Wednesday, 18 January 2017

Hostages Falling In Love With Their Abductors


Libertarians are always going on about making the state smaller and the economy larger. A regular reader (and personal friend) asked a while back whether this was a realistic desire, given that, in his view, the state and the economy are inevitably yoked together. What the question really points to is another question: are the state and the economy inextricably conjoined because they have to be, or is it merely the case that the majority think this has to be the case?

Economist Adolph Wagner certainly thought so – he came up with a law that went on to be known as "The Law of Increasing State Activity" - or Wagner's Law as it was also more popularly called. Wagner's Law states that as the economy develops over time, the activities and functions of the government increase. As progressive nations expand their economic growth, the proportion of money that goes into the public sector grows too, and this is largely due to the electorate's perceived need for increased state activity, increased administrative costs and an expanding welfare sector.

I have a hunch that Wagner's Law will continue to play out in the short term, but longer term the morbidly obese state will get swallowed up by its own gluttony and then begin to decay. And just like when a parent pulls a splinter out of their child's finger, I think the people will have to wise-up and help the state go through its initial pain in order to help with the necessary decline. The main reason for this is to help promote the understanding of what a rough deal we get from the state overall.

In the market of trade, I am going to give you money and you are going to plaster my walls - that is a mutually beneficial exchange of money for services, and it involves free choices. The relationship we have with the state is not of this kind - we are compelled to consent to the state's laws and regulations, or else we have to leave its geographical jurisdiction. Unlike the plastering job, it isn't a contract we signed because we agree to all its costs and benefits - it was one we had to sign to carry on living in the place of our birth. There is no analogous relationship in the free market. No plasterer or newsagent or car salesman ever assumes on your behalf that you want these things and that you will pay for them or else go to prison.

The principal retort to this line of thinking is that the state doesn't just take our hard earned money - it gives us services in return. True, it does - but I don't get much of a say about which services the state provides - for I can conceive of numerous services the state provides that the private sector could provide more cheaply, more efficiently and only to those who want them. I expect to pay for a plasterer if I need one, or give money to a car salesman when I need a new car. But I wouldn't choose to live in a system whereby I have money taken from me to pay for trains other people use or rent subsidies because the government has artificially inflated housing prices.

In this system I have to fund my own preferred mode of transport to work (not to mention all the other concomitant taxes associated with car ownership) plus subsidise other people's rail journeys. A market system would see costs of travel more closely linked to types of travel for the consumer - and ditto numerous other services that are currently funded for across the wider population.

What you have to remember is that while all these public services may be proximally funded by the state, they are distally funded for by the market transactions throughout society. Some services may be better off with some state involvement for the time being (though not necessarily indefinitely), but the idea that there are not plenty of services that could be more efficiently funded and performed by letting us keep more of our money and spending it on more freely made consumer choice-driven decisions is remiss.  

You only have to think that the historically unprecedented progression-explosion in well-being, living standards, reductions in poverty and economic growth had virtually everything to do with trade and competition and very little to do with state-spending programmes (a truth that's compounded by the fact that any successful state interjections during that time were themselves paid for by the fruits of trade and competition in the first place).

Not only does the state force us to obey all its strictures by threatening to incarcerate or deport us if we don't obey, it also runs on an engine of economic oppression whereby it protects its existence and fattens up its own stomach by the self-serving rules it creates to achieve this. The misdemeanours for which the state punishes its citizens most readily are the misdemeanours that subvert its own authority and compromise its own bounty.

Consequently, then, we shouldn't be surprised that Wagner's law continues to be hold its water - nor that our authorities have gradually been shaping its citizens and its media to embrace the narrative that it exists for our own good and that we need to do our bit to perpetuate its gluttony.

The plasterers, the newsagents and the car salesmen justify their existence for our own good only by the continued provision of goods and services that bring value to our society. Except for the important services it provides, particularly for the elderly and the vulnerable, the state does not. In fact, given that the market is the state's biggest rival in competition for efficiency and value, it is no surprise that it looks to create a narrative that undermines its rival. The state tries to engender a nationwide Stockholm Syndrome through fear, distortions and parent-like manipulations, until the majority of its population blithely accedes to the theory of its own legitimacy.

Monday, 16 January 2017

Oh This Is So Ludicruous



Over the weekend, the consistently clueless Nicola Sturgeon bemoaned the possibility of a post-Brexit UK being a 'low tax, de-regulated' economy; and then on Sunday's Andrew Marr Show, Jeremy Corbyn lambasted the Chancellor's consideration of making post-Brexit Britain a tax-friendly nation in competition with the EU if we don't get a good deal (most prominently by drastically cutting corporation tax).

When are people like Corbyn and Sturgeon going to learn some of the basics - that low tax, lightly regulated economies are exactly the kind of economies that see prodigious economic growth by encouraging more outside investment, and by making it worthwhile for entrepreneurs to work hard in our nation?

The reality is, they are getting their reasoning backwards: what they think would be doom and gloom for Britain would actually be a liberatingly positive thing. Take corporation tax. While it would be better if it was removed altogether (as I explain in this blog post), cutting it would be a significant step in the right direction because it would make the vast majority of the population better off (including the working poor). 

The reason why is easy to understand for anyone who understands economics, because the issue is all about who picks up the cost of corporation tax. Quite simply, the burden of corporation taxes falls either on the employees of the company, or on the customers, as shareholders will see to it that the cost is not borne by them. Company profits are revenue minus expenses, and there's no way the shareholders are picking up expenses they can pass on to others.

