savage cuts, five years in still looks more like a tax squeeze and spending re-allocation from one programme to another.

Meanwhile, Department of Health spending is now running at EUR6,539 million for H1 2013, down on EUR6,754 million in H1 2011 - a whooping reduction of EUR215 million. Do keep in mind that 2011-2012 increases in the cost of beds charged to the private insurers (aka to ordinary insurance purchasers) have more than offset the above reductions in spending. Net current (ex-capital) spending on health has shrunk by just EUR128 million over the last two years.

The Department of Health is a great example to consider when dealing with the failure of our reforms. It is a frontline service by definition - the one we all are willing to pay for. Yet, it is also a symbolic dividing line between the poor (allegedly having no access to the services) and the rich (allegedly all those who hold health insurance and as 'private' patients overpopulate public wards preventing the poor from getting necessary hospital beds). Healthcare was also an epicenter of rounds of reforms over decades, including the decades of rapid economic growth and prosperity. And it is one of the two largest departments by voted spending, with budget only slightly behind the EUR6.545 billion spend in H1 2013 at the Department of Social Protection.

For this spending we - the middle classes and other payers - get little value for money in services. Over 35% of Irish households have to purchase private insurance to access any meaningful level of health services. In case you still rest in the camp of those who believes that such purchases of insurance are purely voluntary and constitute luxury, Irish Government is considering making health insurance purchasing purely obligatory.

Even with this expenditure, access to basic, quality of life-improving procedures and healthcare maintenance is shambolic. While run of the mill emergencies are getting reasonably decent attention, complex and time-sensitive treatments are wanting. Thus, Ireland ranks at or below the European averages in treatment of majority of chronic and long-term diseases, before we control for differences in population demographics. Our primary care and access to specialist consultants is pathetic outside the emergency rooms and hospitals' ICUs. Despite seeing the fastest rise in the healthcare expenditure per capita over 1997-2007 period in the entire EU27, per EU assessment, Irish healthcare expenditure increases have made only "a modest contribution to [improved mortality], substantially less than one third of the total, and possibly only a few percentage points".

In reality, of course, Irish healthcare is run for the benefit of Irish healthcare staff. In 2005-2007 pay and salary bill for HSE stood at an average 50.7% of the entire HSE non-capital budget. In 2009 it was 50.1%. In 2010, Irish salaries (excluding other income) for medical specialists were the highest in the EU, with the second highest paid cohort of physicians (in the Netherlands) coming at an average salary discount of roughly 25% relative to their Irish counterparts. These salaries were not inclusive of the Irish doctors earnings from private patients.

Per EU 2012 assessment, 33% of Irish people find access to hospitals unaffordable (8th highest in EU27) and the same find access to GP out of their financial reach (4th highest in EU27), while 53% claim that they cannot afford medical or surgical specialists (8th highest).

This is hardly surprising. Between December 2005 and mid-2012, Irish consumer price inflation (CPI) on cumulative basis has hit 9.5%. Health CPI over the same period totalled 21.4% - more than double the rate of overall inflation. Of EU15 states, Ireland and Holland were the only states where health costs were rising faster than general inflation in the last 7 years. 2005-2011 inflation run at 47.3% in Hospital services (state-controlled charges), followed by dental services 28.6%, Out-patient services 23.5% and Doctors' fees at 21.3%. This inflation took place from the already high cost base present in Ireland at the end of 2005.

By international comparisons, from 2005 through mid-2012 Ireland had the lowest rate of inflation in the EU15, while our health services inflation was the second highest after the Netherlands.

Austerity, it seems, has been a boom-time for healthcare costs. Or put differently, while the rest of the world defines efficiency-improving reforms as changes in delivery of services that reduces the cost of services given fixed or improving quality of delivery, in Ireland we define efficiency gains as providing fewer services at a higher cost.

Despite this, in Irish media and policy circles, assessment of healthcare systems performance starts and ends with the comparatives on public spending levels. Good example of such assessment was the 2010 report to the Oireachtast, titled "Benchmarking Ireland’s Health System". A foreigner reading this report can easily conclude that (a) Irish healthcare is run on a shoestring, (b) achieves great outcomes in terms of reduced rates of prevalence of and mortality from key diseases, and (c.) is delivered to the middle class and the rich, bypassing the poor.

In reality, of course, the inequality of access to Irish healthcare system means that the middle and upper-middle classes are required to buy expensive insurance to gain access to health services. Our achievements in combatting key diseases are primarily driven by our younger (and thus healthier) demographics.

And when it comes to access, only 17.2% of all non-maternity related hospitals admissions in 2011 (the latest for which we have data) were for private patients, with the balance going to public patients. On average, people on private insurance had 2.4-2.6 visits to GP in 2007-2010, while those on medical cards had 5.3-5.2. In 2012, the rich-favouring distribution of access to Irish healthcare so often decried by the media and politicians meant that 39% of population or just under 1.8 million people had access to medical cards, more than the number of private health insurance holders.

Health spending represents the case where we have at least some indications and metrics concerning the inefficiency of services provision. In contrast, in other major areas of state expenditure, there is no basis for efficiency assessments and none are being developed.

Irish welfare system is absurdly complicated, and unbalanced - providing potentially excessive services for able-bodied adults on long-term dependency and insufficient services for adults in temporary need of supports and to people with severe disabilities. Related services - in particular in the areas of skills development and training, placement supports for the unemployed - are glaringly out of touch with reality of the labour market demands. Over the last five years, Irish economy produced ever-increasing shortages of skills in several areas, most notably internationally-traded ICT services, financial services, and back- and front- office support services. Yet Irish system of unemployment supports, planned by Forfas and managed by Fas/Solace, failed to reflect these long-term trends. By the time state training behemoths turn around to face the music, the demands for skills will change again.


Irish state spending - with or without austerity - is a rich sprinkling of waste over a thin layer of substance. And it remains such in the face of five years of boisterous pro-reform rhetoric.
Irish austerity has failed, so much we can all agree on. But the real failure is not in cutting spending too much, but in failing to deliver any real gains in efficiency of public services provision or quality of these services. And it failed in containing the costs of the State, especially if we are to use long term sustainability as the benchmark for assessing the reforms.

The likes of Jack O'Connor and Fiana Fail ‘Nua’ might have discovered a magic trick for conjuring economic growth out of public spending, but reality is that the actual working population is by now sick and tired of being taxed to fund the perpetuation of the public sector mess, best exemplified by our healthcare.

26/9/2013: Sunday Times 15/9/2013: What About Irish Competitiveness?

This is an unedited version of my Sunday Times column from September 15.


