Installing Django – just followed instructions on django site http://docs.djangoproject.com/en/dev/intro/install/

Then ran through the tutorials

Then installed pinax using svn command here http://code.google.com/p/django-hotclub/source/checkout

Tried synchdb but didn’t have PIL installed so got a load of errors.

Didn’t have PIL so followed instructions here: http://www.p16blog.com/p16/2008/05/appengine-installing-pil-on-os-x-1053.html

setup data tables using
python ./manage.py syncdb

Wanted to use mysql – so installed ez_install
- downloaded egg here http://pypi.python.org/pypi/setuptools
- ran: sh setuptools-0.6c9-py2.5.egg

easy_install mysql-python

Then started mysql and created a new database and changed settings.py to use mysql and point to new database.

now syncdb again and tables created in mysql!
run: ./manage.py runserver
and pinax app available at http://127.0.0.1:8000

Wow!

Click on image to see it full size. Cut this out over 20 years ago and just found it again…

Unpublished (!) letter to the FT

As has been repeatedly observed for longer than this recent crisis, there are systemic problems with the financial markets, one of the these in my view is the increasingly short-term thinking of all concerned. I suggest one solution to this problem would be to put traders bonuses into pension plans that include a mix of shares appropriate to those they are dealing in. This would give a great incentive to ensure markets were not destabalised. Maybe like slow food and slow travel it is time to consider making a slow buck.

After reading Why Forecasts Don’t Work in Finance I felt moved to add a supportive comment, which grew. So here it is.

I absolutely agree with you that forecasting in finance rarely works and that scenario planning is more helpful. I have been using scenario planning for a long time now and find it a great way to identify and overcome peoples unconscious assumptions about the future. I read once that our baseline for what is normal is how things were when we were children and I think add to that our desire for the future to be what suits us, and it makes it very difficult for us to consider a future which is significantly different.

Talking to many people here in Ireland just before the property boom ended, when it was glaringly obvious to anyone not involved in the property market that all was not well, it was astonishing how blind we became when we have a vested interest in how the future will pan out.

The biggest problem with forecasting, is that however prescient you may be, a forecast has to be plausable to your audience in order for it to be accepted and serve any purpose. (See Paul Saffo at Long Now) So the most popular forecasts are those that continue popular trends and reverse unpopular ones. I presume this is the reason why some many economic and financial forecasts fail.

In my view, scenario planning differs from forecasting in that you are not trying to tell people what to think, only give them a wide perspective from where they can ask better questions. This leads to constructive conversations (rather than arguments over who is more likely to be right!) and more strategic thinking.

Phoebe Bright
A fan of scenario planning (obviousy!)

The present economic crisis has two main causes. One is the downturn of an extreme version of the normal business cycle. The other is that a trend – the increasing inadequacy of the world’s supply of oil as a result of resource depletion – revealed itself just as that cycle was reaching its peak and both precipitated and accelerated the decline.

There has never been a coincidence of a cycle and a trend in this way before. We are in completely uncharted waters because the cheap, abundant energy supply which has enabled economies to recover from depressions in the past may not be available this time around.

In a normal economic cycle, the easy availability of cheap credit provides the extra purchasing power required for output to grow. According to David Roche, an investment consultant writing in the Financial Times, $4-$5 of new credit is needed for each $1 of GDP growth.

After a time, however, the economy concerned begins to run out of key resources – skilled workers, perhaps, or factory space – and prices begin to rise, pushing up the Consumer Price Index. This, in turn, triggers a response from the central bank, which raises interest rates or puts restrictions on lending to prevent inflation becoming excessive. Borrowing falls, the rate of demand growth slows, and the down phase of the cycle begins.

The cycle that has just entered its down-phase was rather different, however, because the world’s central banks failed to step in to keep it within previous bounds. They failed to act because the price rises it generated were not reflected in the consumer price indices they monitored until very recently because supplies of cheap goods, foodstuffs and skilled labour were available from the poorer parts of the world. The price increases which did develop came in ways which did not directly affect consumer prices. They were in asset values: property and share prices increased, but everyone thought that this was a good thing.

