September 8, 2010
Join me at Independent College to find out what has really happened in the Irish, European and Global Economies over the past eighteen months.
This new course, run over ten evenings, is aimed at the informed student who has a basic grasp of economics but wants to understand how everything fits together. If you regard economics as a jigsaw, this diploma will allow you to see the big picture and understand how everything is linked.
The objective is to enable the student to work and thrive in an economic environment such as a bank, financial house, the media, the civil service or a large corporation.
First Evening: Economic Basics
In our opening session, I will present a brief introduction to economic theory. Economists tend to fall into different camps such Keynesian, monetarist, neo-classical or Austrian for example. For some economists, these allegiances are crucial, for the rest of the world it probably seems a bit more like grown ups talking about their loyalties to football teams. But these theoretical underpinnings are important and help to explain why the global financial crisis occurred, why so much of the profession missed it and why economists are divided over how to get out of it..
Some Suggested Evening Reading
New Ideas from Dead Economists by Todd G. Buchholz.
This reading explains why many economists tend to get things wrong – the ‘can’t see the wood for the trees’ effect. It also addresses why volatility matters, and happens, and why what statistics can’t tell you. Statistics are backward looking. In order to see what the future holds, it is important to see the whole picture – which is what the module tries to lay out.
Second Evening: Lessons From History
In order to be an effective economist, we have to appreciate that things go in cycles and that history can tell us many things. History is particularly relevant when it comes to booms and busts. There is a wealth of material in this topic for Irish students at the moment. The two most salient periods are the Great Depression of the 1930s and the experience of Japan in the 1990s. Both stories tell us how the crisis occurred and how we can get out of this mess.
As a counterweight to the “it all happened before” school of thought, we will also examine other ways of looking at the world where paradigms do actually shift
In this module the required reading will be Paul Krugman’s Return of Depression Economics, David Landes’ The Wealth and Poverty of Nations as well as The Ascent of Money by Niall Ferguson and The Lords of Fiannace by Liaquat Ahamed.
Fooled by Randomness by Nassim Taleb addresses new ways of conceiving of the future.
Third Evening: Ireland
Ireland has experienced of possibly the most dramatic boom/bust cycle of any developed country and the rise and fall has been well documented by David McWilliam’s own books The Pope’s Children, The Generation Game and Follow the Money. These books will be the basis for this evening’s lecture. We will also use the author’s documentaries and his popular economics columns to illustrate the lectures. www.davidmcwilliams.ie
The period 2000-2010 was a classic example of bubble economics and yet the mainstream economics profession missed it. We will ask why and examine how the banks behaved; how the politicians mismanaged the country and how huge borrowed resources have been wasted in the property market. The reaction to the crisis has been telling. This lecture will look at the bank guarantee, the nationalization of Anglo Irish Bank and the recapitalization of the major banks.
NAMA and the arguments for and against it will be teased out in detail, as will the ongoing discussions on what is the best thing to do with Anglo.
On a different tack, the potential positives for the country cannot be underestimated if we can get over this banking mess. We will also explore the inconsistencies in a country which has received more American direct investment than both China and India combined and yet flirts with national insolvency.
David McWilliam’s The Pope’s Children, The Generation Game and Follow the Money.
Shane Ross: The Bankers
Fintan O Toole: Ship of Fools
Matt Cooper: Who really runs Ireland
Fourth Evening: Links
This evening’s lecture will not necessarily be about economics on the face of it, but the idea is for students to see how interlinked things are. For example, why does a Greek debt crisis mean that the price of gold rises. This is known as Contagion.
The more inter-linked things become the more the risk of contagion. Financial markets and general global liquidity are good examples of this. For example, why did a crisis in Thailand cause trigger selling of Russian assets which in turn caused LTCM – the hedge fund – to go bust in 1998? Or why was Lehman so central to our current crisis and why couldn’t AIG have been let go bust in September/October 2008? Why was Anglo included in our guarantee and was it the risk of contagion that forced the government’s hand?
Lord of Finance: Liaquat Ahamed
The Affluent Society: JK Galbraith
Fifth Evening: International
This evening we will examine the crucial but fraught relationship between China and America. Also we will look at the emergence of Bilateral trade. While this is not new, the extent of the China/America relationship is unusual. China exports goods to the US and imports $.