Recent experiments in psychology have shown that people routinely distort their interpretation of objective evidence to fit their subjective political beliefs. More ominously, our propensity to ideologically colour evidence appears to be greater the better we are with data analysis.

This ability of humankind to see data through the tinted glasses of our biases is present all around us, including in the interpretation of economic data.
Take two examples.

Recently, the relatively ideology-free World Economic Forum published its annual report on global economic competitiveness rankings for 2013-2014. According to the report, Ireland now ranks 28th in the world in terms of competitiveness, down one place on a year ago. Back in 2005-2006 – at the height of the boom, and amidst rampant business costs inflation, we ranked 21st. Overall, Ireland's global competitiveness has deteriorated by 7 places over the last ten years, with this year's performance just one notch better than the absolute nadir reached in 2011. A more ideologically-informed Heritage Foundation / WSJ Index of Economic Freedom continues to rank Ireland highly in the 13th place in the world in 2013. However, tinted lasses aside, our overall competitiveness score in the latter index declined from around 82-83 in 2006-2009 to below 76 this year.

Meanwhile, Irish political and business elites continue to brag about the remarkable gains in the country competitiveness, brought about by the policies enacted since the beginning of the crisis or at the very least, by the reforms that took place since the last elections. Almost 6 months ago, seemingly unburdened by evidence, Taoiseach Enda Kenny has declared that the government is "making this the best small country in the world to do business in…" Never mind that Ireland ranks outside the top 10 countries in the world in every reasonably comprehensive and objective rankings produced so far. And never mind that our rankings have deteriorated, rather than improved, since the onset of the crisis. The government will still spin the evidence.

The truth, of course, is somewhere in between the two extremes of the opinion.

One core measure of competitiveness is the labour-related cost of the unit of output in the economy, the so-called unit labour costs (ULCs). Based on the ECB data, we  achieved substantial gains in this measure, with ULCs falling 18 percent peak-to-trough. However, since the trough was reached in Q2 2012, Ireland’s performance has deteriorated. In 2009-2010, Irish unit labour costs fell by over 7 percent compared to 2008. The rate of cost deflation declined to 2.4 percent over 2011-2012. So far, since the start of 2013, the ULCs are rising. This exposes the underlying causes of changes in the ULCs over the crisis period. Much of the recent gains in labour competitiveness were driven by a dramatic rate of jobs destruction back in 2009-2011. As the jobs market stabilised, competitiveness gains vanished.  Exactly the same story is being told by the broader harmonised competitiveness indicators published by the Central Bank of Ireland.

However, the data also shows that the key driver for the deterioration in our cost competitiveness in more recent months is government policy.

As the result of our non-meritocratic approach to labour markets, lack of reforms in core areas relating to business development and entrepreneurship, the use of tax policies to fund wasteful bank crisis resolution measures and public spending, Ireland finds itself in an absurd situation where we rank 12th in the world in capacity to attract talent and 40th in capacity to retain the talent we attract. As our openness to FDI is bringing scores of talented workers into the country, our internal markets policies are pushing talent out of the country. Having had their fill of "the best small country in the world to do business in", globally skilled workers tend to get out of Ireland.

As the result of our inability to keep key skills and talent in the country, labour costs are starting to creep up, even before we see serious uptick in new employment. In 2009-2010, according to the OECD,  labour costs accounted for 74 percent of the total inputs costs in production in Ireland. In 2011, the latest for which we have data, this rose above 77 percent. Labour productivity growth, having peaked with unemployment increases in 2009 has fallen back by almost two thirds by 2012.

The latest data from CSO shows that average hourly earnings are now up in eight out of thirteen sub-sectors year on year through H1 2013. Crucially, in the areas under direct Government control, earnings are now rising once again and at speeds exceeding those recorded for the overall economy. Public sector average weekly earnings were up 1.3 percent year on year in Q2 2013 and non-commercial semi-state earnings are up 2.7 percent.

With every new report, the IMF reiterates its advice to the Irish authorities to continue focusing on labour markets reforms. Despite this, the Government staunchly refuses to address the main factors holding back our labour competitiveness. These are flexibility of wage determination (with Ireland ranked 103rd globally), flexibility in hiring and firing (we rank 43rd here) and linking pay to productivity, especially in the public sector (our rank is 38th worldwide). According to the WEF, Ireland ranks 90th in the world in terms of the effect of taxation on incentives to work.


So labour competitiveness improvements of the past are neither a credit to the Government reforms, nor appear to be sustainable over time. Now, lets take a look at other policies-linked metrics.

World Economic Forum report lists the top 5 factors acting to depress our global competitiveness scores. In order of decreasing importance these are: access to financing, inefficient government bureaucracy, inadequate supply of infrastructure, insufficient capacity to innovate, and tax rates. The first two come under direct remit of public reforms aimed at dealing with the crisis. The fourth one, capacity to innovate, is linked a myriad of incentives and subsidies crafted by Irish governments in an attempt to shift the economy away from bricks and mortar toward innovation and exports. The third and the last factors arise from the Government policies since 2008 that saw higher tax burdens and shrinking public capital investment become the drivers of the state response to the fiscal crisis. Thus, by WEF metrics, Irish Government is responsible for dragging down Irish economy's competitiveness, rather than pushing it up.

These findings are broadly in line with the Heritage/WSJ index readings, which shows that we score poorly on Government policies, fiscal performance, and public spending efficiency.
Despite years of austerity and alleged reforms in public sector management since 2008, the WEF report ranks us 55th in the world in terms of wastefulness of government spending, and 29th in terms of burden of government regulation. When it comes to the transparency of Government policymaking, Ireland ranks below 24 other countries around the globe. The latter is a metric directly targeted by the Troika-led reforms and the one where the Irish Government has, allegedly, done most work to-date. We have revamped banks regulation and reporting, significantly altered macroeconomic risk monitoring, fiscal policies oversight, economic policy development mechanisms and more. Yet for all our successes in this arena, we are not even in top 20 worldwide when it comes to policies transparency.

Another obvious flash point of the crisis was the lack of robust audit and oversight over the operations of our banks and some companies. One would expect that 5 years into dealing with the crisis, Ireland would have delivered some serious improvements in these areas. Alas, we still rank 58th in the world in terms of the strength of our audit and reporting standards. In a business oversight metric, the World Bank Doing Business report ranks Ireland 63rd in the world in terms of the  enforcement of contracts, with average time to resolve a dispute of 650 days in Ireland, against 510 days for the OECD average.  As a legacy of the protected sectors inefficiencies, our legal system imposes average costs of 26.9 percent of the total volume of dispute-related claims on contracted parties, against the OECD average of 20.1 percent.