These increased asset values provided security for additional loans, and so the up-cycle continued until one critical resource – oil – began to run short on a global scale. Its price soared, taking money out of the oil-consumer-countries’ economies and transferring it to the oil producers just at the time that the asset-based borrowing boom was peaking anyway in the US and several other countries. The boom was peaking because borrowers did not have the incomes to take on more debt despite valiant efforts to enable them to do so, such a giving 100% mortgages to be paid off over 40 years at five times (or even seven) times a couple’s joint income.

If the current down-turn was like its predecessors, we could expect a period of readjustment (an innocuous term meaning unemployment, repossessions, a few winners and a lot of losers). After a time, house prices would dip down to a point where buyers come back into the market, credit became more freely available and the economy started to pick up.

This time, however, because a super-boom was allowed to develop, the risk is that the bust will be on a similarly super scale and that the capital write-offs will be huge, endangering the banking and money creation systems. Unemployment may reach record levels. The demand for energy is already dropping. The danger is that oil prices will return to a low level, not only destroying the viability of all the renewable energy projects that are now getting under way but also halting oil field development.

If this happens, since very little new capacity will be built, when economies eventually start to recover, supplies of energy and other resource may quickly become inadequate and prices could rise again very rapidly, This could stifle the recovery and make it very costly to move to a more sustainable economic system.

Energy Scenarios Ireland 2.0 explores the present situation and how it might work out.
In Business As Usual we assume that the economists who think that the down-phase of the economic cycle will be short are correct and that growth will resume in the near future. We also assume that significant supplies of oil and gas will be discovered and we can therefore ignore the possibility of energy shortages for the moment. A further assumption is that fossil energy use is not restricted for climate change reasons.

In Enlightened Transition, we assume that action to replace the world’s depleting supplies of oil and gas stimulates a global economic recovery so that, as the economy grows, demand for non-renewable energy falls.

In Fair Shares, the economic recovery is slow as Ireland struggles to make its economy more sustainable but with limited resources to do so. In this scenario, falling global energy prices mask
the decreasing supply trend until the economy starts to recover.

In Enforced Localisation no significant action is taken and the country slides into economic collapse. Recovery is long and slow.

I love seeing the world through the eyes of people who look at the world differently from the rest of us – brain candy! Dmitry Orlov has an unusual background and does not take the usual view of how and why the Soviet Union collapsed or that the US economy is sacrosanct.

Dmitry was born and grew up in Russia but settled in the US, returning to Russian regularly during the fall of Communism and so has both an insiders and an outsiders perspective.

The ingredients for the economic collapse of a superpower, as learned from observing the Russian experience:

• a severe and chronic shortfall in the production of crude oil
• a severe and worsening trade deficit
• a runaway military budget
• ballooning foreign debit

Add to this a humilating military defeat and widespread fear of a looming catastrophe and the result is economic collapse.

In the Soviet Union the defeat in Afghanistan followed by the Chernobyl catastrophe against a backdrop of oil production collapse, foreign trade imbalance and the inability to produce enough food and consumer goods, led to it’s downfall.

Dmitry believes the US is poised to follow suit with oil peaking in the 1970s, trade imbalance, a huge military budget and foreign debit denominated in dollars but held by international creditors. While the US is theoretically self-sufficient in food, inputs of 10 calories of energy for each 1 calorie of food produced mean that loss of imports would lead to loss of food supply.

You will have to read the book to fully explore the arguments put forward, but they certainly give me pause for thought and I will be exploring the consequences more fully as part of the Localisation scenario that forms part of the Energy Scenarios for Ireland.

As oil supplies decrease in the US, Dmitry argues “less is produced, but the amount of money in cirulation remains the same, causing the prices for the now scarcer products to be bid up, causing inflation”. I do believe (hope!) that Dmitry is overly pessimistic about the way in which people and businesses will respond to increasing energy prices and other finite resources. Given that we waste huge amounts of energy because it has not be cost effective to do otherwise, and we have grown lazy because of the low cost of energy, there is huge potential for reducing demand. I have a figure of 50% of the energy we use does not deliver useful work – for example, the heat your car engine produces, or the energy used in standby mode on appliances. My first challenge of this figure came recently from a energy consultant working with large businesses. His figure was 80% waste!

