Thursday, 22 December 2011

Augmented Reality and Linked Data

I enjoyed a far-ranging conversation with @StGilesResident today, and am indebted to him for the reference to the following TED talk by Pranav Mistry. I do not know how I've missed this to date and am looking forward to seeing how this technology evolves with 'midata' initiatives to support our day-to-day activities in future. The folks at Microsoft have also been playing around here (you can follow them here).

Saturday, 17 December 2011

Sweat The Small Stuff

I enjoyed a great conversation with the Renegade Economist on Thursday. On the humorous side, it reminded me that:
"Among the maxims on Lord Naoshige's wall, there was this one: "Matters of great concern should be treated lightly." Master Ittei commented, "Matters of small concern should be treated seriously." Ghost Dog (previously cited here).

But, seriously, it's stunning how little of the detail is really understood by our institutions. Instead, they are obsessed with erecting grand schemes that are shaped most by surprise events beyond our control - 'black swans'. These grand schemes, like the 'single market' and the Euro, are brittle political constructs that neither minimise our exposure to the downside of surprise events nor maximise our exposure to the upside. Worse, they distract us from coping with structures that emerge organically outside the artificial regulated sphere as well as day-to-day outcomes that we might otherwise have avoided within it. It was typically five years too late before any financial regulator demonstrated any understanding of the shadow banking system lurking outside the walls, for example. And our regulated financial system has suffered from within due to poor due diligence on sub-prime debt, lack of scepticism amongst auditors, analysts who rarely say 'sell', banks who are fined millions for lax controls, and tax incentives that concentrate investors' risk and fail to deliver finance to creditworthy people and businesses.

Retail is detail, they say, but so is everything else. We need to align our tax and regulatory system with our actual or desired end-to-end activities, bottom-up, rather than with artificial, paternalistic institutional visions for the future.

Image from Core77.

Wednesday, 14 December 2011

When in Doubt, Stay Out

I’m with the Tories on the EU treaty veto. There are just too many unanswered questions for anyone not already implicated to sign up. Even other EU leaders are now saying they'll struggle to sell the treaty nationally

Key among those questions is how the EU can democratically enforce its fiscal rules. I say ‘democratically’, because the whole point of the European Union is to avoid the diplomatic equivalent of ‘sending the boys around’.

Graham Bishop tries to address this in his short book, "The EU Fiscal Crisis: Forcing Eurozone Political Union in 2011?".

Perhaps the best place to start is Graham's point that “Wrong behaviour in misleading investors is still wrong even if the motive is patriotism, rather than personal greed.” During the Maastricht Treaty negotiations in the early ‘90s, Graham wrote some papers that “doubted the willingness of finance ministers to discipline profligate states”. The issue was ignored at that time on the basis that member states assumed it would always be in a profligate state's interest to want to do the right thing - a version of the efficient markets hypothesis, royally debunked first by Lehman Bros et al and now Greece. Even Alan Greenspan has had to admit that, left to itself, when any organisation is in trouble it is likely to behave in a way that suits those in 'control', which is why a taxpayers' guarantee constitutes a moral hazhard.

After gamefully attempting to explain the alphabet soup that comprises the EU financial bandaid stability aparatus, Graham recommends four principles of more effective fiscal supervision:

1.       Recognise there is nominal credit risk in the debt issued by a state that can’t print its own money – traditionally, there is assumed to be no nominal credit risk on loans to central governments held to maturity, since it's assumed that if the government needs more money it will simply print it (even though this may create other problems) - this is clearly wrong for Greece, for example;
2.       Make it progressively harder for EU banks to finance the excesses of an EU member state;
3.  Insurers, pension funds and other caretakers of peoples’ savings should be similarly disincentivised from concentrating on risky public debt;
4.      “Develop necessary flanking measures".

Funnily enough, non-Eurozone investors seem to be playing by these rules, even if the Eurozone isn't.

Little wonder private investors are working hard on contingency plans for Eurozone break-up.

Wednesday, 7 December 2011

Are ISAs "Safe"?

I'm having lots of discussions with mainstream policy folk at the moment, and it's striking that they perceive money invested via tax-free Individual Savings Accounts as somehow 'safe'.

This is somewhat true, up to the limits of compensation scheme protection. But only if you ignore the enormous direct and indirect costs of the bailouts required to deliver that protection, not to mention the fact that ISA cash earns 0.41% interest after 'teaser rates' expire, and investment returns after management and dealing fees may be slight (as we've learned in the pensions market). 

Even worse, your ISA money can't be properly diversified because you can only invest it in a limited range of regulated asset classes. So the government is both incentivising you to invest narrowly, and disincentivising you from putting your eggs in the full range of potential baskets.

But worst of all, like much of the money in the regulated system, the £350bn in total ISA money is 'dead' - propping up bank balance sheets and generating mutual fund fees - rather than working capital in the hands of creditworthy people and businesses who need it.

So it's high time that policy makers re-aligned the ISA tax incentives with the day-to-day activities of people and businesses. We urgently need to expand the range of asset classes within the ISA scheme, using proportionate regulation where appropriate.

Image from the Building Societies Association.

Thursday, 1 December 2011

A Bill Of Duties

I saw a protest sign yesterday that said "We all deserve a decent pension." Instantly my eye settled on the word "deserve", and I wondered who that message was intended for? Other protesters? People without decent pensions? Someone with enough money to fund decent pensions? If so, who?

Such a sign is useless unless it focuses us on how we should all fund decent pensions for each other.

A bill of rights is similarly aspirational. But, worse, simply listing all our needs merely creates a sense of entitlement. The list says nothing about the corresponding obligations that must be performed in order to satisfy those needs, and does not remind us that society as a whole shares those obligations.

Far better that we create a 'Bill of Duties' that commits all members of society to meet each other's basic needs. A Bill of Duties would act as a call to action, inspiring people to seize the initiative rather than the role of victim.

There was some notion of this in the background paper to the proposal for a British Bill of Rights and Duties, but casting rights purely in the form of duties would seem much more productive.

Having written this piece, I searched for an image to illustrate it and discovered that Deseret News has explored what a Bill of Duties might look like...

Image from from Deseret News.

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