The current Government came into office with a clear promise to reform domestic sectors to breath in more competition into protected markets. This has not happened to-date. State-controlled sectors, such as professional services, health insurance and health services, energy, transport, education, and so on, remain shielded from real competition. As the result, Ireland ranks 42nd in the world in intensity of local competition, and 24th in effectiveness of anti-monopoly policies, even though much of this effectiveness comes via Brussels. Property regulations, planning and permissions systems are as atavistic as they were before the bust, meaning that the World Bank ranks Ireland 106th in the world when it comes to dealing with construction permits.


Ireland’s performance on the competitiveness side is worrying. In the long-run competitiveness metrics and rankings – imperfect as they may be – help global investors allocate capital investment and productive activities of their companies around the world. Even more significantly, these metrics expose structural problems in the economy and governance systems that are holding back Irish domestic entrepreneurship and innovation.

As economies and fiscal positions of governments around the world improve over time, the competition for FDI and new markets for goods and services exports will heat up, once again. Downward pressure on taxes – Ireland’s core competitive advantage to-date – will re-accelerate too. At the same time, capital investment will remain scarce and costly, while skills shortages worldwide will once again start driving up cost of doing business, including here. This means that global investment flows will tend to be concentrated on the markets with the greatest demand growth potential, and where the profit margins are the highest. The only way Ireland will be able to compete is by becoming a competitiveness haven for product innovation and development, advanced specialist manufacturing, distribution, marketing and sales. Being just a tax haven will not be enough.

Box-out:

A financial transaction tax (FTT) on derivatives trades came into power in Italy this week, as a follow on to March 2013 introduction of the FTT on equity transactions. Per new law, derivatives will be taxed at rates that vary with the volume and the type of the contracts traded. Equities transactions are taxed at 0.12% for shares traded on a regulated exchange or 0.22% for over the counter trades. Six months in, the FTT is having an effect. As a number of analysts, including myself have warned prior to the introduction of the tax, Italian trading volumes for equities are down significantly, compared to the rest of Europe. Since March, Italian equity market turnover dropped to EUR50 billion from EUR101 billion a year ago. French equity markets experienced exactly the same effect post FTT introduction. At the peak in 2011, French equity market accounted for 23 percent of the European equity markets turnover. Today, it is at around 13 percent. There is also some evidence that wealthier investors are moving their transactions out of FTT-impacted equity markets. Which means that more burden of the levy – popularly mislabeled as 'Robin Hood' tax – is falling onto the shoulders of smaller investors. Falling trading volumes are now expected to undercut significantly Italian and French estimates for the Government revenues that FTT was expected to raise. With projected funding already allocated in the budgets, any shortfall will have to be compensated for via other taxes or cuts elsewhere. Yet, undeterred by the evidence, the EU continues to press on for a cross-border FTT. John Maynard Keynes once said: "When my information changes, I alter my conclusions." Sadly, his otherwise enthusiastic students in Brussels have missed that lesson.

26/9/2013: Irish Residential Property Prices: August 2013

Residential Property prices Index for Ireland is out today, showing strong gains in property prices in Dublin.

Y/y August 2013 residential property prices increased by 2.8% nationally. This compares with an increase of 2.3% in July and a decrease of 11.8% recorded in the twelve months to August 2012. That is a reasonable number, ahead of inflation rate, which is natural given the contraction in the market experienced so far.

However, several sub-trends are worth noting.

• Residential property prices grew by 0.9% in the month of August. This compares with an increase of 1.2% recorded in July and 1.3% growth in June. Which implies that the rate of growth has slowed down through August. Seasonality is a factor here. 
• Annual rate of growth is still rising: from 1.23% in June, to 2.31% in July to 2.76% in August. This means we have: rising rate of growth and three consecutive months of growth. Last time we had three consecutive months of growth was back in 3 months through January 2008.
• 3mo MA for all properties index is at 66.33 in August, which is the best reading since March 2012. Over the last 3 months property prices rose cumulative 3.4% and over the last 6 months they are up 4.04%
• August reading is the highest level since January-February 2012, although prices are still down 48.66% on peak.

The above is illustrated in Chart below:

Now, absent other sub-trends, we can be tempted to call a turnaround in the prices at this stage. With two caution notes: (a) this still is subject to adverse risks from the mortgages arrears side, and (b) the above turnaround only applies to Dublin.


Next positive bit: the uptick in the overall index was co-driven by the Houses prices (as opposed to Apartments). Houses prices are more indicative of long-term demand, rather than of short-term lettings demand closer linked to Apartments.

• Houses price index rose 0.87% m/m and was up 2.65% y/y in August. August annual rate of increase was faster than July (2.06%) and June (0.89%) and marks the third consecutive annual rise. 
• 3mo MA is now at the levels last seen around March 2012 and the overall index itself is at the levels of January-February 2012. Prices are still down 47.12% on peak.

Chart to illustrate:

Apartments prices have been moving sideways doe the last 8 months, bouncing around 49.5 mean. August reading was weak but slightly up at 50.0.


The core driver for overall RPPI is Dublin:

• Dublin residential properties prices rose 10.55% y/y in August marking 8th consecutive month of increases. 
• 3mo MA is at 61.93, the best level since December 2011 and the index itself is at the levels of October 2011.
• These are solid gains and Dublin market appears to be in full turnaround, although prices are still down 52.86% on peak. Most of these gains was driven by houses, not apartments.

Chart to illustrate:

In brief: 

• Good news is prices are growing broadly in-line with inflation plus modest recovery in values. 
• Further good news, Dublin prices are converging up toward national levels - something that should have happened ages ago. 
• More good news: prices outside of Dublin are slowly correcting down, declining 2.6% y/y in August. 
• I think we can call turnaround in prices to be sustained for Dublin and getting closer to showing sustained upward dynamics for national level prices. Prices for Apartments and prices for properties outside of Dublin are still in declining or flat mode. 
• Headwinds and risks remain on the side of mortgages crisis resolution and income dynamics.

26/9/2013: Even with Hopium injections, we are not that far from Greece...

Irish Fiscal Council paper "The Government’s Balance Sheet after the Crisis: A Comprehensive Perspective" authored by Sebastian Barnes and Diarmaid Smyth is an interesting read.

The paper sets out a strong promise: "While discussion often focuses around the debt-to-GDP ratio as referenced by the EU Stability and Growth Pact, the reality is far more complex. This paper takes a comprehensive look at the Government’s balance sheet following the financial crisis. This involves assessing assets and liabilities of the General Government sector, off-balance sheet contingent and implicit liabilities as well as the wider public sector."

