Sunday, 31 January 2016

David Cameron's Confusion Over Statistics & Racism


David Cameron has launched a scathing attack on the universities of Oxford and Cambridge today for failing to recruit more BME (black minority ethnic) students, saying that racism in the UK’s leading institutions “should shame our nation”.

He is right that it's a shame that there are not more BME students in our leading universities, but he is quite wrong to lay the blame at the door of Oxford and Cambridge universities. The so-called fact of Oxford and Cambridge being under-represented by BME students is not to do with institutional racism at our top universities, it is to do with the fact that prospective BME candidates are far outnumbered by white British candidates, which has a lot of complex causes - but none of them are the fault of Oxford or Cambridge.

It is quite easy to be outraged at statistics if you don't understand them, and clearly David Cameron just doesn't get that there are simply not enough BME people in the country to fulfil his wish. A quick Google search reveals to me that if a top university accepted students in a way that precisely represented the UK demographic, then for every 100 people, there would be 87 whites, 7 Asians, 3 blacks and 3 others. Even on strict egalitarian grounds it is very difficult to justify a selection policy that doesn't see BME people outnumbered by whites.

But, of course, that's only part of the flaw in David Cameron's reasoning - the other thing wrong with his misunderstanding of statistics is that Oxford and Cambridge are not looking for a representation in terms of ethnicity or skin colour, they are looking for representation in terms of academic ability. That is to say, Cambridge and Oxford universities are the seat of academic excellence in the UK - and if the statistics show that only a small proportion of BME people get into Oxford or Cambridge, and a large majority of students are white, that does not show any institutional unfairness on the part of Oxford or Cambridge. It merely shows that if Oxford and Cambridge are trying to attract the most academically gifted students in the country, and if by far the greatest proportion of the most academically gifted students in the country are not in the BME demographic, then Cambridge and Oxford's admission policy is completely fair.

There is certainly a conversation to be had about all the ways that BME and under-privileged pupils in schools are disadvantaged or coming up against barriers to fulfilling their potential, but that's not an indictment against our two best universities - and David Cameron should know better - particularly as it's very likely the case that this phony 'outrage' is really just an attempt to court popularity amongst the BME demographic.

Wednesday, 20 January 2016

Sometimes I Have The Nicest Fans


 
I got a nice comment today on one of my blogs on the misjudged minimum wage law…..

F**k you are a d**k – you wish to privilege rich f****rs earning sh**loads over poor people earning peanuts.
Anonymous 

I thought I'd better say hello!

Dear Anonymous (commenters like you are always anonymous, aren’t you?),

Let me respond more charitably than you, by saying, actually, we do share the same goals (that the poor become more prosperous), we just differ on the best way of achieving this – and by ‘differ’ I mean out of the two of us we differ in the extent to which we have a basic grasp of the subject at hand.

I could explain all the ways the minimum wage is undesirable, but having already read that, you’re clearly not that interesting in knowing these things. All I’ll say, then, is that it is actually you who wishes to privilege rich f*****s because you want to endorse a state-mandated price floor that makes it more difficult for struggling people to get a job.

The best chance they have of becoming more prosperous is being denied by governmental legislation that prohibits them from bargaining to sell their labour at any price below the state-mandated price floor. By your logic, if caring about struggling people means making it harder for them to get a job, why not ask for the minimum wage to be even higher still – then you’ll ‘help out’ even more struggling people?

Yours Fraternally J

James

Sunday, 17 January 2016

The Best Analogy I've Seen Explaining Why Economists 'Get It'


Tyler Cowen has perhaps the best analogy I know to illustrate how it is that economists understand the world so much better than anyone else. He refers to A de Groot’s famous experiment in which he showed several chess masters and chess novices images of chess positions for a few seconds and asked the players to reconstruct the positions from memory. The chess experts made relatively few mistakes, whereas the novices made plenty. Then he repeated the experiment but this time he showed them random positions not found in chess, and this time the chess experts performed no better than the chess novices, demonstrating that the expert advantage appears to come from familiarity with actual chess positions, not more efficient memory recall.
 