Alas, due to the fact that much of the electorate believes the same thing about tax and regulation as Corbyn and Sturgeon, there is almost no selection pressure on these politicians to grasp the fact that a tax-friendly, more lightly-regulated economy will not only help Britain thrive, it will help the economy grow to pay for the services they are saying are 'in crisis'. Corbyn and Sturgeon, by contrast, want to preside over an economy in which neither of those things happen.

Sunday, 15 January 2017

There Isn't Really An Instinct To Preserve Our Species


It's a commonly held view that we humans have an instinct to preserve our species. It's common, but I think it is misjudged - we do not have an instinct to preserve our species, we have instincts that when aggregated make the perseveration of our species more probabilistic. That's a different thing.

Certainly we as a species are very mindful of ecological and environmental issues, and most of us do not look favourably on the wilful destruction of our planet. But these actions that increase the likelihood of preservation of our species are not undertaken because we have an 'instinct' to preserve our species - they are a part of our relinquishment of personal liberties for the good of society and for the time being a well established government. This is often referred to in philosophy as ‘the social contract’ – and provides justification for nations being governed by a central State. 

The social contracts of Hobbes, Rousseau and Locke have ingrained in our psyche the view that order and decency can be created and developed through systems that are legitimated by the human consensus for a collective contract. In other words, our instincts are for co-operatives - be they market exchanges, rule of law or democratic representation - and it is because of those co-operatives that we are able to behave in a way that makes preservation of our species realistic.

We can make the point clearer regarding why I don't think we have a preservation of species instinct by comparing such a thing to instincts we do have. If we take the word ‘instinct’ to mean something most natural to the emotions, such as something that elicits feelings of pleasure or fear, as in our instinct for food or sex, or an instinct for fear in a dangerous situation, then we can certainly say that no analogous instinct of preservation exists. A farmer who relies upon his crops and livestock for a living does not have the same instinct to preserve them as he does an instinct to make love to his wife. It seems very evident to me that we do not have a desire to preserve our species in that way. 

When a man desires a woman, the desire becomes a reified desire; he can see what he wants and he can see how he can get what he wants. But the desire to preserve our species doesn't occur that way - in fact, it occurs in just the opposite kinds of situation. When one thinks about posterity, one is not in a raw animalistic mood; one is usually in a reflective mood, pondering the future generations and what might become of them. And the later feeling seems to me to be quite a departure from the former instinct. The best we can say is that we are impelled to think mindfully of future generations, for their well being, and for their future. 

Although we can make rational decisions to save and plan for our futures, it seems to me that if instincts are at play it is a more reasonable argument to say that we are impelled, by temptation, to instinctively think of the here and now. One of our most natural inclinations is to live the best life we can - and apart from perhaps our own family, not care too much about future generations. Our caring about future generations is not like an itch we are desperate to scratch or a sexual desire we are desperate to have gratified, it is more akin to a socially contracted rationalisation program designed to subvert our most parochial instincts for the here and now. It is the learned behaviour that we practice because it makes us a little less like our instinctual selves.

Are you convinced yet?
And if I still haven't managed to convince you, I think I can now do so by putting forward the following question. If this generation were told that they had to go without earthly pleasure - that is, they had to make sacrifices that would render their lives deeply boring and uneventful, but in return, all future generations would prosper profusely; how many men and women of this present age would undertake such a position with unadulterated pleasure? I think the answer is very few. Some good natured and kind hearted souls might think the sacrifice worth making, but it seems clear that if this feeling was part of their natural instinct, they would meet the prospective sacrifice with a rawer sense of enthusiasm from the start. Any so-called ‘natural instinct’ towards the preservation of the species is preservation with regard to family, not the human species as a whole.  

I fully acknowledge that the preservation of posterity is, ultimately, more important than any individual’s personal desires or preferences. But strong and weak ties are chronological too - we only think about the preservation of our unborn grandchildren and great-grandchildren in an abstract way - in fact, the further into the future we go the more diluted our desire actually is.

Of course, because of how markets work for the collective as a result of individuals pursuing their own improved well-being, the mechanism is already in place to increase the likelihood that that future generations have a better life than we have - but I am certainly not talking about our deepest and rawest individual instincts here. The human desire for the preservation of the species is really the collective result of individuals instinctively caring to look after themselves and their families.

If you were asked to die in order to save the lives of future generations, you might well acquiesce and do so dutifully; your compulsion to do so would be one of moral rectitude or moral incumbency. But only a fool would say that it was part of your instinct to do this. The first emotion you feel, the very first one, would be one of doubt, reluctance and apprehension. All we are really doing is arranging certain types of compulsion and hierarchically ordering them by a system which judges them by their distance of proximity from our moral suasions. If we are sick, our natural instinct is to get better, if we are hungry, our natural instinct is to eat, if we are in danger, our natural instinct is to be safe. In hierarchical terms, any instinct to preserve the species would be rather low down, certainly below most other spontaneous impulses.

Our desire to preserve the species is really more like a desire for better coastal barriers during the aftermath of the tsunami, or the desire for better policing after a spate of street crimes, or a desire for better transparency when politicians lie and misbehave. The desire for the preservation of the species is more like those desires; it exists because the need to think of future generations is a constituent part of the wider social contract to which our conscience enjoins us.  

Wednesday, 11 January 2017

Another Instance Of The Wrong End Of The Job Market Stick


On the radio the other day, the perpetually confused Polly Toynbee was exclaiming how ‘disgraceful’ it is that people like doctors, nurses and teachers are paid so little in comparison to sports stars. Jeremy Corbyn bemoaned the same thing yesterday, and after I commented on Facebook, a friend remarked that in his experience a lot of football fans are disgusted at the players' wages and wished soldiers earned more instead. 

