Sunday, 21 January 2018

McDonnell's Fantasy Analogy


On The Andrew Marr Show this morning, Shadow Chancellor John McDonnell came out with a ludicrous analogy to try to explain the benefits of bringing services into public ownership. Think of it like buying a house, he said - you make the initial investment, get returns on renting it as an asset, and then further down the line it becomes a money-maker.

Fantasist John McDonnell has always been an intellectual lightweight, and today's analogy was no exception. Even if we're kind to him, and ignore all the obvious problems with the reasoning behind his analogy (which you can distil in previous blogs here, here, here and here), there's another obvious way that returning a service to public ownership is not like buying a house as an income-generating asset, which I'll explain.

McDonnell's analogy forgets the most important problem with bringing a service into state ownership: it creates all the downsides of monopoly power, and denies all the benefits and innovations of competition. Competition doesn't just keep suppliers in check in terms of price and quality, and consumers well served in terms of lower prices and increased efficiency, it is also the driver of new ideas and improvements on existent ideas.

A service run under a state monopoly has much less of an acute eye on commercial demand, and therefore pays suboptimal regard to price and quality too. In terms of investment, the opportunity costs of buying a house are the other forgone investments and their concomitant returns. Given that house buying is about the best asset-returning venture in the marketplace, the opportunity costs in terms of a return are all-but non-existent.

On the other hand, the opportunity costs associated with state monopolies in terms of forgone opportunities are about as overwhelming as it gets. And this in a week when there is indication that Labour's re-nationalisation project is going to cost an up front sum of around £176 billion (or £6500 for every household).

This is the dangerous fantasy economics of Corbyn and McDonnell: £176 billion for more expensive, less efficient, lower quality, innovation-stifling re-nationalised services. There is almost no analogue to buying a house here - not that we should expect anyone in the Shadow Cabinet to understand this.

Wednesday, 17 January 2018

Why Don't We Like It When The Universe Makes Us Smarter?


The widespread human aversion to correction is one of the most peculiar of all peculiarities. People don't like being shown to be wrong - so much so that they'd rather intransigently yoke themselves to a comfortable falsehood than open themselves up to a refreshing new fact or an illuminating experience of improved reasoning. There are multiple causes of this, with some degree of overlap - the usual offenders are:

1) Lazy-thinking - the path of least resistance is, by definition, the easiest method of approach. It takes time and effort to acquire knowledge and develop your reasoning skills, and relatively few people bother to do this with any aplomb.

2) Status and ego - some people find it hard to admit they're wrong, so would rather stubbornly close themselves off from revising their erroneous opinions.

3) Tribal identity - many views and beliefs are bound up in the identity of a particular group or allegiance, particularly religious and political views, which overwhelmingly bias individuals against changes of mind.

4) Emotional biases and confirmation biases - reasoning ability can be impaired by emotions, and conformation bias occurs as we look to justify our views by seeking out information that supports what we already believe.

There are others too, but those are the main four, and between them they have quite a stultifying effect on human beings' ability to be correct about things. The only cure for this sort of thing is to wake yourself up to how painstakingly, ludicrously irrational this is - I mean, why *wouldn't* you want to be correct about as much as you can be? And related to that, why *wouldn't* you want to be shown an improved way of thinking about a situation or learn a new fact? 

Learning new facts and improving your reasoning is the universe's way of making you smarter - it is one of the things that people should embrace most, yet it is so often one of the things from which people casually shy away.

Here's what I'd advise you to try: from now on, the next time you get even the faintest hint that you're wrong abut something, or that your interlocutor appears to be making a point that could bring about a fresh perspective for you, embrace it - be enthralled by it, and look at it as an invitation to open a door you'd previously only known to be closed.

You see, when we want to be, I think we humans are fairly adept at sensing weaknesses in our own position when up against smarter people. I don't think the feelings and sensations are alien. As an experiment of self-discovery, let me encourage you to try to own those feelings when they arrive. The next time you sense you've been holding on to a view or belief that needs correcting or revising, stop and take ownership of how it makes you feel.

You may feel threatened, or embarrassed, or obstinate, or defensive, or angry with yourself, or even ashamed that if you change your mind you're going to upset people close to you. I promise you, you will feel at least one of those things. But don't worry - it's the universe's way of inviting you to be smarter, and encouraging you to embrace and be glad of the opportunity.

And if that doesn't turn out to be enough to help you engage in the opportunity, remind yourself that what the universe is asking you to do is nothing different to what you've already being doing all your life - enjoying new discoveries and welcoming fresh perspectives. You don't mind being right on whether it's okay to drop litter, or on what the hottest planet in our solar system is, or on the properties of plutonium, or on whether theft should be illegal - you're just being asked to follow what you've started to its logical conclusion and remain consistent with it at every juncture.

Every time you become a better thinker, or less wrong about something, or more rational, you've made gains for life - you've taken another step on the journey of mental exhilaration. Don't fight it: thirst for it, enjoy it, and embrace it with open arms.

Saturday, 13 January 2018

With This Basic Error, Trump Is Doing His Best To Hide His 'Genius'


Oh dear, Donald Trump really doesn't get this economics thing at all. We read today that he has now declared he will use NAFTA negotiations to make Mexico pay for the wall. Alas, a 'stable genius' like this really shouldn't be making so many category errors.

Trump has spent the best part of a year explaining to Americans how, under current NAFTA rules, Mexicans export far too many goods and services to America, and that that is hurting the domestic economy.