Tyler Cowen believes this is a good analogy for economic understanding (and I think he's onto something). The 'recognition chunks' related to chess configurations are similar to those of economics in terms of patterns of logic and behaviour. Economics involves understanding those patterns in ways that inform us about good and bad policies, sound and unsound arguments, predictions of human behaviour, and so on. It is one of the mind's most reliable heuristics.
 
But, of course, that's only the first part of it - understanding it is of little use to others if you cannot articulate it to others in ways they can understand. That's what I try to do on this blog - I use what I call the 'Teenager on an envelope' approach, and it comes in two parts.
 
In the first place, if you're going to explain something, make sure you have it nailed in its most simplistic form, such that you could easily summarise it on the back of an envelope. If you can't truncate it that much, the chances are you need to do some more work on it. In the second place, once you've written it on an envelope, make sure it is clear and simple enough so that a teenager not apprised in the subject can understand it, at least in its basic form. If both those conditions are met, your preposition should make sense. Then it should be ready for public consumption.
 
Naturally, the key is to master the habit of doing this without an envelope or a teenager - because when you have your next bright idea you can't guarantee that either of those things will be in sight.

Wednesday, 13 January 2016

The Junior Doctor Dispute Slightly Resembles An Argument About The Buffet On The Titanic


Just as, in the study of epidemiology, symptoms (increased thirst, tiredness and hunger) are not the same as the disease (diabetes), the same is true in politics - the symptoms are not the same as the diseases. In the NHS the symptoms of this junior doctor controversy are demands for increased hours at undesirable pay, but the disease is the structure of the NHS itself, and the fact that the government simply cannot keep generating enough funds to pay for the service – a problem that’s getting increasingly worse as the ratio of workers to pensioners keeps narrowing.

Because of the quasi-religious fervour attached to Britain’s NHS, most people just can’t entertain the notion of a more competitive health system, based on free market principles, in the way that they can with, say, food and clothes shopping. But while no one is arguing for the erosion of the ability for any sick person to be treated, nor for the welfare elements to be compromised, a system in which most health care was run independently by private operators, where providers would compete with other providers for patients based on price and quality of service, would be much better for people than the current outdated and unaffordable system.

Under these conditions, some providers would be part of big corporations, whereas others would be large cooperatives, and others still smaller businesses specialising in particular practices. There probably would even be many charitable organisations funded by benefactors. This would also open the market for insurance companies to offer incentive based premiums for a diverse range of people with diverse lifestyle choices (and no, I don't mean like the cost inflation-inducing American insurance system).

The vision I have for a future health system is rather like that of a shopping mall, where doctors, dentists, pharmacists and opticians are linked together by a nexus of industry and efficiency, where prices, supply, demand, value and incentives are more coterminous in their relations. Unless we plug the round peg of market efficiency into the round hole of NHS need, we will always be skirting around the main issues, and arguing about how to treat symptoms when we should be arguing about how to cure diseases.
 
And if the picture I've painted is something you cannot realistically conceive, then stick with me for a few decades and mark my words you'll see that what I've envisaged will be pretty commonplace by then. For more on the problems of the NHS as things are, see my blog post -  Crisis Coming: What Politicians Are Afraid To Tell Us About The NHS and this little blast from the past - If The Government Had Our Best Interests At Heart, They Would Make Most Of Us Pay For Our Health Care
 



 


Tuesday, 12 January 2016

Why Government Meddling Does Harm Even When It Does Good




Politicians come up with all sorts of initiatives to meddle in the market in ways they think are helping - whether it's price controls, wage controls, legal requirements that limit profits, green levies, fat tax, selective subsidies, cronyism with big businesses, and many other examples. Their efforts culminate in a net loss for the nation, not a net gain. Apart from the necessary light regulation required to avoid monopolies, to protect our health, and to protect our individual rights, politicians should resist the temptation to meddle, because a lot of the harm they cause goes largely unnoticed. And of course, as well as hidden harm, there is also tangible failure, because, as I've explained before on this Blog, astute business executives can easily circumvent governmental strictures imposed on them.