Alas, the side of the assets equation is a bit wanting...

While it is good to see the broader approach taken by the authors to the problem of fiscal sustainability of public finances in Ireland, too often, broadening of the coverage of the crisis-impacted sovereign balance sheet slips into the stream of extolling the riches of state-owned assets, whitewashing the liabilities using imaginary assets. The paper does not do this. Which is good. However, the paper is still creating loads of confusion because it provides no clear tabulation of the assets and the way they are accounted for in the analysis.

Instead of a concise tabulation, assets analysis is presented in two parts, both overlapping. This makes it nearly impossible to disentangle what the authors include where and to what specific value.

Let's start from the top:

Per authors: "General Government financial liabilities have increased four-fold since 2007, reaching €208 billion (127 per cent of GDP) in 2012. Over this period, Ireland experienced the largest increase in the debt-to-GDP ratio of any Euro Area country." Yep. Nothing controversial here.

"The Government has substantial holdings of financial assets. These increased modestly over the same period to reach €73 billion (45 per cent of GDP) in 2012. The main assets are cash balances, holdings of semi-state entities and investments in the banking sector."

Now, that's a bit of a statement, in my opinion, open to questions.

Firstly, it creates an impression that most of the assets Government has are liquid. Not so, in my view.

Secondly, it creates an impression that the Government has a functional power to seize these assets. Also a bit of stretch in my view.

Thirdly, is suggests that even if individually liquid and recoverable, these assets can be sold in the market or used as collateral in the case of distress. Again, not something I would agree with.

The authors conclude that "The Government’s net financial assets (NFA), subtracting financial liabilities from financial  assets, gives a broader measure of the financial position of government. NFA have  declined from a position of balance in 2007 to a net liability of €135 billion (82 per cent of GDP) in 2012. Using this broader measure, the Irish government was the third most indebted country in the Euro Area in 2012 (as a share of GDP)."

I am not so sure that EUR73 billion is the real number we should be using in computing Government net financial position. My gut feeling is that we are lucky if we can count EUR50 billion in somewhat liquid and accessible funds. And even then we are at a stretch. With that, our Government's net financial assets position rises to a  deficit of 95-96% of GDP and this means that we are now challenging Greece to the Euro area's title of the second most-indebted country. And that is before Greece Bailout 3.0 which will probably result in some sort of a debt write down for the Greeks (see here:http://english.capital.gr/News.asp?id=1877516) even if small.


Here are some details on my sceptical assessment. The paper lists the following Government 'assets' (comments outside quotation marks are obviously mine):

(A.) Shares and Other Equity. "This broad asset category was valued at €24 billion. It includes: (1) the value of semi-state assets, including the equity of General Government in the Central Bank; (2) a portion of the NPRF; and (3) other equity
holdings." (1) is at least in part imaginary. The valuations of semi state companies are 'hoped for' and are not tested in the market. They also do not account fully for the shortfalls in pension funds and the knock on effects to any purchaser of equity in these companies from the role these pension funds play in running the companies' strategies. They also ignore the fact that with transfer of ownership, the semi-states are unlikely to continue enjoy state protection of their dominant market positions. All in, (1) covers EUR12 billion of semi-states equity, plus EUR2 billion of balances in the Central Bank - of which, my guesstimate is, no more than EUR5-6 billion is recoverable. The authors state clearly that "Considerable uncertainty, however,surrounds the value of these assets." per CB reserves, these are euro system money and I wonder how much of this even technically belongs to the Irish state. (2) covers NPRF-held equities and banks shares. Equities component is small, with total EUR9 billion in NPRF 'assets' accounted for mostly by banks shares (excluding preference shares). National Accounts assign EUR11 billion to the total Government holdings of banks assets. These valuations are off the mark, in my view, as the only value of the banks (ex-Bank of Ireland) today is the value of capital injected into them, net the losses they will sustain on mortgages. The rest is awash on revenue side v cost side. At any rate, these assets are not exactly liquid and if released into the market in any appreciable quantity will cause severe dilution of their value. All-in, say EUR9-10 billion of this 'stuff' is a hoped-for value in any scenario of sovereign distress.

Bit (3) above: 'Other equity holdings' "valued at approximately €3 billion. This includes the value of direct holdings of bank equity by the Exchequer, investments in the insurance sector and capital contributions to the European Stability Mechanism." Seriously? We'd get a rebate on ESM contributions? Insurance sector 'investments'? Shave off some EUR1 billion here for a dose of realism.

(B.) Currency and deposits. "The Government holds a substantial amount of relatively liquid  assets, which are managed by the NTMA. These were valued at €24 billion at end-2012. This figure includes cash balances held by the Exchequer (€18 billion), local government (€1.4 billion) and cash balances held by other Government bodies(such as the NPRF)." Can the Government expropriate the funds belonging to local authorities? Legally and actually? Can the Government capture all balances held by the Government bodies? May be. May be not. Surely it depends on contractual obligations of these bodies and the nature of assets? So suppose that EUR2.4 billion of the above is not subject to capture/recovery.

(C.) Amongst gloriously liquid Irish Government 'assets' the paper (and it is accepted methodology, I must say, which of course doesn't mean it makes any sense beyond purely theoretical exercise) list: "Loans and Other Assets(such as Accounts Receivable). This category was valued at €15 billion and includes a broad range of assets, namely loans from the Housing Finance Authority (HFA)(€4 billion), other Government loans,tax accrual adjustments (mainly VAT and PAYE (€3 billion) and a range of smaller assets such as collaterals, EU transfers and mobile spectrum receipts." Good luck, as one might say, selling these or pledging them as a collateral. The entire notion that all of these assets have the stated face value in the market is questionable. That they might have a stated value in an environment of distress sufficient enough to warrant their seizure is plain bonkers.

And so on… The point is that a claim that EUR73 billion represents assets that can be used to fund any shortfall in Irish Government funding or that they provide any yield that is NOT accounted for on the balance sheet already (remember, current debt is driven by deficits and these are driven by operating costs and revenues of the Government, which in turn are accounting for all asset yields that currently accrue from all of the above assets) is a bit of a stretch and double-counting.

In light of this 'net liabilities' discussion, we need to see some serious, detailed, models-based liquidity and legal title risks analysis of the assets that (a) in total amount to EUR73 billion and (b) amount to EUR45 billion that remains unaccountable in the paper in any appreciable details.


