There is a theory doing the rounds about the
global financial meltdown and it goes like this: the western economic model requires
growth but there has been no "real" economic growth for
the last ten to twenty years.
And, ten or twenty years ago, government, staring impotently at
an unstoppable but gradually emerging recession, looked in
desperation to the financial sector and wondered if that could help
stimulate the economy. The financial sector eagerly responded and
speculating with savings in the way it used to gamble only with
As "real" growth further tapered off,
western governments leaned heavier upon the financial sector which
in turn asked for leeway so it might devise ever
more complex money-creation schemes.
Competitive deregulation resulted
and soon the economic system transformed from its historic
reliance on traditional "real" productivity to its new dependence
on very cheap credit created by banks. This mutation is sometimes
referred to as "the
financialisation of capitalism".
The arcane financial instruments that were created by the banks
to generate all this growth
became farcical: In the US, subprime mortgage loans were
split up into bits and pieces that were strewn in with fragments of
better assets. The contaminated bundles were then passed off by
the banks as low-risk collateral. As the poor quality
components were ignored, these securities obtained greater leverage
than they should have, propounding the original exposure.
And that was just the start of it: sub-prime has been estimated
as a $1.5 trillion bubble. In 2008 an organisation known as
the Asymmetric Threats Contingency Alliance estimated
the total size of all the credit bubble devices to be $1
Money was magicked into existence with no regard to the
underlying risk. Cheap credit flooded everywhere. Attitudes were
engineered: consumption of pap for debt was positively enforced by
media. And over and over this went.
In 2007, gradually at first then all at once, US subprime
mortgages defaulted and their backup securitised collateral was
realised as the junk it was. When the securities were called for
the edifice cracked apart. As Warren Buffet might say, the tide
went out to reveal Lehmans, Iceland and Ireland swimming naked.
The system never recovered. Doubtful confidence wavered then
The same tide has ebbed out and flowed in several times but it
has taken several sudden outward heaves and has generally receded,
revealing in its wake a banking or sovereign debt disaster in every
What looked to us like growth was actually the financial system
creating debt - and lots of it. The entities that own that debt are
other banks (i.e deposit holders) and pension funds (i.e
anybody) and private holders (e.g. Roman Abramovich/Apple) and
other countries (e.g. Japanese NTMA-equivalents) and so
on. These entities have "wealth". All the money in the
world, really. And they want that money instantiated. And they, as
they have "wealth", have influence.
So these organisations will be paid and if European sovereigns
are subjugated in order to achieve that, then so be
We are now faced with a triple crisis: First, the credit bubble
has burst. The west had gotten very used to easy credit. Some
people leveraged assets bought with borrowed money for more
borrowed money, inflating secondary property bubbles, creating
employment and government revenue all round. Now with all the
credit dried up, and the bubbles popped, we are left with a huge
gap between government spending and tax revenues. So a reduction of
structural deficits through austerity, while probably wrongheaded,
appears to be the norm.
Second, the debt created by the bubble is still owed - and
policy appears to dictate that the citizens have to pay back all
the money the banks lost when they securitised all that new debt on
flimsy collateral and swapped it around between themselves
And third, we're about to find out what life would have been
like without the fake growth.
So why did we need to turn to the banks to preserve western
living standards in the first place? All those years ago?
innate flaw, oil prices and globalisation have all been loudly
accused and they may well be guilty. But did they act alone?
There have been
murmurs about another culprit, said to be the
real brains behind the operation:
It is now being commonly
discussed that we have eliminated millions of jobs by
centralised production systems
IT systems, and billion dollar companies with
relatively few employees.
of course, not a new angle: in the Great Depression of the
1930s, technology was also considered a contributor (even by Keynes
Financialised capitalism may well provoke a major reaction as it wrings all the value it
can out of us, but if or when that reset occurs is impossible to
say. In the meantime...
There is no stopping progress. If you can't beat it join it. To
ensure Ireland doesn't face another Hungry Thirties, we must seize
the opportunities presented by the current technological
We should have the manoeuvrability: as
John Mauldin recently wrote on his visit here, "First off, even
though we think of Ireland as a country, it is in reality a
nice-sized city. Ireland is a little under 4.5 million in
population (with another 1.8 million in Northern Ireland)". Ireland
is an "open economy", we are told.
But we have vastly inappropriate skills: from the established
cadre of generalists in the Department of Finance who helped
steer the country onto the rocks, to the last misdirected decade of
unemployed (but talented) new architects and non-specialist (but
well-educated) arts graduates.
The EU education report
published on April 19 this year shows:
..that 49% of 30-34 year olds in Ireland have a third
level qualification - well exceeding the 'Europe 2020' target of
40% set two years ago. However, Ireland was the worst performer for
increasing numbers of maths, science and technology graduates, with
a boost of only 1% between 2000 and 2008. The numbers of women
science graduates actually fell in that period.
And according to last year's
On reading levels among 15-year-olds, Ireland slipped
from fifth place in 2000 to 17th place, while in maths Ireland fell
from 16th to 26th.
No wonder companies like Google, Intel and Ericsson must cast
their nets wide to find suitable candidates to fill Irish
vacancies. Our schools don't provide the people. For the coming
reality, third-level should be looked upon not as "education" in
the Victorian sense but as "training". And Science, Engineering and
Technology ("SET") are skills we need for the future.
The Education Minister is right in his attention to second-level
maths, but he should broaden his scope to all sciences and he
should bring a new IT subject into both primary and secondary
curricula. The UK - our closest trading partner and greatest
competitor - has realised this and just last week the BBC
"Coding is the new Latin" while The Telegraph wrote
"Children to be taught to create software".
The Irish government should adopt similar policies with urgency.
The Broadcasting Act should be updated to ensure that Science and
Technology is considered a funding topic that falls under the
public service mandate so that these subjects, through exposure,
become demystified and even ingrained as part of the fibre of Irish
And it is not just programming: Ireland has aimed high to become
a centre of R&D in the nanotech, biotech, medical and security
fields. Biology, chemistry, physics and computer sciences are
converging in incredibly interesting ways.
Ireland has the range, the machinery, we have the thirst. And we
have the opportunity.
In the meantime, if you have kids they can get a headstart.
There are several technology courses in Ireland specifically aimed
at children. Here are some courses for you to check out (the first
two come recommended, I don't know anyone who's been on the
 And that's not to mention Credit
Default Swaps, the extent of which we have yet to experience.
See footnote 2
 Not just Ireland. By one estimate 10% to 20%
of Western banks will be wiped out in the next year.
production is a sector that appears to be beginning to reverse from
its current state of massively-centralised production. This is
another opportunity for Ireland. For a start
we should reopen that sugar factory!
on convergence 2011 - PDF WARNING
 Details omitted. See Kevin
O'Rourke's presentation which describes how
badly the Euro was made.