For example, if they are forced to pay a minimum wage, they will recoup their losses by increasing prices; if they are forced to offer customers cheapest price plans, they will simply configure their price plans sufficiently to stay within the orbit of the law, and yet still return the same profits as before by locating further profits elsewhere. In fact, in looking to circumvent government impositions, businesses often find additional ways to generate more profits or pay less tax. So government meddling is not only externally harmful, it is usually beset with economic futility too, as company executives are much better at manipulating the system than politicians are spotting them. This is a slight oversimplification, but not in a way that impeaches the overall point.

That was the futility of meddling; now the harmful bit. The harm caused is in the indirect consequences of the government's actions in the stability of the market. Yes of course it's possible for government meddling to benefit certain people in business - that's not in question - the issue is that in benefiting certain people, two further things happen; firstly, others are directly artificially disadvantaged (a good rule of thumb: you can't usually artificially advantage one group without artificially disadvantaging another group), and secondly, doubt and uncertainty insidiously pervades the market, which hurts (in particular) small businesses and would-be business ventures (the two groups the government is always saying it is trying to help).

The reason doubt and uncertainty prevail upon the market to the detriment of businesses is because continual government meddling acts as rule-changers that diminishes confidence in investment and innovation. If a danger exists that in the coming months the government is going to impose price controls in the energy sector, or fat tax on fast food, or heavy green levies in the industrial sector, there is disincentive to invest or innovate in those markets because future profits might be decimated by further government meddling.

Let me illustrate with an analogy. Suppose you were tasked with bringing together an instrumental ensemble to play as an orchestra at a big event at the Royal Albert Hall. With your expert knowledge you know how to arrange the string, brass, woodwind and percussion sections, as well as arranging who plays what, and when each player is conducted to play each note and chord in a carefully sequenced arrangement. Suddenly, though, your task is made difficult, because God, being in a devious mood, decides to mess around with the laws of nature to have fun at your expense. After God's mischievous tinkering you find that brass now sounds like string, woodwind sounds like percussion, and some of the notes and chords have been altered to sound different to what they did. And after going to the trouble of learning the arrangements under the new messed-up system, God decides to have fun again by altering everything for a second time, leaving you and the players thoroughly despondent once again.

God's tinkering has messed up you and your orchestra's plans to perform the concert. Not knowing which instrument corresponds to which sound-types, or which chord and note creates which pieces of music, you'd have no idea how many members of each section to have performing on the night, or what sounds they'd produce. The concert would have to be cancelled.

Now, of course, government meddling in the market isn't quite that extreme, as things can still function in spite of their meddling, but to a lesser degree it creates the same kind of instability and uncertainty. By diminishing the stability of the rules, governmental meddling deplete private innovation and initiative, and makes the market less stable and harder to enter. And as a further consequence, the more governments assume control of market situations, the more indifferent to personal responsibility people in business become. If the government legislates to protect one kind of customer, then suppliers tend to take their eye off the ball when it comes to other customers (this is also true when it comes to incentives for future innovations too). As a consequence, businesses become too concerned about the authorities and less concerned about their customers, their efficiency and their competition.

Governments that favour a laissez faire approach to the market provides its citizens with confidence in the stability of their free actions and planning based on the ability to forecast. A government that meddles in a laissez faire market only erodes confidence, induces instability, and impedes free actions and planning.

What the UK badly needs is a huge dose of deregulation - everything from housing, social services, education, the police and small business are being negatively affected by too much regulation. Let's take two of those areas to illustrate the point - housing and small businesses - and see how there would be benefits from deregulation. 

Firstly, excessive regulation hurts small businesses and prospective businesses because it makes it harder for them to enter the market and turn a profit. But while smaller businesses and prospective businesses are being stifled, this hurts not just them but all consumers, because healthy competition creates greater incentives for innovation and efficiency in big businesses too. Bigger businesses enjoy the benefits of regulation roughly to the same extent that smaller firms or would-be businesses trying to enter the market lament them. Small businesses would benefit from deregulation by having a more open market into which they could more easily enter.