Yet now through NAFTA renegotiations he's "going to take a small percentage of that money and it’s going towards the wall” - which infers that Americans will receive either US dollars or Mexican pesos as payment for the wall.

At which point, one has to ask: what the heck is Trump on about? If he's on about payment in dollars, then Mexicans first must acquire the dollars to pay the wall bill – and to do this, Mexicans must sell goods and services to Americans. It is only through selling more goods and services to Americans that Mexico will get more dollars to pay for the wall. But this contradicts Trump's rhetoric about dissuading more Mexican exports to America.

And if Trump means payment in Mexican pesos, then his reasoning is equally flawed, because he unwittingly commends the very thing he has spent the last year rejecting - that is, increased sales of goods and services from Mexico to America. 

The upshot is, the only way that Mexicans can fulfil Trump's wish is if they export more real goods and services to America - something Trump mistakenly presumes is a benefit to Mexicans at a cost to Americans. Trump needs to make up his mind whether he wants to slow down the Mexican imports he thinks harm his domestic economy or whether he wants to speed up the Mexican imports to pay for the wall.

Lastly, there is an outside chance that a 'stable genius' like Trump thinks (although I doubt it) Mexico will pay for the wall through US import tariffs. Yet as anyone with even a sketchy understanding of economics will know, tariffs do not just hurt foreign exporters, they hurt the domestic economy too.

If Trump raises import tariffs he will raise the prices of imports from Mexico too, meaning Americans will buy fewer of those goods or pay higher dollar prices for the goods they keep on buying. Either way, Americans are paying for the wall.

And where Mexicans are hurt by higher tariffs, they will have fewer dollars from their exports to America, which means they will have less to spend on American goods, which will do the other thing Trump claims to hate - hurt American jobs. Must do better, Donald!

Sunday, 7 January 2018

Healthonomics: Not Everyone Values Healthcare Equally


In a recent Blog post I explained why public sector provision is usually not good value for money compared with the private sector. This shouldn't be as bewildering as it is to lefties, because no one sane thinks that the state should take over, say, the running of the food industry, or the hair and make-up industry, or the clothes industry. Equally, very few people think that something like national defence or the rule of law should be given up by the state.

There are, however, some services that most people think ought to be provided by the state that would be better off provided by the price system of private enterprise. A good example is health care. A frequent problem with health care analyses is that people tend to think of health as some kind of special category whose remit sits outside of market capability. This is not so - it is perfectly straightforward to get people to pay for their healthcare like they do their social care or even their food and drink, while having a tax-based welfare system that caters for the unfortunate folk that require a helping hand.

Food, drink, heating, clothes and shoes are all important necessities for humans, but there is no National Food Service or National Clothes Service - they are provided by markets, and anybody who cannot afford these things is given welfare money with which to buy them. The same should be true of health care, where a safety net is provided, but where the services are provided by markets, with competition reducing prices and increasing quality.

Market forces would also help incentivise people to look after their health a bit better if they valued good health more than the costs of indulgence and bad health. Evidently, Brits like the NHS ethos, but remember that every good thing about the health service is already being done by market forces - it is being provided by nurses, doctors, cleaners, caterers, porters and receptionists, not the state. The state is only the abstraction that pervades the process of provision and adds on bureaucratic costs while doing so. 

Crunching some numbers
Let me run some numbers by you to prove the point. The NHS has 1.7 million employees, and there are 65 million people in the UK. That means there is one NHS worker for every 38 people in the UK - which, fairly obviously, is way too many in terms of assessing commercial demand. Last time I checked, the annual health bill per person is about £2,000. If asked "Would you rather the government let you keep an additional £2,000 a year of your money but you had to pay for your own health care when it was required?" it's obviously better for you, and most people, if you say yes, especially if you remember that health care would be cheaper if it was driven by market incentives.
 
Remember, a health system emerged in the past 150 years quite naturally and organically. The state, in gradually commandeering this service and making health care much more expensive, hampered people's ability to govern their own affairs and disincentivised them to even try that hard. You probably cannot imagine how much capital would be freed up if health care prices were to be in line with supply and demand. People would pay less tax, but have more money to spend, and have all round better, less-expensive health care.

The main reason that people seem to think we need a state-run health system is to provide health for people that cannot afford it. But that's a flimsy reason - the system would be better if people keep their money to pay for their own health care, and any instance when a citizen's ability to pay is in jeopardy, the state can give them the funds to pay for it, without the price system being interfered with (remember that when all is totalled up, the average citizen spends about 60% of their entire income on taxes).

Let's have a recap about how things are at present. The current system for most people is one whereby the state forces National Insurance out of your hand and then sells you some of the value back in the shape of health care insurance that you may or may not need. What you have to ask yourself is, on what grounds can we distinguish between needing a state-run national health service any more than a state-run food service, or a state-run bicycle service, or a state-run TV channel?

What I'm really getting at is this. If the state sets up a system in which you are likely to pay in more than you get out, many will overuse the service relative to the intrinsic benefits it provides. The same is true of higher education; when university education is subsidised by other taxpayers, some people will study even when the education they receive is worth less to them than what it costs others to provide it. In both the cases of health and higher education, incentives have been skewed.

Consumer choice is primary
Here's what's really important that very few people acknowledge. In private markets, health care is valued differently by different people: we are a very diverse range of people in society, and although non-economists find it hard to get to grips with this - the fact is, not everyone feels the same about the benefits of health care, or the trade off between their life choices and how they spend their money.