How can it be, Toynbee and Corbyn groaned, that those that save lives and educate our children earn just a fraction of those that kick a football around a field or whack a tennis ball over a net (I’m paraphrasing, but that was the gist)? Ignoring the fact that even if footballers earned less it doesn't mean soldiers would earn more, I will now make a quick comment on this matter.

As you may know, I agree with the part about sports stars being overpaid (although incidentally, they are in the minority – most highly paid people are probably not overpaid). Where Polly and Jezza are missing the mark though is in not understanding why it is, in fact, a good thing that doctors, nurses and teachers are nowhere near as well paid as sports stars.  

To explain why, let me ask a question. Would you like to live in a world in which a teacher or nurse is paid the same per week as the likes of Wayne Rooney and Andy Murray? Already you should be starting to see the problem – there wouldn’t be enough teachers and nurses to go round. In other words, it’s good that we live in a world in which a large number of people can be teachers or nurses and a relatively small number can be professional footballers or tennis players.

It’s precisely because caring for the sick and educating our young are far more important than ego-driven sports competitions that we ought to be thankful that teachers and nurses are in more abundant supply than professional sports stars - and that, for this very reason, their marginal revenue productivity is of a more affordable nature than a sports star whose talents are relatively rare.

Monday, 9 January 2017

A Better Way To Tackle The Social Care Crisis


In the past day or two, a few unsettling headlines that show the NHS in a bad light have got everyone arguing again about who in Westminster is going to save the day by giving it the spending it deserves (the reality is far scarier as I blogged about here). This has followed recent political deliberations from politicians and political commentators alike about whether a council tax rise is the answer to our social care funding crisis. It is not; in fact, raising council tax to fund the social care crisis is a bit like trying to get rid of a stray cat from your back door by throwing tuna chucks at it.

One of the big problems in the UK is that the government spending is far too large. Coupled with the fact that the burden of public sector spending (on health, education and pensions, as well as on social services) is rising faster than the tax that can be generated to pay for it, this amounts to a big problem that's only going to get worse.

The main reason this problem has been allowed to get out of hand, not just here, but right throughout Europe, is because there is not enough of an incentive for politicians to curb their spending. And the reason for this is that the tax burden falls disproportionately on a small subsection of the population, whereas the voting habits fall on a much wider proportion of the population. For example, the bottom 50% of earners are only picking up about 5% of the total tax bill, so their motives to desire increased public spending are out of kilter with the viability of that spending.

A good way to lessen this problem would be to introduce a tax reduction program whereby the tax bill is distributed more evenly while at the same time reduced as a whole. So, for example, if there was a cap on how much the highest earners could be taxed measured up against the average tax, the incentives to oppose dodgier costly government spending projects would be heightened, as would government revenue to pay for the increasing social care costs (the costs that aren't picked up by the clients themselves). It would also help if we sorted out this little problem I blogged about a few years ago.

Sunday, 8 January 2017

The Social Butterfly Effect: Six Degrees Of Facebook Separation



Facebook is a place that throws up all kinds of interesting previously unknown connections - like how the girl your cousin's best friend used to date is now married to a guy you are now team mates with in the pool league; or how your old English literature teacher has a child for whom your ex-work colleague now babysits. In a world that's complexly and intricately interconnected, we sample those connections very sparsely. But why is this so?
 
One explanation is that the butterfly effect in physics also occurs in the social world too - in that single events and actions engender causal links that spread out way beyond the immediacy of our perceptions, and probably eventually everywhere. A woman who crashes her motorbike into a car in London probably eventually has a knock on effect (pun intended) somewhere in China, where a Chinese businessman chooses restaurant A over restaurant B and probably eventually changes the nature of a board meeting in Chicago.
 
It's just that the vast majority of these links on the causal chains are invisible to us. Naturally, when we do notice a connection we focus on it and block out a lot of background noise and extraneous data not relevant to the connection.
 
I have a suspicion, actually, that pretty much everything anyone does in terms of an event or action is part of a causal nexus linked to everyone else's events and actions, rather like trillions of bees flying around, where all bees bump into some other bees (which indirectly causes further bumping) but not others. To apply that analogy to human societal interaction, we sometimes are reacquainted with past bumps via a succession of other bumps, but we notice because we never pay attention to all the other bumps that are not in our chain of connection.
 


 

 

Sunday, 1 January 2017

How To Master Your Craft Of Understanding


I decided to think of an illustration to convey a world in which a lot of people talk sense and a lot of people talk nonsense. I wanted an analogy or metaphor that identified some of the commonalities I'd perceived in human habits. The best I've come with up with is to think of human habits in terms of zooming in and zooming out, rather like how a photographer zooms in and out with a camera lens.

Zooming in gives you a better perspective of local, select details, but on its own its focus is often too narrow to see the wider picture. Zooming out gives you a comprehensive look at the wider picture, but on its own it lacks the finer details of the perspective of the local picture.

People who want to see the entirety of a situation most clearly are people who are highly proficient at zooming in and zooming out. In photography these distinctions are often referred to as a worm's eye view (zooming in) and a bird's eye view (zooming out). It is only people with a dual perspective of worm's eye and bird's eye views that are likely to see the whole picture with clarity and speak comprehensively on the matter.