Large international systems are at risk of ‘shocks’ that are beyond the control of any one party to the system. The role of politics cannot be overstated in large international systems.
The emergence of the BRICs Brazil Russia, India and China as new economies is discussed and how this will effect trade and capital flows in the future.
The EU, the Euro and the bailouts are also important in this context. Who’s next and why is Europe attached to expanding a currency that only makes economic sense for a few members?
Read Ascent of Money by Niall Ferguson.
Sixth Evening: Markets and Houses
In this popular topic we will explore a variety of questions together. What is a ‘sophisticated investor’? How good are markets at setting prices? Are markets rational? (answer is obviously no). Why markets are imperfect. What is going to happen to the Irish housing market? How much more will it fall? How might it recover?
Seventh Evening: Bubbles. (or why you can’t trust markets)
What is a bubble – from the infamous Tulip bubble, through the south sea, all the way to the property bubble here. An important point is that bubbles always happen and follow the same pattern. We will look at how to spot bubbles, what is ‘hot money’ and what the next bubble might be.
Here the required readings will be Charles Kindlebergers Mania, Bubbles and Panics; Gillians Tett’s Fools Gold and The Great Crash by JK Galbraith as well as Predictably Irrational by Dan Areily.
Eighth Evening: Money and Banking
We will explore how money works. We will define the relevant terms such as fiat, gold standard, monetary policy etc. We will also examine how banking controls the money supply (and is important for it); why a banking system is important, but individual banks are not.
We will also discuss together the money illusion. This is a critical point to get across, as it is the one that more easily facilitates depreciation rather than cut backs.
Ninth Evening: Risk
This evening is taken up with a lively discussion of risk. Everything has risk involved – even doing nothing is risky. What is a risk-reward ratio? How to manage risk – be flexible. Your position may not change, but the amount of risk you carry will due to outside factors.
Tenth Evening: The Big Trends -Looking To The Future
Why the Internet does and will continue to change everything. The internet means that it has never been cheaper or easier to form a company and sell to a potentially huge audience. This changes the rules and allows the small to become big quickly. Google being a case in point!
Another future topic is the resource war. Here the most important trend is the clash of demographics over the finite resources of the planet. This will lead to possible resource nationalism in countries that have resources (Chavez in Venezueala being a good example) and huge innovation and investment in the “Green Economy” in countries that do not have resources. This creates its own opportunities as well as threats.
Suggested reading on this module is “Wikinomics” by Don Tapscott
Some interesting and useful websites and blogs to whet your appetite
- www.twitter.com – Follow: @DavidMcw (David Mcwilliams), @NYTimeskrugman (Paul Krugman), @PIMCO (world’s largest mutual fund), @BandF (Business and Finance magazine), @GTCost (Constantine Gurdgiev), @ronanlyons (Ronan Lyons), @CSOIreland (CSO, tweets new stats at 11am most days), @ftalphaville (Alphaville blog updates)
- www.ft.com – Online site of the Financial Times. Possibly the most important media outlet internationally for news and opinion on markets. High editorial standards and knowledgeable contributors make it a must read. Particularly look out for articles by Martin Wolf and Gillian Tett.
- www.ftalphaville.ft.com/blog – This is a markets blog on the financial times. It provides instant analysis of market moving stories, and allows reader interaction. Also includes a daily hour long live chat session on the markets called ‘markets live’ from 11:00am to Noon.
- www.google.com/finance – Provides live prices of stocks, bonds and FX across a range of markets.
- www.fistfullofeuros.net – European issues and dilemmas (Edward Hugh)
- www.voxeu.org -Academic economics with a European bias.
- www.krugman.blogs.nytimes.com – Nobel winner Paul Krugman’s blog. Very good on the financial crisis.
- www.freakonomics.blogs.nytimes.com – Pop Economics site. Entertaining, if occasionally wrong-headed.
- www.trueeconomics.blogspot.com – Blog of Constantine Gurdgiev. Lots of data.
- www.ronanlyons.com – Ronan has lots of data on the Irish housing market.
- www.irisheconomy.ie – Does what it says on the tin. Economic commentary from a group of academic economists. Often worth paying more attention to the comments section, where positions are questioned and defended.
- www.economist.com – Online version of the magazine. Lots of data. Worth keeping an eye on, but not the agenda setter it once was.