Only the consumer - that's you and me - knows whether we'd prefer reassurance from a doctor about a throat infection, or the benefits from not visiting the doctor's surgery; or whether we'd prefer a bit more junk food and an increased probability of a heart attack, or healthier food and a longer life expectancy. And the best way to combine the expertise of the providers with the revealed preference of the consumers is through the price system - which will only be near equilibrium if consumers spend their money more freely.

Doctors are professionals; they know things about our health that we do not, and they can make us better, which is why they command high salaries. Patients, on the other hand, are professionals too - they are professionals over their own lives. When it comes to your own wants, needs, desires, preferences and budget, you are the world’s biggest expert. No qualification, skill or service can match your knowledge of yourself.

Let me use my car as a real life analogy. My Subaru has one or two faults. The passenger-side speaker is intermittently faulty, and the driver-side electric window motor is broken. Clive Atthowe, my mechanic, knows how to fix these faults, and we both know how much it will cost (about £750 for parts and labour). The cost and the expertise to fix these things are based on Clive Atthowe's knowledge - but what Clive won’t know is how much I value having a working speaker and electric window against the value of £750 and doing without them.

The same is true of cleaning the car. The hand wash roadside services have the machinery to get my car cleaned much better and quicker than I can, but they don’t know my trade off preferences for a car cleaned less frequently and saving on the cost and hassle of regular visits to the hand wash station.

This information, and many other examples like it, are precisely what the price system is based on - the marginal value of goods, services and labour, all coterminous with the value we place on them. That is why, government interference aside, you can be confident that when you buy a bar of chocolate, a microwave, or a car, the price you are being charged is proximally close to the value that every individual places on those products as a weighted average of society.

It’s been designed, not from on high, but through billions of local decisions every day, to solve the supply and demand problems and the asymmetry of information problems, while factoring in investment costs, risks and so forth, to ensure that every price very closely reflects society’s aggregated revealed preferences.

There may be some mileage in a centralised health system, but implicit in that framework would have to be a scenario for individuals where their preferences and their expenditure are more closely aligned. Put it this way, if the NHS didn’t exist and the current model was put forward as the way to design it, anyone economically savvy would reject it and opt to create something different. Like the European Union, people tend to be emotionally connected to it because it’s already there and has been for years, more than they are emotionally connected to it because it's the model they would choose to create from scratch.  

A world full of better alternatives
Incidentally, from what I've seen, I rather like the idea of a health savings account, like the one in Singapore, where instead of the state taking money through taxes and letting you have it back in the form of free health care, you get to keep more of your money to put into a medical savings account.



That money is used to pay for your health care where you can negotiate doctor-patient contracts in a market system, much like you would now with insurance and banking, and what you don't spend on health throughout your life gets added to your pension pot. Naturally when you spend your own money directly on health you are more careful with your health, what you consume and how you behave.

What is often not realised is that the best solution to goods and services is market-based solutions, but a mix of market and state can often be worse than even just the state running things (as the US health system and UK railways demonstrate). Mixing market incentives with political ones is often a toxic recipe, because you often get the worst of both worlds, whereby special interest groups obtain too much power, public money makes things less efficient, and market signals are ignored when the state backs it with a guarantee.

Kate Andrews at the IEA talks about the NHS's relative performance in this article:

"While countries like Switzerland and Germany spend a few percentage points more of their GDP on healthcare than the UK, many countries – including Hong Kong, South Korea, Portugal, Australia, and Iceland – spend close to the same or less, and fare better when it comes to patient outcomes. It is clear that what sets the NHS apart from its European neighbours (and indeed, the rest of the developed world) is its extremely centralised system that allows for almost no competition or patient choice. The UK’s unwillingness to adopt the social insurance systems that dominate Europe is what separates it on the league charts – usually ranking in the bottom third of international comparisons."

Remember, also, vital goods and services are just the kind of important things that need to be allocated most efficiently by the signals of supply and demand. There is no reason why health shouldn't follow the same template, rather than how it currently is (in the UK) whereby the state forcibly takes whopping sums of money from us and compels us to prop up a health system that has the weeds of information asymmetry, unfairness, perverse incentives and sub-optimal allocation of resources entangled in its flowerbed, and a shortage of price-based reflection of revealed preferences in its DNA.

It's important to remember, the services don't have to be radically altered - just the way they are run and how they are paid for. What you have to remember is that currently there are consumers and providers, and politicians as middle men who take lots of our money to pay for healthcare and then give us that healthcare if and when we need it. It is a system that not only cannot be sustained, it's also one that is a recipe for mass inefficiency.

A change is imminent - here's where to start
The best way to reform a large superstructure like the NHS is to reform it bit by bit, and start with the low hanging fruit - the bits every Tom, Dick and Harry can see are not fit for purpose. So let's pick a few obvious examples.

The first is that it is absolutely ridiculous how much of the NHS resources the binge culture drains, where drunk people need medical attention because they've over-consumed in an irresponsible way. Some of those cases take up to 6 medical staff and usually two police officers too. Such people should be given a bill for this.

The second is doctor's appointments - missed appointments cost the NHS a few billion pounds a year, and once you add on all the people that have an appointment that didn't need one, that probably triples. A price incentive has to be built into this.

Plus, and a lot of this has already happened or is happening, numerous goods and services that do not need to be built into the centralised NHS framework - things like facilities management, payroll, HR and staffing agencies, catering, imaging and pathology, community health services and after-care, pensions, portering, laundry, IT and cleaning - that could instead enjoy increased competition and patient choice for the consumer (some of these are already privatised to good effect).