Imagine an ornithologist who had been so attentive to the study of birds all his life that he’d been very inattentive to the biological systems of other animals. One day he considers why birds have eyes, and concludes that all animals that have eyes need them so they can fly and see where they are going.

Obviously we all know where our ornithologist is going wrong – he is zooming in too much on birds and not enough on other animals. Instead of asking about the relationship between bird flight and bird eyes, a better enquiry would have been to find out which other animals have eyes and which other creatures can fly. Zooming outwards and researching a bit further would reveal to him that animals do not have eyes so they can fly. Most animals with eyes cannot fly; some animals can fly but cannot see (bats for example), and some birds can see but cannot fly (penguins and ostriches for example).

A more diverse study would reveal to our ornithologist the rich anatomical and morphological diversity found in the animal kingdom. As long as he remained too narrowly focused on the relationship between birds and eyes he was failing to zoom out on the fuller picture of eyes and birds and flying.

Not all analyses benefit from further zooming out. Some do, but others require further zooming in. You’re not going to understand more about the mating habits of crows by zooming out to study the weight ranges of African elephants. A few practical real life examples will help, so here are three.

Some hard leftists believe that the free market causes poverty, so they look for all the places where poverty is rife and assume it must be because of things like the multi-national companies making profits from local resources. A much better method would be to analyse all the 'real' causes of poverty and find out why the free market actually helps people out of poverty, not causes it. An even more useful thing to realise is that poverty has been the natural state of human beings for the majority of our 200,000 year history, and that it is primarily trade and competition that have lifted so many out of it.

In the above example, the hard leftists are zooming in too much on one idea and looking for a causality to match, when what is really required is a zooming out approach to understand the real nature and causes of poverty. That is to say, assuming the free market causes poverty and then looking for instances to back that up is completely the wrong approach. It’s far better to understand why people are in poverty and then look to comprehend what changes their natural state of affairs.

Here's a second example. Some religious fundamentalists want to believe that the earth is only a few thousand years old. Consequently, they look at all science through a skewed lens and only assimilate data that they can apply to a young earth conclusion. A much better method would be to extrapolate the widest range of empirical data possible and ascertain whether the evidence shows a young or an old earth (it's an old earth - over 4.5 billion years old). The YECs are also undertaking a zooming in approach that really requires more of a zooming out approach.

My third example is a problem the other way round. Some people get involved in lots of social justice activities and conclude that they are making the world a better place. Sometimes they are, but a note of caution: a much better way is to first zoom in a bit more and work out which actions actually make the world a better place, and then undertake the activities you think will best accomplish your goal. Conversely to the previous two examples, that's a zooming out approach to a generalised principle that really requires more zooming in on the effects of trying to make the world a better place. It’s far better to be clear about what makes the world a better place before you start trying to bring about changes, otherwise as we find so often with our government activity, it’s quite likely that you won’t be making the world a better place at all.

My advice is to master the art of the generalised truths wherever they are appropriate. The world is full of advice about zooming in - good advice about understanding the intrinsic nature of a thing more fully instead of being too erratically general. But the less common but equally good advice is to understand that sometimes, when a thing seems either too simple to capture the broader principles or too complex to be succinctly compressed into a philosophy, it is often because the generalised truths haven't been understood proficiently.
 
Master the art of zooming in, by all means - it will enrich your understanding of the minutia; but don't forget to master the art of zooming out too - it will enrich your worm's eye view of things with a bird's eye view that will help you capture the important generalised truths that underpin the minutia.
 
 


 
 

 

Wednesday, 28 December 2016

We Really Need To Talk About ABBA & The Peculiar Nature Of Genius


We really need to talk about ABBA; I just need to get it off my chest. ABBA are, to me, the music equivalent of science's string theory (super trouper string theory, perhaps) - and what I haven't resolved since childhood is quite where ABBA belong in popular music's pantheon. The thing about ABBA is that they have this rather arcane qualitative thing going on whereby they are superior to the level they are required to be to produce the thing they are producing.

What I mean is, to make good pop you only have to be at the kind of Duran Duran, ABC, Supertramp, 10cc, the Bangles or Ace of Base level - a kind of n where ABBA are n+1, and where 1 = some obscure quality that outputs material that's superior to what it needs to be.

The sixties pop equivalent would be The Beatles n+1 where n is bands like The Animals, The Small Faces, The Hollies, The Monkees and the Spencer Davis Group. And the same with prog rock and Pink Floyd too. To be a decent prog rock band you only need to be Yes, Jethro Tull or Rush. Pink Floyd were far better than they needed to be - the n+1 to the others' n.
 


And for me what adds to the mystery of ABBA's high quality singles is that generally their album tracks are little more than mediocre filler. When other great bands make great songs you usually get a sense of their qualities from the other songs on the album too. Not so with ABBA - the brilliance of songs like Dancing Queen, Take A Chance On Me, S.O.S and Mamma Mia are not hinted at anywhere on their non-single tracks.

It's almost as if ABBA were a band with flashes of absolute brilliance trapped inside the body of a mediocre band, bursting out every now and then with enough inspiration to wow us with enough brilliantly arranged and executed pop singles to secure them a place in music's pantheon. They had bursts of genius without being anything close to geniuses.

