Writing today in the Yorkshire Post, I wanted to strike a mildly optimistic note about the new coalition and the policies it seeks to bring in to deal with out economic woes. Crucial in observing all this I think are three filters;

i) The result you wanted
ii) The result you actually got
iii) The net difference in what might have happened if things had stayed as they were

Whatever your views are, that has to be the way to look at it. Unlike David Cameron or Nick Clegg, I doubt very much this is a new kind of politics. I anticipate a great deal of ennui before too long. But in these salad days or honeymoon period, let’s give them a chance.

As an avid admirer of Nassim Nicholas Taleb’s unputdownable book “The Black Swan – The Impact of the Highly Improbable“, I have since become in awe of the power of nature, chance and random events to shape our lives, much more than we think we can direct and plan them ourselves.

As Nassim says in the prologue to his book;

“Before the discovery of Australia, people in the Old World were convinced that all swans were white, an unassailable belief as it seemed completely confirmed by empircal evidence. The sighting of the first black swan might have been an interesting surprise for a few ornithologiests (and others extremely concerned with the coloring of birds), but that is not where the significance of the story lies. It illustrates a severe limitation to our learning from observations or experience and the fragility of our knowledge. One single observation can invalidate a general statement derived from millennia of confirmatory  sightings of millions of white swans. All you need is one single  (and, I am told, quite ugly) black bird“.

Meet the Black Swan . . .

So back to Iceland. The point is that no one in the airline industry seems to have taken seriously the possibility of a – once in 200 or less years – volcanic eruption wiping out their business, because they couldn’t fly – in sky polluted with volcanic ash.

Enter the icelandic volcano . . .

This – the bankrupting of large sections of the airline industry – is now starting to look possible and already there is talk about a bailout for airlines along the lines of the banking sector. To which taxpayers are most likely to take a very dim view to say the least . . .

To face this challenge, what we are talking about here is pricing in the concept of inter-generational risk – i.e. over more than 50 years and more – which I fear, only the scientific conquest of death might work to assuage. And only then 50 years hence, not now.

There has almost been an almost worldwide political consensus that the way out of our economic troubles was through export-led growth. Some of us thought it was a bit silly to suppose that every country in the world could do this. Yesterday however we learned from the Ernst & Young Item Club that actually, if ou want to raise taxes – which let’s face it, most politicians love to do – this is not a good way of going about it.

The reason as Peter Spencer, head of the Item Club explained,  “While this is the right kind of growth for the economy, it is the wrong kind of growth for the exchequer — domestic demand is much more tax intensive.”

Exports as it turns out, generate smaller tax increases than a consumer-led upturn.

On all sorts of grounds – the cost of collection, the cost of compliance, the level of evasion and avoidance, understanding the dynamic impact – we are so far away from an optimal tax system.  Yet the return of the downturn to the business cycle ought to get us thinking again about which taxes work best at which point of the cycle and which ones don’t undermine aggregate demand.

I love this chart . . .

I love it.

Unseasonally cold weather in North Western Europe has created a load of potholes across the streets of the old continent but a town in the Ex-Communist East Germany, Niderzimmern, has hit upon a way of makling money from this driver’s blight.

Niederzimmern, not far from Weimar,  and an area I know quite well (and appreciate much more) having spent some time in Jena in my fairly sensible youth – reckons that people will pay to have potholes filled in if they can stamp it with their intials or I love my wife, dog, mistress etc.

Meet the Niederzimmern pothole . . .

(That is a toy car for scale btw !)

I’ve often thought that the problem wth local governnment in the UK is that it is not free to innovate and raise (and cut) funds as it thinks fit. Such an action would probably be unthinkable here. Taxes really do need to be localised and innovative. What’s special about this is that they could potentially raise tax from all over the world to solve a local problem.

According to the local website, they’ve only sold 52 so far.  So seeing as East Germany is emptying of people and the massive transfer of funds from West Germany is finally petering out, this is a really good idea. Three cheers for Niederzimmern !

I keep thinking about this trip I went on last weekend – a tour of micro-hydro plants organised by the South Somerset Hydropower Group. It was a good deal – for £60, we got lunch, coffee x 3 and bussed around 6 quite different micro-hydro sites, with plenty of expert commentary, not least by some very proud owners – full details here. At this time of year as well, these plants are working nearly flat out,  because there has been so much rain (and lots of mud too – I’m such a townie!). Load factors of 70+% are right now about the norm.

Anyway, here’s one of my favourites of the day, Hainbury Mill which has an archimedes screw. The benefits of this technology are that it is; very fish-friendly, virtually no filtering out of river debris required and it’s really quite unusual to look at.

With feed-in-tariffs coming in from the 1st April, it’s anticipated that a mini-boom might come about for micro-hydro. Let’s see – I wouldn’t hold my breath for any government scheme scaling up quickly and efficienctly. For all that, this is different to the pre wind rush of just over a decade ago. Back then, complex regional monitoring of windspeeds was required to get an idea of where the best locations were. This time, the UK already knows where its long-retired 30,000 mills are located and technology has come a long way in the last few years, to enable the extraction of power from low head sites. And micro-hydro has much higher availability, works at a higher load factor – even contributing baseload power than those poster childs of the micro-generation sector – wind and solar.

One more picture – I thought this mill won the beauty prize – Hewletts Mill.

Very thoughtful piece by Sean O’Grady in the Independent this morning – So where on earth have all the proper jobs gone?

He observes that while full-time jobs are going down, part-time jobs are increasing. I remember 20 odd years ago some futurist forecasting that in the future, we would all have 3 or 4 jobs and I just couldn’t imagine it, less still than that would be happening to me now.

On one level, it’s great that not everyone has to become conformist corporate wage slaves anymore.  But the self-employed, portfolio jobber requires a surplus of work to make it work for him and must generate higher savings because cash flow is much less predictable and work much less secure.  Benefits are in short supply.

On that last point, I was at an excellent seminar at Civitas with Dr Irwin Stelzer this lunchtime. I was very taken during the discussion about China, that the savings rate there was as high as 50%, because there was absolutely no welfare to fall back on, which is why – even after years of growth – the Chinese consumer is still something of an oxymoron.

There’s been a lot of policy chatter  over the last year in the UK about the lessons the Britain can learn from Canada and Sweden-  at least a decade or more ago – on cutting government expenditure harder and faster than anyone really wants. That’s all fine, but why not look across the Irish Sea and watch it happen  in real time?

Almost exactly one year ago, spreads on Ireland’s five-year credit default swaps rose to a record 377 basis points – about where Greece is now.Today, they are nothing like that. The difference is, Ireland got ruthless with the public sector and Greece almost certainly won’t.

Of the PIIGs, the markets have far more confidence in Ireland’s ability to recover at a sustainably higher rate, because they chose the roughest medicine early on and swallowed it whole.  The PIIGs (Portugal, Ireland, Italy, Greece and Spain) are becoming the PIGs without Ireland.

No one is talking about an Irish default any more.  Go figure.

So three cheers for Ireland for showing Britain not only what can be done with ultra-competitive low taxes to attract investment and generate exceptional growth in the good times. And more cheers for demonstrating how to deal with a severe financial crisis like we have now – tackling it head-on.