This will be broadened out to gradually include more GP surgeries, out of hours services, diagnostic services, community nursing and a range of other community services, which will cut down on public costs and improve efficiency.

It has to be said, there have been some disastrous private financial contracts handed over, where the provider has made a loss and found the contract agreement to be financially unviable - something which can be avoided if the gradual process occurs in the right way.

The other thing that needs to accompany these changes (and will) is the increased technological advancement that makes all these links between how people can keep more of their money and pay in accordance with usage more viable. So, for example, if charging for the NHS usage whilst pissed on a Saturday night were introduced tomorrow, it would be a bureaucratic nightmare to enforce. Fast forward to a time when the entire administrative cost can be finalised with a quick tap of a card or a fingerprint on a scanner and it will be much easier, because the concomitant behind the scenes technology will also be more sophisticated.

Remember, someone in the 1950s would be quite astonished to think that you could walk in to a supermarket, scan the goods in your basket and tap a payment card on the sensor to complete the transaction. Imagine in the future when money earned and money spent on health care can be so much more prodigiously efficient thanks to advanced technology.

An awful lot of positive developments in society are made possible by life-changing technology. Think of any detective movie in the old film noir era with Humphrey Bogart and Robert Mitchum and imagine how much easier their cases would be to solve with a smart phone. Think of how much easier the protracted scientific revolution would have been if all the exponents had laptops and the internet. Think of how much quicker the Industrial Revolution would have gathered momentum with more advanced electrical and combustion capabilities.

But all that's just the boring stuff about NHS service minutia - the really compelling part to all this is how radically improved systems are when information signals related to preferences play out more freely. When I buy white goods (fridge, freezer, washing machine, etc) I never pay extra to insure them because it's a certain additional cost against a small probability of ever needing that insurance. Some people are risk-averse and willingly pay the extra, usually unnecessarily, but sometimes the peace of mind is worth the cost. Others just get duped because of ignorance or price-insensitivity. Either way, the price system reflects those different choices, and a law that insisted everyone insure white goods would be one that is bad for consumers.

Not only would it fail to reflect people's revealed preferences in the price system, it would also disincentivise us to look after those goods as well as we would if we picked up the cost more directly. You'd defrost your freezer less frequently if you knew that once it packs in the government has a ready-made replacement all bought and paid for with your taxes. Under that system society will get through a lot more freezers too, which means the annual bill is higher. Think of that as a good analogy for the NHS.

But there's more. Misallocating resources occurs when the price system cannot take into account not just what people want, but what they don't want too. A taxpayer subsidised system like the NHS encourages overuse because there are sunk costs in terms of all the National Insurance you've paid.

Consider my Subaru again. I told you earlier that one of the electric windows stopped working. The garage said it would cost over £700 to replace the motor, so I decided I could live without one of the windows working. Now if cars, like health, came under a nationalised system, whereby I could get the window motor fixed under public expense to which I'd already contributed, I may well do so - but I'd be doing so not because I value the fixed car window more than the £700, but because the sunk costs have already occurred in the paid taxes.

Only I know whether I value the cost of fixing the car window more than spending the £700 on other things, so a nationalised car policy that encouraged me to overestimate the value I placed on fixing the car window would be more of a hindrance to me than a help. The same is true of a nationalised heath service - it just takes a bit more imagination to see how radically different it could be, and will, be, in the future.

* Politicians from different parties keep squabbling about who has got the most attractive peacock’s tail, where biggest peacock’s tail here means how much money they will put into the NHS. They try to call this their health policy, but that’s not a health policy, it’s a redistribution of income policy. A health policy, which politicians are apparently too frightened to propose for fear of committing blasphemy against subscribers to the religion of the NHS, would be a policy that lays out plans for properly modifying the health care framework, and one that tackles the funding problem and helps align usage and incentives and constraining usage by making the costs more accountable to the consumer. Simply bleating about how much extra funding you can put in, and increasingly burdening future generations to do so, does nothing to attempt to tackle the fundamental problems.

Wednesday, 3 January 2018

Another Thing Corbyn Doesn't Get: Opinion Polls Are Deceptive About Our Preferences


Jeremy Corbyn's New Year speech was full of buoyancy about how he's a Prime Minister in waiting because the policies he endorses are popular with voters. The problem is, he misunderstands the most primary error in his evaluation: that opinion polls are deceptive about what people actually do want, as opposed to what they say they want.

Below is a recent poll showing the public appetite for the nationalisation of various services in the UK. As you'll see below, more people want energy, water, railways, post, health and education to be run by the state than not. The corollary is that although many people think Corbyn the man is a bit of a plonker, his policies are apparently more widely popular than they are unpopular. In this post I will show you why popular opinion ought to be meaningless in creating government policy.




Alas, the YouGov poll is fairly meaningless, because it doesn't tell us what people actually desire - it tells us only what people claim to desire when they don't feel the costs of those desires. I want a £4000 top of the range television if you are going to buy it for me; whereas if I'm buying my own television, I'll probably spend about a quarter of that.

Similarly, when a British citizen is asked if she wants more public money spent on health care, railways and the energy sector, and if she wants employers to be forced to lower their staffing levels so others can receive a minimum wage, she will quite happily say 'yes' if she doesn't have to bear any of those costs. She may have to bear a tiny proportion of the costs through increased taxation, but those costs are spread thinly enough that no one individual feels it very acutely.

Moreover, a poll asking you whether you support renationalisation of the railways is not very likely to have the result affected by your vote, so you are less likely to have spent much time analysing the pros and cons of a nationalised railway.