On the subject of genius, I recall in his considerations of tonal and nagual art, William Burroughs saw the nagual as much more unmanageable in the sense that it was unpredictable and harder to creatively construct than the more predictable patterns of the tonal. The tonal universe is the more empirically predictable cause-and-effect universe, whereas the nagual is the less foreseeable, intractable elements of reality that burst through unannounced and linger beyond the radar of prediction. As Burroughs put it, "For the nagual to gain access, the door of chance must be open"

Whether it be the painter with his formulae of form and colour applied to a canvas, or the writer with the formulae of words to paper, the true ‘genius’ of creativity was not thought to be in the person being creative, it was instead being continually re-crafted by tapping into something transcendent of the individual self - even if that transcendent thing could still be classified as human creation.

It ought to be noted that this wasn’t a scientific viewpoint, but an artistic feeling. Norman Mailer has suggested that William Burroughs was "possessed by genius" as opposed to ‘being’ a genius or even ‘possessing’ genius.  The dynamic spontaneity of ‘genius’ is nagual according to Mailer and Burroughs, and to be possessed ‘by’ genius is to tap into something altogether special – something that seems to find itself located in the collective nature of human minds, in that we share it and all in our own way seek to take possession of it, yet so often find it elusive. 
 
 
If this is the case about genius then the old maxim that genius is more about perspiration than inspiration probably has some mileage, particularly bearing in mind that the greater the output in terms of quantity, the more opportunities for the door of chance to be opened to let the nagual genius creep in.

Then again, if one looks at some very ungenius-like highly prolific artists in output - such as Paul Weller, The Fall, Tangerine Dream, The Grateful Dead and Bruce Springsteen - one gets the impression that however long they keep trying they will never produce something of genius that's on a par with the really great artists.

One final point about greatness is that it so often requires the lens of retrospection to reveal its quintessenve. For example, if you asked 1000 keen music fans at random in the UK which 3 albums from the 14 years of 1966 to 1979 they considered to be the best and most innovative, I think the range of different albums chosen would be narrower than if you asked 1000 keen music fans at random in the UK which 3 albums from the past 14 years (the noughties - the years 2003 to 2016) they considered to be the best and most innovative.

However, I suspect that if you asked 1000 keen music fans at random in the year 2050 which 3 albums from the years 2000 to 2013 they considered to be the best and most innovative you'd find the range of albums chosen probably would be as narrow as the current 1000 keen music fans choosing from the 14 years of 1966 to 1979.

I think that's probably because while there are more albums being produced in the modern era, there are fewer great ones - but also because people need a considerable passage of time to assess what makes an album really great, and today probably is too soon to assess the past 14 years with a proper consideration.
  

Friday, 23 December 2016

And The Award For Most Confused Article Of 2016 Goes To....


Generally, The Guardian writers are to economics as astrologers are to astronomy, and George Monbiot has been trying very hard in 2016 to win the 'Most foolish article of the year award'. However, for your humble author, Monbiot was beaten to the title at the final furlong earlier this month by Patrick Collinson, who spent a whole article trying to explain to us how people earned less in the 1960s but could afford more.

It's rare to see so much confusion crammed into one short piece of writing, but what helps Collinson achieve this feat is that he has no real clue about how inflation works. In the title he declares

"Oh for the 1960s! People earned less but could afford more."

This is factually untrue on every level: it's untrue in the sense that your earnings do very much determine what you can afford; and it's untrue in the sense that people of today can literally afford a lot more for their money than in the 1960s. He goes on:

“By chance it was the same week my 90-year-old father decided to show me his carefully filed tax returns from the 1960s (yes, that’s what counts for fun in the Collinson household). In 1963-64 his pay as an accounts clerk in London was £1,357 a year. In today’s money that equals a little over £25,000 a year once inflation is taken into account. In some ways that £25,000 doesn’t look so great. After all, someone working in a similar role with his level of experience at the time might expect £35,000-£40,000 today. But then look at what an income of £25,000 bought in 1963 in London. His granddaughter now works in the same city, London, for the same pay, £25,000. But what does an income of £25,000 buy you in 2016?"

Wowsers, this is also absurd! Apart from a few minor details that don't affect the efficacy of the point, by and large inflationary measurements mean that if £1,357 in 1963 is the same as £25,000 in 2016, then £1,357 in 1963 buys you pretty much the same value of goods and services as £25,000 does in 2016. I included the disclaimer because relative prices means different relative quantities in some goods over time, but on aggreggate considerations, inflation is calculated on the basis of comparable goods for comparable sums of money.

He then goes on another lament, this time about how much harder it is to afford property in London nowadays than it was in the 1960s, concluding that "If any government really wants to help the left-behinds, then cutting house prices and rents must be their first priority". The first glaring mistake is that governments don't cut house prices and rent - it's the private sector that determines prices. The second mistake is that it may have been easier to buy property in London in the 1960s than it is now, but some of the variance is down to how much more of a high quality and hugely desirable city London is today than it was in the 1960s. Lastly, there are numerous ways that the government is very much to blame for why London house prices are so hard to afford.


But really, the primary criticism of Collinson's lament about how things were better in the 1960s because people earned less but could afford more is that it inanely overlooks all the absolute gains in terms of quality of life, quality and quantity of goods and services, increased leisure time, and the numerous other ways that it's better to be alive today. To illustrate this, I would ask Mr Collinson questions I first raised in this Blog post - questions I think we know perfectly well how he would answer them:

1) Would you rather go about making Sunday lunch for five guests in a 2016 kitchen or in a 1960s kitchen?

2) Would you rather need a heart operation in a 2016 hospital or in a 1960s hospital?

3) Would you rather have the holiday options in a 2016 travel agent or the holiday options in a 1960s travel agent?

4) Would you rather be defended by the UK's 2016 armed forces or by the armed forces in the UK in the 1960s?