But never mind - on the net, the paper is very useful and worth a read. Here are two little gems (I will blog on rest later):

Ouch! You don't need to be a nuclear scientist to spot the problem above…

The true value of the above is that it shows clearly that even on the 'net liabilities' basis, with all the hopium injected into valuations of assets, Ireland is not that much different from Greece... Have a nice day, ya all...

26/9/2013: Fiscal Council Estimates of the Promissory Note Deal

So the Irish Fiscal Council published tonight "The Government’s Balance Sheet after the Crisis: A Comprehensive Perspective" paper authored by Sebastian Barnes and Diarmaid Smyth. 

The paper is good, interesting, but as always (not a criticism) is open to interpretations, questions and debate. One criticism - it is hard to wade through double-counting and incomplete reporting of the Government assets and charts nomenclature does not appear to correspond to the one used in the text. One simple table listing all assets with the estimated value attached and a column outlining core risks to valuations involved would have saved the authors pages and pages of poorly constructed material.

Overall, however, it is good to see the broader approach taken by the authors to the problem of fiscal sustainability of public finances in Ireland. We rarely observe such. And I will be blogging on this later.

But the very interesting bit relates to the final official estimates of the Promissory Notes deal. Keep in mind, here's my on-the-record estimate of the net benefit from the deal in the range of 4.5-6.3 billion euros over 40 years horizon with most of this accruing earlier on in the life span of the deal. Here's the record (see box-out at the end of the article: http://trueeconomics.blogspot.ie/2013/03/2332013-sunday-times-10032013.html).

So here are the Fiscal Council estimates:

Mid-range minimum sales of bonds scenario: net savings of EUR 5-7 billion. Accelerated sales scenario: mid-range estimate of EUR 2-3 billion. Base Case for Euribor+150 and Euribor +250 at minimum levels of sales of bonds: EUR4 billion and EUR7 billion. The difference to my estimate is immaterial since I am looking at a longer time horizon for my estimates than the model used by the Fiscal Council does.

Reminder - some other estimates of the net present value of the savings from the deal run into 19 billion euros… ahem!..

I am looking forward to studying the spreadsheet with the model included which the FC is promising to make available on their website.

25/9/2013: Planning Permissions, Ireland, Q2 2013 and H1 2013

Q2 data for Planning Permissions Granted in Ireland is out today and on the surface it offers some good news reading.

Per CSO: In the second quarter of 2013, planning permissions were granted for 1,926 dwelling units, compared with 1,406 units for the same period in 2012, an increase of 37.0%.

In addition:

• Planning Permissions were granted for 1,496 houses in the Q2 2013 an increase of 28.3% y/y.
• Planning permissions were granted for 430 apartment units, an increase of 79.2% y/y. 
• The total number of planning permissions granted for all developments was 3,368. This compares with 3,672 in the second quarter of 2012, a decrease of 8.3% y/y. 
• Total floor area planned was 834 thousand square metres in the second quarter of 2013. Of this, 39.9% was for new dwellings, 39.7% for other new constructions and 20.4% for extensions. The total floor area planned increased by 1.2% in comparison with the same quarter in 2012. 

Some encouraging signs up there… although if you think the crisis is over, here's a handy chart from CSO:

The above, as CSO notes, puts things into perspective: we are starting from exceptionally low levels, so even a small uptick translates into large percentage changes. Still, I am happy to spot an improvement.

Now, let's take a closer look. I am dealing from here on with permissions issued, not units covered by these permissions.

• Total number of planning permissions was down at 3,368 in Q2 2013, a decline of 8.28% y/y. In Q1 2013 there was a decline of 2.76% y/y, so rate of decline increased from the beginning of the year.
• Total number of planning permissions in H1 2013 stood at 6,643 - down 5.64% y/y.
• Total number of new permissions for dwellings granted in Q2 2013 was 772, which is down 18.05% y/y, which compares to 9.93% drop recorded in Q1 2013.
• Total number of planning permissions for dwellings in H1 2013 stood at 1,634 - down massive 13.95% y/y.
• Total number of new permissions for other new construction (ex-dwellings) granted in Q2 2013 was 754, which is down 8.94% y/y, which compares to a rise of 12.95% recorded in Q1 2013.
• Total number of planning permissions for other new construction (ex-dwellings) in H1 2013 stood at 1,539 - up barely noticeable 1.05% y/y. At least these series were up.
• Total number of permissions for extensions granted in Q2 2013 was 1,489, which is down 3.87% y/y, which compares to a decline of 3.21% recorded in Q1 2013.
• Total number of planning permissions for extensions in H1 2013 stood at 2,785 - down 3.57% y/y.
• Total number of permissions for alterations, conversions and renovations granted in Q2 2013 was 353, which is unchanged y/y, and compares to a decline of 11.94% recorded in Q1 2013.
• Total number of planning permissions for ACRs in H1 2013 stood at 685 - down 6.16% y/y.

So in terms of actual permissions issued: we have a bit of a soggy outcome: nothing is up, everything is down y/y… Declines have accelerated in Q2 compared to Q1 in four out of five categories; and H1 figures are very poor for all, but one category. In terms of units approved: we have a decent uptick. I would suggest we use caution and see if the activity picks up from here on.

Three charts to illustrate:

24/9/2013: Public Health, and Legal v Illegal Drugs...

In light of the Government push for stricter tobacco regulations while happily cheering the Arthur Day and providing support for the drink celebrations across the country, here's an interesting 2010 study (full citation at the bottom of the post) of the effects of various drugs in terms of causing various types of individual (user) and common (social) harm. Note: I have no objection to the idea that taken in moderation, alcohol is hardly harmful to anyone involved. Then again, I have possibly an objection as to what constitutes moderation in the case of Arthur Day level of booze consumption in Ireland…

Background: "Proper assessment of the harms caused by the misuse of drugs can inform policy makers in health, policing, and social care. We aimed to apply multi-criteria decision analysis (MCDA) modelling to a range of drug harms in the UK."

Method: "Members of the Independent Scientific Committee on Drugs, including two invited specialists, met in a 1-day interactive workshop to score 20 drugs on 16 criteria: nine related to the harms that a drug produces in the individual and seven to the harms to others. Drugs were scored out of 100 points, and the criteria were weighted to indicate their relative importance."

Findings: "MCDA modelling showed that heroin, crack cocaine, and metamfetamine were the most harmful drugs to individuals (part scores 34, 37, and 32, respectively), whereas alcohol, heroin, and crack cocaine were the most harmful to others (46, 21, and 17, respectively). Overall, alcohol was the most harmful drug (overall harm score 72), with heroin (55) and crack cocaine (54) in second and third places."

