It is Obvious

Chris Rick has got altogether too much to say

Archive for October, 2017

BATNA

Posted by chrisrick13 on October 31, 2017

It is obvious: we have some very good negotiators who can deal with the EU and Brexit

I have no idea how to become a good negotiator. Even people who have a track record of good negotiations do not always do it well.

My approach is to learn the tricks that other negotiators might play on me and to try to avoid doing things that might weaken my stance. The simple and obvious mistakes can easily be avoided.

For example never negotiate by giving. A good negotiator will take the gift and simply carry on from where they were. That is certainly a mistake that the UK has made a couple of times already.

Never accept a first offer is an easy one. You can accept a first offer if you want to annoy the other side but later on you will find yourself annoyed as well.

Another tactic is to question everything. Do not assume or automatically accept. For example we have two years to negotiate an exit from the EU. Why? Does anybody know how long such a negotiation ought to take? Somebody pulled 2 years out of a hat 40 years ago in a very different world to today. The classic example of that negotiating is the Vietcong in Paris with the USA. They spent a long time negotiating seating positions and not much time negotiating anything else. The Brexit negotiations are not at the sorting-out-the-seats stage yet. Is two years going to be enough?

This comes to time pressure. You can put pressure on the other side with time. “The offer is until close of business today”. Oh yeah. Go in tomorrow and tell them if they can do yesterday’s deal you might want to put your hand in your pocket. They always find some way to extend the time. A lot of people rush to buy today though.

A lot of negotiation is about the strength of your place or your perceived strength and how the other side views that ‘strength’. One of the ways to acquire strength is to work out your BATNA: Best Alternative To No Agreement. When you have worked it out you might be happy enough. You might be dismayed in which case you will negotiate away from there. You have to work it out. If there is no deal then this is what we will have.

I do wonder if the government has worked out a BATNA. There are plenty of countries doing very nicely that are not in the EU. We’ll work under WTO rules with the EU. Some things will be worse and some will be better. We don’t know as it has not been done before. Just maybe we’ll have a lot of pain and come out the other side in better shape?

The BATNA can be a hidden source of strength or you can tell the other side. Whatever it is they will have worked it out and considered the options. However you will have done the same for them. What is the EU’s BATNA? This is a fine point as there are those running the EU – a small band of unelected politicians – and the people of Europe. If the UK leaves and a few years later rises from the ashes that will definitely be the end of the EU. Perhaps the leaders see that and want some sort of deal where the UK leaves but has many of the benefits of membership. A full exit will not actually happen and the risk goes away.

Another tactic is the full deal. It is not done in bits. The negotiation is perhaps done that way but it is for a whole deal at the end. There is no agreement to pay the EU a certain amount at the front of the negotiation. Simply fall back to your BATNA. You can insist on something ludicrous: 20p. Perhaps you can get the EU down to a very low number before you move on. One that you are very happy with. Time pressure is in operation. I wonder. We contributed to the EU for all the time we were in it. Surely some of that money has bought us something. Which bit of the Eiffel Tower is now ours? We can have the top 5% and stick it on top of the Blackpool tower? We make a ludicrous offer back to show how stupid we consider the idea of agreeing a payment up front is.

There is a lot to consider from a negotiating standpoint without even considering what the negotiation concerns.

It is obvious: we have some very good negotiators who can deal with the EU and Brexit so why not use them?

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The kick in the tail

Posted by chrisrick13 on October 23, 2017

It is obvious: stupid

To stop the global economy from collapsing we need continued expansion of our economy, everyone’s economy. Support of old debt and new debt comes out of increased production or economic activity. Those debts include money spent and promises of money such as pensions. That can’t happen. As you turn the corner on the exponential curve even the lowest rate of increases become impossible in a very short time. It runs the same for oil reserves and consumption of them.

To double the economy every 30 years or so needs more people to produce and consume. We cannot each of us double our production and consumption. I’ll volunteer for the population increase side of things and the consume bit as well, but I’m retired so I need a lot of other people to produce for me. If we have lots of new people to keep economic activity increasing they have to live somewhere – production of their housing will be part of the increased economic activity which helps. Increased consumption of decreasing reserves of all sorts of stuff though.

There are at least 20 million places where people live in the UK – to be very fuzzy. To double the population we will need another…20 million places for people to live. Allowing for places to fall-down or be pulled down this going to be at least 700,000 new houses/flats a year.

There is the problem that at the moment that a lot of people who want to live in their own home or at least a place bought by a loan from a bank cannot afford to. The (Labour) government created a rule that on any development of housing anywhere 1 in 13 of the houses had to be low-cost social housing. A piece of genius by the government as all developments suddenly only had 12 houses in them. I wonder if this is still in place? Then the (Conservative) government created schemes such as Funding for Lending and Help to Buy that were there to help first time buyers get a house. Of course if the seller knows that the buyer can get more money they put their prices up and this is what has happened. Buyers have climbed a step while the house price has climbed two.