5) Would you rather be a woman, or a black person, or a homosexual in London in 2016, or a woman, or a black person, or a homosexual in the London in the 1960s?

6) Would you rather have the knowledge of the world available to you in 2016 or the knowledge of the world available to you in the 1960s?

7) Would you rather have the working week of 2016 or the working week of the1960s?

8) Would you rather have the digital technology of 2016 or the digital technology of the 1960s?

9) Would you rather be driving a car of 2016 or a car of the 1960s?

I think we know which options our Guardian writer would choose - and on that note we can end.

Tuesday, 20 December 2016

How The Relative Misleads


Qualities in life - be they ability, money, looks - have both an absolute value and a relative value. Let’s take wealth; your absolute wealth is the intrinsic gains and losses that occur in your own finances, whereas your relative wealth is how those gains and losses are perceived in relation to others.

Everyone can appreciate the changes in their own absolute wealth. If your first effort as a novelist earns you £250,000 you'll be happy. If it earns you £350,000 you'll be happier still. Sometimes, though, your views on absolute wealth change when presented with different comparisons related to relative wealth. For example, suppose you were looking for the balance between financial rewards and critical acclaim - and for simplicity’s sake let's suppose you're never going to write another novel again, meaning that critical acclaim or critical derogation won't affect future publishing potential. Consider the following choice:

Scenario 1
Option A) £350,000 and worldwide critical derogation
Option B) £250,000 and worldwide critical acclaim 

In the above scenario you would choose option B if your value of critical acclaim (and the corollary, your aversion to derogation) exceeds £100,000. If your value of critical acclaim is less than the difference between A and B then you’d choose option A. Let’s suppose from now on that you value critical acclaim at £35,000, you would opt for option A in the above scenario.

Now let's look at two more different scenarios, where you value critical acclaim at £35,000.  Consider the following choice:

Scenario 2
Option A) £375,000 and no critical acclaim
Option B) £350,000 and critical acclaim

In scenario 2 you should choose B because the value of the sum earned (£350,000) plus the value of critical acclaim to you (£35,000) amounts to £385,000, making it more favourable than option A, which at £375,000 is worth £10,000 less. Most people who valued critical acclaim at £35,000 would, I suspect, choose option B.

But suppose you still valued critical acclaim at £35,000 but were given a third scenario:

Scenario 3
Option A) £50,000 and no critical acclaim
Option B) £25,000 and critical acclaim

In scenario 3 your decision should be no different to scenario 2. Nothing has changed in absolute terms: in scenario 3 the sum of your valuation of critical acclaim (£35,000) and the earnings (£25,000) amount to £10,000 more than the option A (£50,000). But I suspect you'd be much less likely to choose option B in scenario 3 because your concern for critical acclaim would reduce your cash earnings by 50%, whereas in scenario 2 it would reduce your cash earnings by just 6.7%.

That is to say, in relative terms the difference between £25,000 in scenario 2 (6.7%) is a lot less painful than the difference between £25,000 in scenario 3 (50%) even though the absolute value doesn't change.

Clearly this is understandable; a 50% increase from £25,000 or £50,000 can change your life by a very great amount, whereas if you've obtained the life-changing amount of £350,000, then that extra £25,000 increase to £375,000 changes your life by considerably less. This is called the law of diminishing marginal utility, where the first unit of consumption of a good or service brings about greater utility than the second unit of consumption, with diminution continuing with more and more units.

In the above scenario your relative considerations were not against the earnings of other authors, they were considerations related to the trade off between earnings and critical acclaim. Quite often, though, the earnings of others is a big factor in people’s decisions. Let’s consider a different example, which shows how much emphasis people place on relative value over absolute value. If given the following choice:

Option A) You increase your earnings by £12,000 per year, and all your same-sex friends increase theirs by £15,000 per year

Option B) You increase your earnings by £11,000 per year, and all your same-sex friends increase theirs by £8,000 per year

Surprisingly, a lot of people would choose option B, because their relative wealth in comparison to their same-sex friends is more important to them than an increase of £1,000 in their absolute wealth if their friends' absolute wealth increases by more.

I think this is irrational. £1,000 is still as valuable to you in monetary terms irrespective of whether your friends increase their absolute wealth by £8,000 or £15,000. Only if your social status is more valuable to you than £1000 should you choose option B - but I think it'd be a sorry thing if you valued social status that much.

Here's another example - this time an example of how humans are irrational when faced with different numbers.

Scenario 1
You are about to buy a specialised pair of welding gloves for £60 in Lewisham, when an app pops up on your phone telling you that at a shop in the centre of London the welding gloves are £30 cheaper (that's a £30 saving even after Tube costs and additional time have been factored in as well).

If you asked 1000 people if they would go into London to make that saving, many would, as it's a 50% discount. Now here's a variation on that question.

Scenario 2
You are about to buy a brand new Nissan Micra for £1499 in Lewisham - but in the centre of London the same car company has the exact same car that will cost you £1469 (that's also a saving of £30, again with Tube fare and additional time factored in).

Suppose every other detail is the same except the relative nature of the £30 saving, I'll wager that if you asked 1000 people whether they'd now bother to head into the centre of London to save £30 on a Nissan Micra, most would say no.

Given the relative infrequency with which we buy a new car, there should be no difference in the two options - if you value the £30 saving on the first product you should value it on the second product too - but almost no one does, because relative to £1499 a £30 saving is nothing like a saving relative to £60. 