The only poll that genuinely covers your revealed preferences is the poll where you feel the full costs and benefits of your decisions - and that only happens when your decisions are market-based, with the full gamut of consumer surpluses and opportunity costs factored in. I would buy a £1000 television for the consumer surplus, and wouldn't buy a £4000 television because of the opportunity costs associated with that additional £3000 expenditure.

Polls, therefore, are fairly meaningless in telling us what politicians should do with our money, because the poll choices are divorced from the personal ramifications of those choices. To discover what British citizens really want you have to allow them to spend more of their money, and reveal their preferences in a market-based economic landscape. Unlike in state policy, the market will respond, as prices and quantity will adjust accordingly to supply and demand.




Sunday, 31 December 2017

Homework For Owen Jones In 2018.....



The regularly confused Owen Jones had an article out over Christmas in which he laments what he perceives as the rise of individualism and the demise of solidarity in society (Jones' perception is based on the results of a survey by the European Commission, where apparently 52% of the people surveyed are hoping for more solidarity).

Owen Jones predictably blames all this on what he calls 'Thatcherism' or 'neoliberalism', which, according to him, has encouraged a maximisation of individualism that has sought to "bulldoze every last remnant of solidarity we felt".

This is, of course, utter hogwash, built on the fact that neither Jones nor the European Commission understands the concepts they are trying to evaluate. Humans do not look to maximise individualism, we look to maximise utility. In conjunction with this, economics is a proper empirical method for assessing what humans prefer given many combinations of goods, services and opportunities for mutually beneficial exchanges.

Therefore, what Owen Jones sees as selfish individualism is no such thing, because the pursuit of human utility for each individual is underpinned by solidarity in cooperation. Once you factor in the billions of combinations of goods and services and the billons of combinations of tastes and preferences, you see that suppliers only provide what consumers desire, and at a price people are willing to pay.

Consequently, economics is about human preferences and behaviour played out in the form of mathematics (utility). For example, indifference curves represent a series of combinations between two different economic goods, and they play out in geometrical terms when slopes of indifference curves on a graph reflect marginal value. This is the very basis on which utility operates - but fairly obviously this is based on cooperation between buyers and sellers, not on the kind of isolated individualism that Jones thinks has bulldozed this country.

What Jones also doesn't understand is that the process that drives the death of failing industries in the UK is part of the very same solidarity we were just talking about. Industries that fail do so for exactly the same reason that salt and vinegar flavoured crisps succeed at the expense of strawberry flavoured crisps - people are revealing their preferences and relying on each other to try to maximise their own utility.

So when small corner shops close because their customers switch to the nearby Tesco; and when a music store closes because people download their tunes straight from the Internet; and when businesses are made better off by importing Chinese steel than by supporting British steel, there is no bulldozing of solidarity - just cooperation with more efficient agents for the benefit of increasing utility.

The market's revealed preferences are simply instances of increasing utility spread thinly across society, whether that's by producing things cheaper, using fewer resources or being more efficient with time. These matters of individual utility are part of solidarity in cooperation; they are not at odds with solidarity as Jones thinks. Cooperation helps individuals to maximise net utility.

Friday, 29 December 2017

The Rapid Immiseration Of A Nation State Blighted By Socialism


A video has been doing the rounds, with the following tagline:

In just one generation, Venezuela has gone from being one of the richest countries in the world to 2nd to last, just above to North Korea. Today, people are starving and Nicolas Maduro's military and police forces are set against the civilians protesting in the streets.

How could this happen? In a word: Socialism.

Overly-simplistic? Yes! But the kernel of the point is a valid condemnation of a system of thought that has brought about mass misery every time it has been tried. This point wouldn't be so compelling were it not for the fact that currently in the UK the leader of the opposition, Jeremy Corbyn, is a vocal advocate of Venezuelan-style socialism, and wishes to impose something similar on our country. To that end, the only thing more shocking than the lack of disgust at Jeremy Corbyn and John McDonnell is the shock that so many people will give his facile and dangerous policies the time of day. Let me explain why.

One pretty normal thing about human beings is that we positively promote things that are good for us and no one bats an eyelid. Protein is good for us, as are carbohydrates, as is exercise, fresh air, happiness and security. A writer who advocates the virtues of any of those things is not likely to be heavily criticised.

Alas, humans do not always follow this consistency through; for there are some things that are really good for humans that many don't take full advantage of. Perhaps the most obvious example of this is how so many fail to value the quality of revealed preferences and the value in having freedom to make personal decisions. In fact, quite often they advocate having a state that makes those decisions on their behalf with far less knowledge than the agents in question. It is, in my submission, one of the most absurdly self-impeding things we do: it's part of the human propensity for lazy thinking and uncritical delegation - what William Blake called the 'mind-forged manacles'. 

Why socialism never works
Society is made up of billons of life choices each day, and the prices we see in the marketplace are a reflection of those choices and the value we place on things. Cars are popular among 50 year olds, whereas roller skates are not, because 50 year olds tend to prefer cars to roller skates. Beer is more popular than mint tea in a nightclub because people value beer more than mint tea when they are clubbing. These are society's revealed preferences, and prices reflect those wants and needs.

In most cases, therefore, when choice is involved, society would be better off if resources (labour, goods and services) were allocated based on individual preferences, not on top down nationalisation. Our country's defence, for example, is fine as a nationalised service, because everyone wants to feel protected from foreign attacks, and few people want to spend much time and energy choosing between different defence alternatives.