Interpretation: "These findings lend support to previous work assessing drug harms, and show how the improved scoring and weighting approach of MCDA increases the differentiation between the most and least harmful drugs. However, the findings correlate poorly with present UK drug classification, which is not based simply on considerations of harm."

And here are some charts (you can click on each chart to open a larger image)

Methodological tree used in assessment:

Overall results along two main branches of the methodological tree:

Two-dimensional positioning of the two main branches scores:

Lastly, all 16 criteria mapped:

As I quipped on twitter earlier this week, maybe before introducing plain packaging laws for tobacco products we should introduce blank labels for alcohol too? After all, if restricting the former is about public and personal health, restricting the latter at least as much would make sense. Not that I subscribe to the idea that the former is any good of a policy tool... just pointing the inherent contradiction in Government's strategies to deliver improvements in public health...


Study link: http://www.thelancet.com/journals/lancet/article/PIIS0140-6736(10)61462-6/abstract

Citation: Nutt, David J, King, Leslie A and Phillips, Lawrence D. (2010) Drug harms in the UK: a multicriteria decision analysis. The Lancet, 376 (9752). pp. 1558-1565. ISSN 0140-6736

Note: I wrote about research on links between alcohol and mortality here (see bottom of the post).

23/9/2013: A summary of changes in the Irish GDP: 1970-2012

Summary of the changes in Irish GDP composition over 1970-2012 period (all in current market prices terms):

I marked in red bold those components that perform at their worst historical comparative in 2010-2012 period and in green bold those that perform at their historical best, as per their contributions to GDP.

Notable aspects of the above table:

1. The 'greedy decade' of the 2000s was actually distinguished by the lowest share of the economy accruing to personal consumption of goods and services - the Range Rovers of South Dublin didn't really cause the bust, folk...
2. Government spending rose, as a share of economy, in 2010s compared to 2000s and reached above the levels recorded in the 1990s, albeit still below the disastrous years of the 1980s.
3. Gross fixed capital formation has been demolished in the 2010s by the crisis, although its peak during the excesses of the 2000s was still lower than in the 1970s.
4. Exports of goods and services outstripped imports of goods and services, resulting in the net exports hitting their peak in the 2010s. Some 46 percent of our net external trade went out of the window as profits expatriated by the MNCs (and that is after we also account for profits on-shored into Ireland by Irish companies and investors).
5. Oh, and the fabled EU subsidies - well, these have been drained (note, these subsidies are reflected here gross, without accounting for EU taxes paid).

23/9/2013: Everyone is doing more of the same, alongside German voters

And here we have it, folks: Germany votes for status quo, markets seem to be voting for the same...

Meanwhile, ECB is promising to do nothing new in larger quantities, should markets decide to follow Merkel in repeating more of the past...

23/9/2013: Sunday Times 08/09/2013: Irish Demographic Dividend Reversal

This is an unedited version of my Sunday Times article from September 8, 2013.


Back in the heady days of the Celtic Tiger, Irish economics commentariat and banks experts were extolling the virtues of Ireland's 'demographic dividend'.  A confluence of high birth rates, declining mortality and robust inward migration was propelling Ireland toward perpetually rising population counts. With these, the argument went, Ireland faced the ever-lasting expansion of domestic demand and labour supply.

Less than a decade later, the dividend has all but vanished in the maelstrom of rampant emigration. More ominously, as the latest trends suggest emigration is now reaching well beyond the traditionally at-risk sub-categories of the recent newcomers to Ireland and the long-term unemployed. Instead, outflows of professionals and middle-class families are now also on the rise.


Cutting across this nirvana of consensus permeating the Irish society around 2004-2006, few dared to suggest that something major was amiss in the aforementioned theory. Yet, the risks to Ireland's 'demographic dividend' were visible even at the time of the boom. At the peak of the Celtic Tiger and since the beginning of the Great Recession, I wrote about them in Irish media, including in these very pages. The first threat to our long-term population trends even in 2004-2006 period related to the risk of a structural economic slowdown. The second one came from the demographic ageing of the core European states and the resulting inevitable rise in wages premium for younger workers in these economies.

With the onset of the Great Recession, increased job markets uncertainty and declining disposable incomes have acted to boost Ireland’s birth rates, seemingly supporting the argument of some analysts that the demographic dividend was still alive and well then. In 1995-2007, there were 56,423 annual births on average in the Republic. In 2008-2009 average annual number of births stood at 74,183. Changes in the incentives for having children offered by the Great Recession were clearly the factor pushing fertility up. Alas, the latest data covering the twelve months through April 2013 shows that this process is now exhausted with 2013 births counts down 8.7 percent on 2010 peak.

Offsetting the initial rise in births, the Great Recession pushed Ireland back into becoming a net emigration nation once again, for the first time since 1995. Data published by the CSO last week shows that in 12 months through April 2013, total of 89,000 people have left the country. This is the highest number since the records started in 1987. There was a small increase in immigration driven primarily by importation of specialist foreign workers by the booming ICT and IFSC sectors, plus the return of students working on 1 and 2-year visas abroad. Despite this, 2013 marks the fourth consecutive year of net emigration.

Current rates of emigration are running ahead of the 1987-1995 period average. Back then, net emigration from Ireland averaged 14,811 per annum. Over the last four years, the average net outflow of people from this country stood at 30,600 annually.

The twin squeeze of declining birth rates and strong net emigration has resulted in 2013 posting the weakest overall population changes in 23 years. In 12 months through April 2013, Irish population grew estimated 7,700 - one seventh of the annual average for the 1991-2007 period. This brings us dangerously close to a rerun of the 1980s-styled demographic collapse when Irish population actually declined in three years through 1990.

Truth be told, we are probably caught in this 'back to the future' demographic warp already.

Our official statistics show inflow of 29,400 immigrants, excluding the returning Irish nationals and the immigrants from the Accession states, in the 12 months through April 2013. Majority of these are likely to be foreign workers brought into the country temporarily by the MNCs. Moreover, the current CSO estimates are based on PPS numbers, foreign visas issuance, as well as household surveys. These methods are potentially underestimating the numbers of those Irish nationals who have left the country, but still have close family remaining here. Last, but not least, our data is probably also underestimating outflows of the EU12 Accession states’ nationals.

Controlling for the above factors, it is highly likely that we are already experiencing a reversal of the ‘demographic dividend’ and the onset of the zero-to-negative population growth in Ireland since 2011. This has meant that our population today is some 436,000 below where it would have been if the trend established between 2000 and 2007 were to continue.


Ireland's emigration flows and population changes by age and nationality are retracing the structural collapse of our economy: the story of our paralysed and polarised society burdened by debts, taxes, unemployment, lack of opportunities for career advancement and fear for the future.