After putting questions like this out there for public consideration I've also found that people are often irrationally more cautious with large numbers than small numbers, even if the same probability occurs in both situations. For example, suppose I gave the average person the following scenario:

Option A) You have a big bag with 1 black ball and 999 white balls inside. You get to pull one ball out; if it's black you die, if it's white you get £1 million pounds.

In that scenario most people would feel pretty confident and probably take up the offer. Suppose now I gave the average person this scenario:

Option B) You have a very big bag with 1000 black balls inside and 999,000 white balls inside. You get to pull one ball out; if it's black you die, if it's white you get £1 million pounds.

Regarding Option B, my results overwhelmingly show that people would be more cautious than with Option A even though the probability is the same. In fact, I fancy that if you gave 1000 people Option A, got them to choose to take part or not, then wiped their memories of Option A and proceeded to give them Option B, a large number would give a different answer.

When it comes to things like wealth inequality in the world, humans still tend to be much more interested in relative wealth than absolute wealth. The trouble is, unless this is done sensibly it causes people to forget arithmetic and to think irrationally. My advice is that unless there is a jolly good reason for thinking relatively, people should get into the habit of thinking in terms of absolute gains and losses, and not be anchored by how those absolute gains measure relative to other people's absolute gains.

Sunday, 18 December 2016

Biomimicry: When Nature Is The Smartest Inventor


By mimicking the way biological organisms have already conducted themselves in a long history of natural selection, human beings have been able to innovate and solve many of the technological and sustainability problems confronting our species.

Here are some examples: modelling echolocation in bats has brought about technology such as car reversing alarms and devices for the blind; the spider’s web was influential in designing things like the bulletproof vest; some forms of display technology are based on the reflective properties of certain kinds of butterfly after it was discovered that butterfly wings contain microstructures that create the colouring effect; the Bombardier beetle's powerful repellent spray inspired low-carbon sprays in eco-friendly canisters; some anti-bacterial substances were inspired by marine algae; and the friction-free surfaces on various electrical goods were inspired by studying types of lizard skin.

Some more examples: the pacemaker was modelled on the wiring system of the humpback whale’s heart; velcro was inspired by looking at the tiny hooks at the end of each spine on burrs under a microscope; whale fins, tails and flippers make good engineering templates for wind turbines; studying van der Waals forces on the miniature hairs on the feet of geckos has given us ideas for strong types of adhesive; and studying how epoxy resin restores fibres in skin has helped bring about the idea of self-healing plastics that mirror the human ability to heal cuts. Those were just a few examples, and perhaps the tip of the iceberg for what is to come in the future.

Ideas can come after lengthy study or in quick-flash moments. When designing aircraft wings, engineers closely observed birds and fish, and they designed those wings to morph their shape depending on the speed and duration of flight. Apparently, the Wright brothers were inspired to build aircraft after briefly observing pigeons. Engineers in Zimbabwe studied tower-building termites and how they construct their mounds to sustain a constant temperature by convection currents of air. They do this by constantly opening and closing vents throughout the mound, which draws in colder air near the bottom and releases hot air from the top. The hugely energy efficient Eastgate Centre building in Harare (pictured below) is based on this termite design.
 


All these examples serve as a great template for understanding the reality behind our ability to mimic nature, as we find that our ways of thinking mirror how nature behaves. You’ll find that laws in logic represent the laws in physical reality, and patterns in economics mirror patterns in the natural world – and this realisation provides us with an ideal foundation for understanding the world. Not only do such endeavours undergo evolutionary change in the artificial selection process in industry – quite often we stumbled upon new ideas without very much pre-planning or foresight.

Think of inventing an aircraft or, even simpler, a car – it’s not just a one-step fait accompli, it's a lengthy bit-by-bit process of trial and error. That's why cars of today have Air Con, CD players, more BHP, better wheels and tyres, and so on - features that old cars do not have. Also, many of the proprietary parts of the car (wheels, glass, engine parts, electrical components, leather interior, the oil sump (to name but a few) were all invented or discovered without the car being conceived or envisaged as a goal (and that's to say nothing of the agriculture, cities and writing which set the social base for industrialisation in the first place). 

All these bit-by-bit improvements come down to experience, theory and concept, because experience bootstraps theories and concepts, which pre-date the inventions that reify those concepts. This shows the precedent for gradual step-by-step increase in complexity to the extent that it allows limited human intelligence to make advances and achieve results beyond that which is available to a single act of inventive foresight and goal formulation.

Wednesday, 14 December 2016

Amber Gets The Red Light On Carbon Tax


Oh dear, this is not what we want to see! Energy Secretary Amber Rudd was on Sky News earlier talking about the necessity of carbon tax as a means of reducing emissions down to a state-mandated nominal level. Now I’ve argued before that carbon tax has its uses, and is not to be entirely frowned upon – but frankly, Rudd’s definition of the goal of carbon tax is remiss. Ruddy confused, in fact.

A carbon tax is not a means of reducing emissions down to a nominal figure; it is supposed to be a tool for maximising utility. That is, carbon taxes help us incorporate negative externalities into the price system of a free market whereby polluters carry the costs of their negative externalities, but also whereby the price reaches equilibrium as the costs of pollution are measured accurately against the benefits.

That way, those negative externalities are compensated for by the fact that they increase utility to a level greater than their costs. For example, a timber factory and a roadside diner on the outskirts of a city add some pollution to the environment, but they make up for those negative externalities by providing goods and services that people want.

Where they are a benefit is when carbon taxes intervene in the price system to ensure that future costs of transactions are thought to be worth paying for present benefits. The rate of carbon tax is roughly commensurate with the future cost of pollution, incorporated into the price system to justify the benefits now – it is a tax that attempts to ascertain the benefits of pollution.

