Hi folks, Ronan here and welcome to the February edition of my monthly newsletter!
In this month’s newsletter:
📈 Ukraine: Two Charts and a Poem
💸 Paying Government Workers Radically More
📚 What I’m reading, in brief
✍️ Word of the month
Before I start with economics and charts, here’s a short poem reflecting on how I don’t have first hand experience of war. I’ve been thinking about soldiers and civilians who are fighting for their countries, territories or communities – knowing there is a good chance they’ll die. They must feel some combination of helpless, proud, hopeless, angry and many other feelings. I don’t know.
The Unknown Unknown Soldier
Beneath the Arc de Triomphe is the tomb of an unknown soldier.
Unknown, yet known to those around for World War I.
They know what the tomb represents.
📈 Ukraine: Two Charts Not to Ignore
In my November 2021 newsletter, I wrote about Putin’s strategic advantages, noting Europe’s reliance on Russian gas and on US defence. I down-played the leverage that Europe and the US had on Russia by imposing sanctions. I believe my assessment of energy and defense remains correct, but I was wrong about the impact sanctions could have on Russia.
Here are two charts that I keep an eye on for assessing the strength of Russia and Europe:
1. Price of the US dollar in Russian Rubles
Over the past year, one US dollar was worth about 70 rubles. Today, March 7th 2022, the dollar is worth 135 rubles (up from about 120 yesterday, and about 100 last week). In short, the spending power of the Russian ruble has roughly fallen in half since the start of the crisis. Sanctions are having a big effect on the Russian economy.
During the second world war – absent modern communication channels – the exchange rate between the US dollar and gold was a rough indicator of how the war was going for the US – a stronger dollar indicated the war was going better for the US. In a similar way, the strength of the Ruble indicates how the war is going for Russia.
2. Price of the US dollar in Euro
Over the past year, the dollar has strengthened significantly against the Euro. The Swiss franc has similarly strengthened against the Euro.
Conflict in Ukrainian territory is bad for the Eurozone economically, and the Euro. So too are increasing energy prices, which I see increasing whether a) Europe remains reliant on foreign fossil fuels, the price of which is rising, or b) Europe moves towards more internal sources of energy (a wise move, but expensive).
💸 Paying Government Workers Radically More
It’s a common complaint that government workers are underpaid, and a common refrain that this is because those jobs are more secure.
I recently came across a Singapore government website describing their approach of paying top government employees radically more than what is the norm in other countries. If you don’t have time to read it, I’ll give you some highlights here:
The benchmark is used for Senior Public Leaders (e.g. Permanent Secretaries, Deputy Secretaries, Chief Executive Officers of major statutory boards, and key Department Heads)
The benchmark used for the salaries of SPLs is the top 1,000 income earners in Singapore – reduced by 40% to ensure employees aren’t just doing it for the money (my phrasing).
This is an incredibly high benchmark, meaning ministers start with around $900,000+ in base salary. For comparison, the Taoiseach’s (Irish Prime Minister) salary is around $200,000.
Could this work in Ireland?
In theory, paying top Irish civil servants much more would be in the country’s favour. Salaries – particularly in the tech industry – are so high relative to top government jobs that there is a large disincentive for top candidates to work for the country. Paying low government salaries also encourages candidates to monetise government experience indirectly. At the margin, candidates may take a government job because there is a future promise of income from a speech, a publishing deal, or of getting a high paying job from private industry in the future if they make favourable regulations now. It’s hard to measure these misaligned incentives, but they can be mitigated – at least in part – by paying government jobs closer to market salaries in the first place.
On a more practical note, government salary structures are based on decades of precedence and norms. In increasing salaries for one set of civil servants, one would have to consider what the implications are for other government employees, which pulls in considerations all the way to trade union agreements. Suffice to say there would be significant political considerations required to implement a change like this in Ireland (or other countries for that matter).
📚 What I’m reading, in brief
Noah Smith questions whether too much credit is given to China for thinking long term (I have given China this kind of credit before, for example on their central bank digital currency planning). Chinese progress has been very mixed up until the last few decades. While there has been progress, there have been clear examples of bad long term thinking, i.e. the one-child policy seems to be back-firing. Lastly, Smith argues that US diplomats (like Kissinger) want us to think China is long term thinking so as to avoid being complacent, but this is not a statement that China actually is long term thinking.
Andrew Chen explains why venture capital doesn’t like investing in dating apps. 1) Customers don’t keep coming back, 2) Not all that many people are single, 3) It’s a business with a low customer life-time value where the customers drop out a lot (the bottom left death corner of this chart; ARPU is average revenue per user):
Patrick McKenzie on what SWIFT is. SWIFT is not a money transfer system. International transfers work, for example, by a Japanese bank having an account at a US bank. When someone wants to send dollars to someone in Japan, the Japanese bank receiving the funds will notify the US bank to credit the account that the Japanese bank holds at the US bank. In most cases, there isn’t money flowing across borders. SWIFT is a messaging system that allows the Japanese bank to communicate with foreign banks in a standard way. Of course, they can communicate in other ways (e.g. email, phone), but SWIFT connects a large network of banks, giving them easy options to communicate what accounts to debit and credit.
Radio episode about businessman Richard O’Halloran who was not allowed to leave China for three years because of being caught in a commercial dispute about airplane leasing. The details of the dispute are unclear but clearly the experience was harrowing for O’Halloran and his family.
✍️ Word of the month:
Pariah – a social outcast. e.g. Will China save Russia from being a pariah on the international stage?
That’s it for this month folks. Reply to this email to let me know what you liked and what you didn’t like. Cheers, Ronan
P.S. While I sometimes touch on crypto in this newsletter, I mostly keep my writing on crypto over at Pinotio.com . You can subscribe to my weekly crypto newsletter over there.