How can you house the extra 60 million needed in this country over the next 30 years? The answer is very simple: build houses. Just build and build and build. It is a market and soon house prices will fall because everyone will see supply rising to meet demand. A cabinet minister last week proposed 300,000 new houses a year. He is only 100% out on the number needed. No details and it is just words, very similar words to those I have heard many times over the years.  (I’ll ignore the problem of where those houses might be put.)

The problem? The proposal is not enough to support the population growth this country needs to avoid the economy failing. Without the growth (and the people) we will default on debts. The pound will devalue. Nobody will lend us money. The only solution will be hyper-inflation or very high interest rates.  It might be civil unrest and a lot of other very unpleasant effects.

I am an optimist. Lets just suppose that we pull it off. 20 million homes and population doubled in 30 years. 120 million of us sit uneasily on this island. What happens next. Come on! Catch up! In the following 30 years we’ll need another 120 million people and 40 million more houses. I’m nearly 70. I don’t care. If I was 10 I would be looking nervously into the future because the one I have laid out, as unpleasant as it might be will not happen (twice). It will be something worse.

It is obvious: stupid…its an exponential curve

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Brave New World…revisited

Posted by chrisrick13 on October 16, 2017

It is obvious: writing is simple

A comment on the earlier blog shows the paucity of my writing.

We are sitting on an exponential curve for many things. Economic activity is one of them. Without that regular doubling everything collapses. Particularly important are pensions that need young people producing more to support the pensioners. A simple way out of this is to kill them off – old people who is. The coming failure of antibiotics might well see to that. Population growth which is flattening in many parts of the world links to this.

economic growth is also essential with governments running deficits. Continued economic growth pays for the extra borrowing. We will never stop spending and start saving to pay off debt. Individuals might but governments never will.

The point of my earlier blog is that we are on a ‘J’ curve and have trundled along the bottom for many, many years. Now we are turning the corner just before the vertical line.

Except we are not. It is just not possible. The next doubling is always 35 years away at 2%. Go back to 1950 and we probably did double to 1985. The next double from there is to 2020. It is very clear that it is not happening and will not happen. The obvious reductio ad absurdum is that we either need a London twice the size of the 1985 London or a second London. Same for all the other cities and towns in the UK. Has not happened, will not happen, cannot happen.

Thus the end of economics, as we have known it for all our lives is set in the system. Central banks have ‘kicked the can’, most obviously since 2007 but in fact for a long time before that. Simulating continued growth or creating it by borrowing against the future.

How long have we got? Things always trundle for a lot longer than you think they possibly can. To my mind they have already done that! I’ve been looking for triggers that will start things off. It doesn’t have to be a trigger though. Just the natural order of events will do it. The obvious one for the UK is a run on the pound. The only way to defend this is to put interest rates up. Otherwise we cannot buy things from other countries and as debt rolls over at higher and higher rates demanded by lenders we can no longer pay our debts and default. That then means nobody will lend us money. End of foreign holidays! End of orange juice. End of bananas. End of a lot of stuff. The alternative is to put up interest rates…and put a million people out on to the streets where they will riot.

I cannot understand why there has not been a run on the pound yet. Maybe Brexit will trigger it? It will be devastating for many people. It will be short though and we will quickly come out the other side. Look at Iceland.

Invest in yourself. Take the simple steps you can to protect yourself. I think cashing pensions and spending the money is a good idea. Even put it abroad to places that you think might fare better than the UK. Norway looks pretty secure except it is mighty close to Russia.

This is not a blog for financial advice. All the advice here is worth what you pay for it. Think about it though. Try some scenarios out and think what you might do. Start with interest rates returning to the long-term average of the last 100 years (4% ish). What happens?

It is obvious: writing is simple but it is not easy

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Brave New World

Posted by chrisrick13 on October 10, 2017

It is obvious: I am looking forwards

 

Alas, Dr Bartlett is no longer with us. (Colorado Uni.) He has on record the most compelling lecture on exponential increase ever. His interest was in oil and it is scary. The exponential curve applies everywhere else as well.

Simply described it is pretty much a back to front ‘L or a ‘J’ in the right font (where the bottom part is actually flat leading up to the curve). You can trundle along on the bottom happily for a long time with not much change. When you start to turn the corner nothing much happens for a while but there are plenty of warnings as the gradient of the curve starts to change. Then very quickly the change goes infinite as the line goes vertical.  Good examples of the trundle are oil consumption and population growth,

Perhaps the world economy has been doubling on a cycle for many years. Double not very much is…not very much. The curve looks flat or very nearly so. Then you reach the point where it is more than not very much and the doubles are significant. This happened in the late 1900s.

We are very close to the vertical line. At least very much closer. At this point economical theories that worked where the line was flat simply do not apply. There is no theory or set of observations in place to deal with the curve. There is certainly nothing for the vertical line. Practically, this old earth will not support it.

There are many things that stop working as we step off the ‘J’ curve. Pensions are one. Supporting national debt at anything other than a very small percentage of national productivity is another. Company growth and stock market growth is another. The curve will wiggle in ways that seem random even if they are not. It is another world, one that nobody has any idea how to live in. Our leaders continue to try to force the J-curve but we are close to the vertical part where they will be powerless.

 

It is obvious: I am looking forwards while our leaders can only look backwards

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