Carbon taxes are far from simply being about lowering emissions, although as I argue here, they will likely change future behaviour as businesses innovate to be greener with improved technology.

Tuesday, 13 December 2016

Tying One Arm Behind Your Back


It's very frustrating reading all the opinions about what kind of Brexit we will have in relation to trade effects, and whether being outside the EU's customs union will incur the penalty of this or that tariff. For those that don't know, a customs union is a politically constructed trade bloc within which member states trade without tariffs, and outside of which other nations have tariffs imposed upon them. A free-trade area is a politically constructed trade bloc whose nations have signed a free-trade agreement that has very few or sometimes no trade barriers.

The existence of tariffs is infuriating to anyone who understands economics, because they do harm in virtually every area of society. Governments impose them because it gives them a bit of extra revenue, and because there are enough uninformed people in the country who think that by making imports harder the government makes exports and domestic business easier, leading to the domestic economy being better off (an asinine misapprehension that I blogged about here)

The reality is, by increasing the cost of imports, tariffs hurt all domestic economies, as they lead to a decline in consumer surpluses. A really obvious case is seen with the EU's tariffs on agricultural products, which make agricultural products more expensive for EU consumers by putting up barriers to competition. Restricting competition doesn't just inflate prices, it also diminishes quality for the consumer, because if your industry is protected from competitors it is shielded from the need to increase efficiency. And that's to say nothing of the wider costs of tariffs to developing nations trying to compete in a global economy, and all the additional costs to consumers when trade partners retaliate with their own tariffs.

Tariffs are a horrid political interference in free trade, and the harm they impose is hugely frustrating, as seemingly few people ever really stop to question their existence and challenge politicians to put a stop to them. Such are the benefits of free trade that even if every country is imposing tariffs on us, we'd still be better off domestically by not imposing tariffs on foreign exporters. Hearing our political elite spitting and spluttering about negotiating their way out of numerous political interferences is one of the saddest reminders of how frivolously politicians impede and retard all the prodigious benefits of free trade.  

Sunday, 11 December 2016

A Cost-Benefit Analysis Of Cheap Fame


Ask Tom the economist whose favourite three bands are The Beatles, Pink Floyd and Radiohead whether he likes manufactured pop music and with his artistic hat on he’ll probably say no. Ask him whether he likes manufactured pop in terms of what’s good for society and with his economist hat on he may well say yes.

What’s the difference between the two evaluations? The answer is that one is a subjective personal argument and the other is an objective economic argument. As a credible music lover, Tom possibly sees the likes of Westlife and Boyzone (or whoever the modern day equivalents are) as lacking musical credibility, complicit in cultural degradation and producing faux-icons that are unworthy of adulation.

As a credible economist, he understands that lots of people are willing to spend money listening to manufactured pop. The economist is generally less bothered about whether someone is right or wrong, wise or unwise to like something – he or she is primarily concerned about market signals that convey information about people’s wants, needs and preferences.

To put it another way, what is being considered is whether the market for fame (like the market for laptops, beds and cars) is succeeding or failing. Save for price controls and government interference, nobody questions whether the market for laptops, beds and cars is failing, because we don’t wonder if we’re getting the wrong kinds of products. Yet with celebrities we do – we find ourselves wondering whether famous music stars are credible songwriters or artificially manufactured bubble gum pop stars, and whether the latter has any artistic validity.

It’s here that economics explains why by and large we have the right number of all kinds of celebrity too, at least in terms of what people perceive to be socially valuable. It’s easy to be critical of people who look at the benefits of the minimum wage, rent controls and import tariffs and stay blind to all the costs. Therefore we should do the same with celebrities; that is, identify the costs, but also realise the benefits too, even if they are not our own personal benefits. Because, you see, a big part of doing economics well is about perceiving the benefits to others that are not immediate to ourselves.

One obvious criticism of the present day celebrity culture is that fame is cheap and that there are a plethora of celebs competing for attention in an excessive pool. But equally, one benefit of fame being cheap is that society has more celebrities and entertainment for less money. For people that like inexpensive and accessible entertainment, the celebrity world is a bit like discovering a bargain bucket that contains some treats you end up liking but didn’t know you would. On top of that, the associative products that are concomitant with the marketing of celebrity – everything from TVs, CD’s, DVDs, audio-visual equipment, websites, fashion, shows, critics, advertisers, promoters and agents - share in the value of celebrity markets.

Another societal benefit that the celebrity culture engenders, as with all kinds of art and expression, is the way it brings people together for topics of conversation, mutual appreciation, and fashion influences. And given that fame brings valuable diversity to society, there is going to be beneficial cooperation from a wide range of people, where if value isn’t created they could no longer earn a living. In other words, if the world of celebrity gives people something they desire more than the money then it shows that consumer surplus is occurring.

What you have to consider is that when you walk into Waterstones, or log on to Amazon, the products competing for your attention are there at the expense of other products that could be competing for your attention. This means that in commercial terms a lot of people think this stuff is worth your while purchasing, which piques our interest to consider that, say, out of all the new books in the ‘out now’ section, there might well be something we’ll like.

The same is true of celebrities paid handsomely to endorse products – it’s a marketing trick to convey the following message: look, we’re sure you’re not convinced that this celebrity really loves the product, but if we’re willing to pay him or her all the money to say they do we must have confidence many of you will like it. On balance, the benefits of cheap fame probably outweigh the costs.

 
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