You can make a similarly good case for road maintenance and the police force. But most things we consume are not of this kind - we value the choice to spend our money on what personally benefits us, and society thrives on the basis that our choices are all different.

The Venezuelan problems, though numerous and complex, belong to what's known in economics as the economic calculation problem - which is that centrally planned economies are dangerous and inefficient because they lack reliable price signals, and therefore fail to distribute resources rationally. As has been seen in every country that has tried a state control of an economy, what it leads to is shortages, brutality, oppression, mass suffering, and ultimately total immiseration of the country. 

The main problem with command economies is that there is no rational employment of capital goods, which stifles vital information signals about how much to produce of what, who desires what, and how much they desire it. Socialism, by centralising the ownership of capital goods, necessarily skews the markets in which these goods are traded, which tramples all over evidence-based economic calculation.

With skewed markets for production, you get skewed prices, which impairs the ability to decipher which lines of production should be pursued, and for how much. That is the base reason why socialism produces material hardship and free markets produce material abundance - there is no magic overseer of markets, it is just that free exchanges in markets allow for much more information-clarity, which is what enables the right amount of stuff to be produced, for the right price, and with as few distortions as possible.

Corbyn's Labour Party, with shades of Venezuela, represents everything that is crass, foolish and dangerous about political influence in the free exchange economy. I wonder if it's too much to ask that Venezuela's calamitous retrogression will be enough to awaken the young Corbynites from the sleep of their foolishness. It is the season for miracles, after all.

Thursday, 28 December 2017

Why Some Questions Fail To Get Answered


Many of the big questions people ask are the same questions that they have debated to death for centuries, mostly with no resolution. If we've seen one thread on free will, God's existence, absolute morality, capital punishment, abortion, and questions of that nature, we've seen hundreds.

To my mind, the most probable reason why many of these questions linger is that the questions that are being asked are unreasonable ones. By 'unreasonable' I don't mean it's wrong to ask such questions, I mean they are probably being asked in the wrong way.

Here's a useful tip. Whenever you ask a question, you would be advised to consider whether that question can actually be reasonably asked in the way you are asking it. And as a corollary, you are also at the same time asking whether it can be answered. If the answer to the first part is 'no', the answer to the second part is going to be 'no' as well.

But how do you ascertain whether a question is being reasonably asked? Here's my tip on how you do it. If either or all of the answers you are considering in relation to a question would sit equally well with the reality you perceive, whereby each putative conclusion bears no change to the reality you perceive objectively, then your question cannot be reasonably asked.

Let me make that simpler by giving two examples of questions that cannot be reasonably asked, as per the above. Question 1: Did God cause X to happen? Question 2: Do we have free will?  Again, by that I don’t mean it’s unreasonable to speculate on these questions (and I have done), I mean they are questions where either answers leaves us in the same epistemological position. 

The question Did God cause X to happen? – must be followed by the question; is there any X in nature that can be explained by God that can’t be explained by nature, and vice versa? Empirically speaking, there is not. Similarly, the question Do we have free will? must be followed by the question; is there any action that can be explained by our free will that wouldn’t have otherwise occurred if we don't have free will? Again, there is not.

Over the years I've often found myself saying to antagonists that the answers they get will likely be as intelligent as the questions they ask, and that the rewards of what they get out of an enquiry will be roughly commensurate with the resources they put in. In cases like the above, though, we sometimes just have to remind ourselves that some questions are more interesting than answers, and that badly formulated questions will leave people on an endless treadmill of mediocre, unfruitful debate until they are executed properly.

Friday, 22 December 2017

Why It Is *Possibly* Safer To Drive Home Drunk Than Walk Home Drunk


This is the first time I've ever let someone else write a Blog post here, but I figured regular readers who are interested in the sort of things I write about would probably be interested in this, taken from the intriguing book that is Superfreakonomics by Steven D. Levitt and Stephen J. Dubner. If you're anything like me, you'll probably notice the trade-off between counter-intuitiveness and rationality, and that there's a sleight of hand going on in order to make the argument fly, but it's something you'll likely be glad you got to consider:

Many of life’s decisions are hard. Some decisions, meanwhile, are really, really easy. Imagine you’ve gone to a party at a friend’s house. He lives only a mile away. You have a great time, perhaps because you drank four glasses of wine. Now the party is breaking up. While draining your last glass, you dig out your car keys. Abruptly you conclude this is a bad idea: you are in no condition to drive home.

For the past few decades, we’ve been rigorously educated about the risks of driving under the influence of alcohol. A drunk driver is thirteen times more likely to cause an accident than a sober one. And yet a lot of people still drive drunk. In the United States, more than 30 percent of all fatal crashes involve at least one driver who has been drinking. During the late- night hours, when alcohol use is greatest, that proportion rises to nearly 60 percent. Overall, 1 of every 140 miles is driven drunk, or 21 billion miles each year.

Why do so many people get behind the wheel after drinking? Maybe because— and this could be the most sobering statistic yet— drunk drivers are rarely caught. There is just one arrest for every 27,000 miles driven while drunk. That means you could expect to drive all the way across the country, and then back, and then back and forth three more times, chugging beers all the while, before you got pulled over. As with most bad behaviors, drunk driving could probably be wiped out entirely if a strong- enough incentive were instituted— random roadblocks, for instance, where drunk drivers are executed on the spot— but our society probably doesn’t have the appetite for that.