From 2010 through 2013, the numbers of Irish nationals opting to leave the country net of those returning from abroad have been rising steadily. The net outflow of Irish nationals more than tripled between 2010 and 2013. If between 2006 and 2008, some 32,100 more Irish people returned home than left Ireland, over the subsequent 5 years, 90,700 more Irish people emigrated from the island than moved here.

In addition to the above, there are some new undertones that are emerging in the data over the last two years.

Official data on population breakdown by age groups shows that the bulk of population declines over the crisis in Ireland took place in the 15-29 year olds cohorts. However, since 2011, the 30-39 year olds cohort is also posting declining numbers. These age-related trends are now pushing us toward twin age dependency scenario where the numbers of old age-dependent residents and young age-dependents peak at the same time. Top productivity cohorts - ages 34-54 - grew by 124,000 since 2007, while old and young age dependents cohorts are up 203,600 over the same period of time. Working age cohorts (20 years of age through 64 years of age) accounted for 62.4 percent of Irish population in 2007. This year the ratio is 59.7 percent.

Compared against the age distribution of the unemployment, the latest trends suggest that jobs losses are no longer the sole drivers of emigration. Instead, it appears that emigration is increasingly afflicting those groups of population that are generally more secure in their jobs. The potential reasons for this are household debt overhang and lack of promotional opportunities open to the younger workers here.

While the numbers of emigrants between 15 and 24 years of age remained basically unchanged over 2011-2013 period, the numbers of emigrants between 25 and 44 years of age rose by a third. With this, there was a corresponding rise in families relocating abroad.

With banks starting to move more aggressively against distressed borrowers, these sub-trends are likely to strengthen over time.

Economic and social losses arising from debt crisis are also likely to increase as migrants due to debt and/or career considerations are more likely to carry with them above average skills, productivity and earning potential. In addition, these migrants are less likely to return to Ireland, especially if the debt they leave behind remains on the record against their names.


The impact of the current wave of emigration on our society and economy is likely to be more long lasting than that of the previous emigration waves. This conjecture is supported by a number of considerations.

Today’s emigrants are conditioned by their education, past employment experiences and social values systems to accept the mobile nature of their future careers. In other words, having left Ireland they are unlikely to look back at their homeland as a natural home. Increasingly, Irish emigrants are setting their sights on geographies that are more remote from Ireland than the UK and continental Europe. This puts more stress on their ties to Ireland. The latest data showing that emigrants to countries like Australia, New Zealand and Canada tend to show lower returns in recent years. In addition, debt legacy will hold many of them back from returning to Ireland in the future. Age-related considerations with further reinforce this effect, with many emigrants in their mid-30s and 40s today facing a prospect of never again being able to secure a mortgage in Ireland were they to attempt a comeback. Lastly, a major factor in today’s emigration from Ireland is that it involves greater proportion of emigrants who enter their host destinations legally, thus increasing their chances at future naturalisation.

Overall, CSO data confirms the above observations, as fewer and fewer Irish nationals are today returning back home.


Far from being a solution to our economic woes or a temporary safety valve for the economy saddled with high levels of unemployment, current wave of emigration from Ireland is undermining the prospects of economic recovery here. More crucially, by removing more politically and socially disenchanted and activist younger people and families, the emigration is acting to mute the voices of dissent here. With them, the raison d’etre for the robust political, social and economic changes is slipping away too.

BOX-OUT:

Markit-Investec Purchasing Manager Indices for Irish Manufacturing and Services have both posted significant gains in August, compared to July. August PMI for Manufacturing came in at 52.0, showing the fastest pace of economic activity growth for the sector since November 2012. Meanwhile, Services PMI reading of 61.6 was the highest since February 2007. Both indices are subject to significant distortions from the multinational companies based here. However, Services PMI is subject to more severe skews due to the tax arbitrage activities by companies operating in international financial services, ICT services and auxiliary business support services. Nonetheless, caveats aside, the latest data strongly suggests that Ireland has moved out of the triple-dip recession in Q3 2013 and will post growth in GDP for the three months through September. Aside from this, however, the PMIs continue to signal relative weakness in the domestic sectors compared to exports and employment growth signals have weakened in both sectors of the economy. Finally, additional good news were signaled by the improved profit margins in Services, now third month running and marking the first sustained upward momentum in profits in five years. This, however, was not the case in Manufacturing, where input costs rose against basically unchanged output prices.

22/9/2013: Relative v Absolute Income: What Matters to Our Well-Being?

A very important paper by Sacks, Daniel W. and Stevenson, Betsey and Wolfers, Justin, The New Stylized Facts About Income and Subjective Well-Being (January 23, 2013, CESifo Working Paper Series No. 4067. http://ssrn.com/abstract=2205621). Note: emphasis in bold is mine

On foot of decades-long research that "asks people how happy or satisfied they are with their lives", "much of the early research concluded that the role of income in determining well-being was limited, and that only income relative to others was related to well-being".

This is the so-called relative income hypothesis that also engendered a strand of social policy research relating to relative income poverty.

"In this paper, [the authors] review the evidence to assess the importance of absolute and relative income in determining well-being. Our research suggests that"
1) absolute income plays a major role in determining well-being and
2) national comparisons offer little evidence to support theories of relative income and
3) the data show no evidence for a satiation point above which income and well-being are no longer related.

Authors "find that well-being rises with income, whether we compare people in a single country and year, whether we look across countries, or whether we look at economic growth for a given country. Through these comparisons we show that richer people report higher well-being than poorer people; that people in richer countries, on average, experience greater well-being than people in poorer countries; and that economic growth and growth in well-being are clearly related.

Crucial finding is that recent data rejects the so-called Easterlin Paradox: "Easterlin (1974), …asked “Does economic growth improve the human lot?” He answered: it does not. He began by showing that, relative to poor people, rich people within a country report greater well-being, as measured by self-reported happiness, life satisfaction, and related concepts. No-one disputes this observation… His argument was straightforward. If only absolute income matters, then when everyone gets richer, everyone’s well-being should rise. But if only relative income matters, then when everyone gets richer, no one’s well-being should rise, since no one gets richer relative to the average."

Here is the striking conclusion of the authors: "But is Easterlin correct? The accumulation of data over recent decades shows that Easterlin’s Paradox was based on empirical claims which are simply false. In fact rich countries enjoy substantially higher subjective well-being than poor countries, and as countries get richer, their citizens experience ever more well-being. What’s more, the quantitative relationship between income and well-being is about the same, whether we look across people, across countries, or at a single country as it grows richer. This fact turns Easterlin’s argument on its head: if the difference in well-being between rich and poor countries is about the same as the difference in well-being between rich and poor people, then it must be that absolute income is the dominant factor determining well-being."