There are a few other points Dmity makes that I stuck in my mind.

Resource Wars – if nations decide to fight others over scarce resources, the wars themselves will require huge resources such that they will be futile and “victory in these conflicts will be barely distinguishable from defeat”.

In the event of economic collapse and hyperinflation, money ceases to have any purchasing power. I might swap you a bag of potatoes for a jar of honey but what would I do with a pile of cash that will be worth less tomorrow? From the Russian experience, Dmitry suggests “when faced with a collapsing economy, one should stop thinking of wealth in terms of money. Access to actual physical resources and assets, as well as intangibles such as connections and relationships, quickly become much more valuable than mere cash.” So consider a stockpile of, or the means of making, petrol and diesel, poteen, medicines and bicycle tyres.

Russia was in a MUCH better position to survive economic collapse simply because most of the necessities for life were provided by an inefficient state whereas the US citizen is largely dependent on the private sector for housing, transport, health care, education and care of the elderly.

Most Russians lived in homes owned by the state and so did not become homeless. Services such as heat, water, maintenance and rubbish collection was centralised, and were relatively cheap to run so continued to work. The extensive public transport system was owned by the state and kept running all through the collapse allowing movement of people and goods.

For those that enjoy US bashing, there is much food for entertainment in this book, though there are also positive statements about the US as well. This is one of my favorites: “the United States military does not know how to win. It just knows how to blow things up.”

And a few words of wisdom: “People generally find it hard to act on knowledge that contradicts their every day experience. The experience must come first, even if it is second-hand.”

This book has certainly made me consider the flip side of what would be considered desirable changes today. For example, an earlier blog entries firmly asserts that Demand Response and real-time pricing of electricity is essential to increase our use of renewables and maintain our economy. But suppose we did face economic collapse? The last thing we would want is for real-time pricing where the rich would price everyone else out of the market. In those circumstances we would want fair rationing and fixed prices. While I would not advocate holding back on real-time pricing, I would suggest that changes are flexible enough to work in more than one scenario.

I bought this book direct from the publishers and it arrived in a few days, quicker than Amazon.

Excellent article in FT today by John Kay “Economic growth can be about better – not more” http://www.johnkay.com/in_action/566

He argues that as we get richer, we generally want quality not quantity, so economic growth does not necessarily increase the volume of “stuff” consumed.

Not sure I agree when our economy geared towards selling us equipment that cannot be repaired and breaks just in time for us to buy the new model! See toothbrush story below.

While in the UK last week, I went to buy a new electric toothbrush for my mother. Having bought electric toothbrushes before I went straight to the electrical section of a large ‘sells everything’ store. No toothbrushes to be found – toasters, kettles, hair tongs, all kinds of electric gizmos but no electric toothbrushes. Finally I asked and was directed to the toothbrush shelves where they are to be found for £3 next to old fashioned electrically challenged toothbrushes. Last time I bought an electric toothbrush, the refill brushes cost more than that!

I was on the lookout for new brushes for my 5 year old toothbrush but got a new one (as I was supposed to) instead. This new toothbrush feels cheap to use – like putting a Ford Fiesta in your mouth instead of a BMW. Personally, I am a less happy consumer. I would prefer to have the BMW toothbrush for 10 years (with new brushes) than drive the Ford Fiesta round my mouth morning and evening, but I guess I will get used to paying more (overall) for less after a while.

So I understand that the commodisation of electric toothbrushes is a ‘good thing’. More goods produced, more jobs, higher GDP, Hurragh!

But it’s not so good for me personally and the general approach of making things cheaper to buy and more costly to maintain is not so good heading into a recession. If money gets tight, you want the flexibility to spend less of it for a while. No new coat of paint for the house, cancel the subscription to the weekly magazine and buy an old fashioned toothbrush when the cheap electric one breaks after 6 months. But that still leaves cartriges for the ink jet printer, sky subscription, tivo subscription, new video camera as the old one records but can’t get the movies off…

The same is true for many businesses with just in time ordering and tight cashflow – bills only paid when suppliers start chasing. Is there is too little financial flexibility left in the way we run our lives or businesses? What options do we have when so many capital purchases have been turned into overheads?