Meanwhile, back at your friend’s party, you have made what seems to be the easiest decision in history: instead of driving home, you’re going to walk. After all, it’s only a mile. You find your friend, thank him for the party, and tell him the plan. He heartily applauds your good judgment. But should he? We all know that drunk driving is terribly risky, but what about drunk walking? Is this decision so easy?

Let’s look at some numbers. Each year, more than 1,000 drunk pedestrians die in traffic accidents. They step off sidewalks into city streets; they lie down to rest on country roads; they make mad dashes across busy highways. Compared with the total number of people killed in alcohol- related traffic accidents each year— about 13,000— the number of drunk pedestrians is relatively small. But when you’re choosing whether to walk or drive, the overall number isn’t what counts. Here’s the relevant question: on a per- mile basis, is it more dangerous to drive drunk or walk drunk?

The average American walks about a half- mile per day outside the home or workplace. There are some 237 million Americans sixteen and older; all told, that’s 43 billion miles walked each year by people of driving age. If we assume that 1 of every 140 of those miles are walked drunk— the same proportion of miles that are driven drunk— then 307 million miles are walked drunk each year.

Doing the math, you find that on a per- mile basis, a drunk walker is eight times more likely to get killed than a drunk driver. There’s one important caveat: a drunk walker isn’t likely to hurt or kill anyone other than her- or himself. That can’t be said of a drunk driver. In fatal accidents involving alcohol, 36 percent of the victims are either passengers, pedestrians, or other drivers. Still, even after factoring in the deaths of those innocents, walking drunk leads to five times as many deaths per mile as driving drunk.

So as you leave your friend’s party, the decision should be clear: driving is safer than walking. (It would be even safer, obviously, to drink less, or to call a cab.) The next time you put away four glasses of wine at a party, maybe you’ll think through your decision a bit differently. Or, if you’re too far gone, maybe your friend will help sort things out. Because friends don’t let friends walk drunk.

Monday, 11 December 2017

The Popular Annual Myth Of December 11th


Today is December 11th, and the chances are that at some point today you've seen at least one of the many articles doing the rounds informing you that December 11th is the most fertile day on the calendar in the UK. There are articles (albeit old ones) in The Telegraph, The Daily Mail, The Guardian, and The Times being shared around Facebook, all making the claim that more babies are conceived on December 11th than any other day of the year, and that apparently this happens year on year.

Despite appearing in reputable newspapers, my initial instinct was that this story is poppycock, and that what we are seeing with this account is lazy, uncritical journalism. Save for one of those extremely rare coincidences that one expects every now and then when the law of large numbers throws up some irregular statistical patterning, the probability of the same day each year being the most fertile day of the year is vanishingly small. There are just too many variables and complex interlinking causes for such a peculiar pattern to emerge, and I could definitely smell a rat. 

So after a bit of probing, I found out that December 11th is not consistently the most fertile day on the calendar in the UK, this was simply an example of the researchers distorting the evidence. It turns out on closer inspection that they merely did a survey collating people’s birthdates and found that September 16th is the most popular within that survey period (and by slight margins). This is not the same thing as saying that year on year December 11th is the most fertile day on the calendar in the UK - the search space consisted of only a small, unrepresentative sample that would hold to no patterned regularity once broadened.

One thing of interest though
Even though it turns out that the specific date reported is untrue, it is apparently true that December is the most fertile month of the year on a consistent year by year basis, and that is something that may still be of interest to readers here. The fact that there is consistently a particular month of the year when most sexual unions occur ought to be no surprise really, particularly if there are regularities in human behaviour that could easily cause such a statistic to be true.

I can think of three reasons why December might be the most fertile month of the year:
 
One is that colder air helps to improve sperm quality. Actually, I didn't think of that one - it was reported after the media consulted a biologist. What the biologist didn't mention, though, is that by itself that's not compelling, because the 'colder air' factor should only narrow it down to winter months, not specifically December.
 
Two is that quite a few parents plan pregnancies in December so that their children’s birthdates are in September, which increases the probability that their children are among the oldest in their school year (giving those children an advantage).
 
Three is that early to mid December is when the country has lots of Christmas office parties and work nights out*, which might amount to an increase in sexual activity in early to mid December. 

So my best guess is that it’s a combination of the colder weather, school planning, and Christmas conjugation that gives us the statistic that December is the most fertile month on the calendar each year. 

 
* Note that Christmas office parties usually happen on Fridays and Saturdays, and those days are different dates each year, which increases the spread of probability away from any specific date in December.

 

Sunday, 10 December 2017

A Radical Way To Change Politics For The Better


I have three radical, brilliant and yet wacky ideas for how to revolutionise our political system. The first one involves ditching constituencies and drastically reducing the number of MPs with a new system of representation (your local council could fulfil any need your MP can). The widespread mediocrity of our MPs is a lot to do with the fact that they are working within a system that does not provide much of an incentive for moral probity or intelligent policy-making. 

It's only when professional people are accountable for their actions or words that we lessen the duplicity and complacency. I doubt we would have seen the MP expenses scandal nor be subjected to the regular tosh to which we have become habituated if we had upstanding MPs who feared the opprobrium (and voting power) of the electorate, and had to conduct themselves with integrity and intelligence to secure their next vote. 

The main cause of this lack of incentive is that too many MPs are in safe seats in their constituency, and party associations that choose the candidates for constituencies can ensure that those in Ministerial roles get the safest seats. My antidote to this is a whole new system that instils some kind of accountability to MPs, and ideally brings in a better and more scrupulous calibre of candidate, and a more carefully thought out voting process.