Basic illustration of the above across countries:

Basic illustration across and within countries:

This is a paper that challenges the fundamentals of our understanding of the relationship between income, happiness, income inequality and absolute v relative poverty.


Note: I wrote about the related paper here: http://trueeconomics.blogspot.ie/2013/05/452013-higher-income-vs-higher.html

22/9/2013: WLASze Part 2: Weekend Links on Arts, Sciences and Zero Economics

This the second part of WLASze: Weekend Links on Arts, Sciences and zero economics (part 1 is linked here). Enjoy!


Financial crises tend to have profound and long-run impacts on the societies they visit. This much should be pretty clear to the readers of this blog (from economics side of my musings). However, no man is an island and, thus, no art is an island either… What about financial crises impact on arts? Did gloom-n-doom of the Great Depression result in the darkening abstraction in arts, ultimately leading to the emergence of urbanist photography and design, as well as early abstract expressionism? Motherwell's Spanish Republic studies (http://www.moma.org/collection/object.php?object_id=79007) as culmination of darkness and pain?

Or Kline's torn dynamism?

Although all of these post-date the war, they are hardly infused by the giddy optimism of the 1950s and experimentation of the 1960s, instead carrying the pre-Vietnam fear and memory of the past, foreboding the replay of the previously experienced or at least a threat instead of foretelling a new era…Or more immediate deepening of German expressionism? The sombre consolidation of Bauhaus outside Weimar?

Enough of the argument here… Instead, back to the current events. Here's an interesting post based on Franco “Bifo” Berardi talk at Pratt Institute on his book The Uprising: Poetry and Finance, "which considers poetry as a salve in the wake of the international financial crisis. Or, as reviewer David Cunningham puts it now in considering the book for the UK’s Radical Philosophy journal, the book “posits a parallel between ‘the deterritorialization effect’ which has, on the one hand, ‘separated words from their semiotic referents’ and, on the other, separated ‘money from economic goods.’” Read and judge for yourself:
http://www.poetryfoundation.org/harriet/2012/11/audio-now-online-from-franco-berardi-talk-on-the-uprising-on-poetry-and-finance/?woo


On a brighter side of things, crises teach us (or attempt to teach us) to distill things more to the basics, to the necessary, striking out the superfluous. This can be a torturous process, but it can also be a path to beauty. Modern Japanese architecture, having faced the demons of severe constraints, often shows the emergence of angels of beauty out of the challenge of pushing organic spaces into contained sites. Two brilliant examples:

http://www.dezeen.com/2013/09/16/house-in-fujizakura-by-case-design-studio/
Cool, tranquil, beautiful and, yet, too individualistic for being inhabitable - a shell for a hermit crab of sorts…

And via deezen.com another example - this one a perfect balance of view, space, light and yet jigsawed into a challenging site…

http://www.dezeen.com/2013/09/11/alley-house-by-apollo-architects-associates/

There is a fundamental difference between 'compressed' European architecture and Japanese architecture. This difference arises from two distinct drivers for challenges of space. In European context, some (not all) of the spacial challenge rests on the basis of desire to appear to be 'environmentally conscious' - in other words, we often tend to build rural houses on micro scale to pretend that this 'helps the environment'. This gives our small rural houses architecture a forced, fake dimension. In the case of Japan, physical space constraints generate organic, unforced, organic effort to design spaces on intimate scale. End result, even urban architecture in Japan is often truly a balance of space, design, liveability, tradition and subtle, even modest distinction.


The testaments to the 'fake' constraints in the Western World are abandoned spaces - which in my view (aside from presenting a challenge as to why we need severe spatial constraints of design in the firs place) carry almost intrinsic artistic beauty in and by themselves. I wrote about this before in previous WLASze posts… so here are few more links documenting abandonment:
http://www.boredpanda.com/abandoned-places/

H/T for the above to @nicolematthews1

and more: http://blogof.francescomugnai.com/2013/01/30-of-the-most-beautiful-abandoned-places-and-modern-ruins-ive-ever-seen/


Abandonment is no threat, however to the greats of European art. Grand Palais in Paris is hosting the first in 40 years retrospective of George Braque. To me, Braque is ahead of the other great, associated closely with him - Picasso, especially in the context of defining fauvism and cubism.
http://www.france24.com/en/20130920-rare-braque-exhibition-opens-grand-palais-paris-picasso

Picasso and Braque... and Mark Tansey's take on their dual significance:

And from cubism (a quasi-scientific approach to space, light and positioning in painting) to physical positioning in a stream of light. Here's a massively important paper:
"By Bernoulli’s law, an increase in the relative speed of a fluid around a body is accompanies by a decrease in the pressure. Therefore, a rotating body in a fluid stream experiences a force perpendicular to the motion of the fluid because of the unequal relative speed of the fluid across its surface. It is well known that light has a constant speed irrespective of the relative motion. Does a rotating body immersed in a stream of photons experience a Bernoulli-like force? We show that, indeed, a rotating dielectric cylinder experiences such a lateral force from an electromagnetic wave." In other words, light has the same properties as air and water in their ability to create, for example, support drag that holds airplanes in the air...

Here's a popular link: http://www.technologyreview.com/view/519471/optical-bernoulli-forces-could-steer-objects-bathed-in-light-say-theorists/

From the authors: "The forces obtained here are only a fraction of the incident radiation pressure and seem to require infeasible rotation rates, but we expect that they can be resonantly enhanced by techniques similar to those that have been used by other authors to enhance scattered power for a given particle diameter. Mie resonances are already visible in Fig. 4, but much stronger resonant phenomena can be designed… Material dispersion will contribute an additional source of lateral force… Such enhancement mechanism, …may permit the future experimental observation and exploitation of optical “Bernoulli” forces.

We are far away from 'flying on light' but we know that theoretically it is feasible… And more… can light create 'vacuum' as a flow of water does?.. Injection pump for light anyone?..


And to conclude, a splash of hydraulic / fluid dynamics art from the Science Gallery (Trinity College), this time in Canada: http://www.therecord.com/whatson-story/4117146-big-splash/ Surface Tension, watery exhibition from @ScienceGallery opened in @THEMUSEUM in Kitchener, Ontario. Congrats to all involved! Great to see SG spreading its wings around the globe. Note, I covered SG latest exploits in Dublin here: http://trueeconomics.blogspot.ie/2013/08/382013-wlasze-part-1-weekend-links-on.html.