Idea 1
First we need to decimate the notion of votes attached to constituencies according to geographical borders. As a replacement, my radical proposal would be that candidates will stand to represent surnames demarcated into sections of the alphabet, not regions of the country. We could reduce the exorbitant number of MPs down to about 500 (that'll save on expenses) - and then have a system in which MP 1 represents everyone whose surname begins with Aa-Ad, MP 2 represents everyone whose surname begins with Ae-Ah, and so on. 

Under such conditions, an MP really would have to work hard to forge a good reputation and the prowess for positive influence, because the people he or she represents would be all over the country, and they would make up a body consisting of a diverse range of classes, cultures and ethnicity. MPs are much less likely to be complacent if they are required to have a positive impact on tens of thousands of people scattered across the country rather than people concentrated in a specified area of the country - they will have to think more innovatively about plans, policies, investments and strategies.

And instead of having constituents and holding surgeries, elected MPs could get involved with local issues through regional councils, primarily motivated by doing good, honest, decent work for the region. There may be occasions when conflicts of interests occur between a local person and a person he or she represents alphabetically, but I don't expect them to be too frequent. Put this system in place and I'll bet we'd see a higher standard of MPs, in a system in which Westminster attracts more candidates who want to be MPs for the right reasons.

Idea 2
In addition, my second idea adds even more intellectual and moral scrutiny to the process - because in order for MP 1 to represent everyone whose surname begins with Aa-Ad, and MP 2 to represent everyone whose surname begins with Ae-Ah, and so on, we could try to lessen party political biases and tribalism by offering category distinctions between policies and parties. In other words, rather than everyone whose surname begins with Aa-Ad voting for a party candidate, they could instead be asked to tick boxes for a large range of policies they support (after reading intelligent annotated arguments for the costs and benefits of each policy - we could make this mandatory), while being blind to the parties to which those policies belong.

I got this idea during the last election, after clicking on one or two of those websites that attempt to tell you which party it thinks you should vote for based on a series of policy selections you've made from behind a Rawls-type veil of ignorance, blind to the parties to which those policies belong. It’s obviously not totally blind, as it’s fairly easy to tell which policy belongs to which party in the most obvious areas - but it certainly was the case that when people did the exercise they frequently ended up being most closely aligned with parties that were not the parties for whom they would usually vote.

Being more economically right wing than most, and more socially left wing than most, when I partook in the exercise it was clear that I am further from all the mainstream parties than any of them are from each other, which means there is no obvious party for me to vote for. However, this isn't true of the average voter - in fact, rather worryingly, a poll seemed to indicate that if people voted for policies not personalities, the Green Party would have won the last election - which does rather suggest that the average voter is likely to make a real mess of things with a policy-only vote, and that democracy would not be all that safe in their hands.

Idea 3
This is where my third idea can help - because, as I talked about in this Blog post, I think the nation pays too much regard to the so-called qualities of democracy. Leaving decisions and policies that require intelligence and evidence-based analysis in the hands of largely uneducated and short-sighted populations is highly overrated. What's needed, in my view, is a voting system comprised of fewer, smarter voters - but having tweaked my system a bit, I'd now wish to incorporate my two above ideas into it.

Added to my above system of having MPs represent surnames rather than constituencies, and voters voting on policies not personalities, I'd also want the outcomes to be in the hands of far fewer, more educated voters - maybe with something resembling jury duty, where a random selection of the population (to ensure a proportional representation of sexes, ages, ethnic backgrounds, income groups, religious beliefs, political views, education, and so forth) - let's say 50 people for each letter group (at 500 groups, that's 25,000 voters) - are called to partake in a rigorous voting process involving careful, considered analytical scrutiny over a number of weeks.

So here's how it would work. The first step is to ensure that voters voting in my reduced voter election are better apprised of the facts, and of the pros and cons of all policies (the seen and the unseen). Rather than decide where your vote should go based on personalities, the 50 x 500 chosen voters get to spend a number of weeks, getting paid for their time, studying the economic, sociological and philosophical tenets of all aspects of the policies in front of them, attending lectures from speakers of both sides of the argument, partaking in group discussions and becoming involved in debates orchestrated by experts in the fields (the benefits of the outcome would more than pay for the financial costs of this, and some of the offsetting savings will occur by not having to employ polling clerks throughout the country on election day).

And then at the end of the process, after developing a much broader understanding of the costs and benefits of all policies, the individuals get to vote on those policies, and then the results are announced, with the winning 500 MPs taking their place in Parliament

You may worry that this will disenfranchise most of the other citizens that don’t get to vote – but there’s no reason to think this.  At the start of play, everyone has exactly the same chance of being selected, and everyone in the country (both those selected and those not) will be secure in the knowledge that the people who are going to represent them in Parliament will have been chosen with more rigour and a higher degree of analytical scrutiny by highly conscientious citizens in the country. That cannot be as disenfranchising as the current system in which every single person that votes knows that that vote will have the same use as if they’d stayed at home.

What I'd also predict will happen is that if politicians knew that their policies would be subjected to proper, rigorous analytical scrutiny - and that they'd have to be credible to pass intellectual muster - the policies offered would be far more carefully thought out, and more in tune with a formal economic accountability.

One would hope the politicians that made empty promises, and sold policies based only on benefits with scant regard to costs, and politicians who took advantage of the electorate from within the comfort of their safe seats, would be greatly diminished, and in many cases got rid of altogether in my proposed system. Who knows - it's even possible that higher quality politicians with properly analysed policies may end up rubbing off on a greater proportion of the electorate.
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