Secondly, excessive regulation on housing - such as restricting where houses can be built, and carbon emission targets, is contributing to a housing shortage, as supply is not able to match demand. Environmental controls imposed on the building industry meant that "every new home in Britain would have to be built to a zero carbon standard by 2016" - although thankfully common sense has prevailed and it looks like this idiotic regulation will be relaxed. Housing companies, building industries and people looking for somewhere to live would all benefit from deregulation.

This sort of economic myopia is causing so much social damage – but as long as most of the electorate continue to be blind to it there will be no selection pressure to change (ironically, and I hate to have to say this, but only UKIP and the Libertarian Party are the ones I’ve seen wise and courageous enough to challenge this). 

Why do governments regulate so excessively when such excessive regulation is bad for the economy, and in particular for the small businesses that most need to enter the market? Assuming they are not ignorant of this fact, it is usually either A) They know most of the electorate think the opposite of the truth - that excessive regulation is good because it stifles corporation power and helps small business get a foot hold in the market; or B) When courting popularity, politicians need to keep looking for ways to make people think the government is making a radical difference in their lives.  From what I can see, pledges for bigger government intervention go down well with lots of people who don't understand that the market induces innovation and efficiency much better than the State – so it’s no surprise that they are attracted to this like sharks to a blood-soaked limb.

 
 


* Picture courtesy of sodahead.com

Monday, 11 January 2016

The Campaign To Save This Popular Norwich Pub Is Short-Sighted


It seems that in my city there is a popular music pub called The Owl Sanctuary, which has been bought by property developer Richard Pratt with the intention of building flats. However, because of the weight of discord by its regulars, and a concomitant petition to boot, it seems to be that even though the sale of the building has gone ahead in a mutually agreed transaction between property owner and property buyer, Norwich City Council has declared it an 'asset of community value' and is looking to give it protection against it being demolished and turned into flats. The result of this is that the 'community' (basically a lot of indie/goth pub drinkers) will now be allowed to band together to bid to buy it.

Alas, this is another one of those classic cases whereby only the tangible benefits (to those connected to the pub) are being focused on, and not the tangible and intangible costs (to just about everyone else). If the pub goers had more familiarity with things like Marshall improvements and Pareto efficiencies, they may understand that this sale should go ahead, and that the council shouldn't involve themselves in such ill-conceived ideas of deciding what are community assets.

Given that Marshall improvements and Pareto efficiencies are usually along the same lines in terms of optimal outcome, I will just use Pareto's model to explain. Pareto-efficiency is the measure by which an action occurs that if it makes someone better off it makes someone else simultaneously worse off. An event or action is called 'Pareto-superior' if it can make someone better off without making anyone worse off. Now although economies and societies are vastly more complex than simplified Pareto models can fully capture, they can usually do a competent job of informing us when ideas are good and bad in terms of inefficiency and consumer/producer surpluses.

The reason economists are best at knowing whether ideas are good or bad is because economic thinking attunes people to seeing where the market will naturally facilitate a more optimum outcome. Suppose between them Jack and Jill have enough potatoes and sausages for 20 platefuls of bangers and mash, but Jack has all the potatoes, and Jill has all the sausages. A mutually beneficial allocation of resources through trade means that both Jack and Jill can have 10 meals consisting of bangers and mash. Without the trade, Jack would simply have 10 boring meals consisting of potatoes, and Jill would have 10 boring meals consisting of sausages. Because Jack and Jill are best equipped to look after their own interests, nobody has to tell them to undertake a trade.

Obviously most market situations are more complex than that, but a simple application of the same principle can show us why the Owl Sanctuary transaction should go ahead. Who is made better and worse off if the Owl Sanctuary is converted into flats? We know the people connected with the pub - basically the manager, bar staff and customers - are made temporarily worse off because a handful of people have to find new jobs, and a larger group no longer have their venue in which to perform, drink and socialise. But just about every one else is better off: the two people involved in the buying and selling of the property (as well as those collecting fees), the builders involved in demolition and construction, all the other people involved in property development, and all the people that buy the properties once the project is complete. What will also be a benefit to Norwich as a whole is that the land on which the properties are built will be used more efficiently than if left as it is.

Don't misunderstand, I'm not unsympathetic to the people that are against the loss of their highly-valued pub - there are pubs I value too, and I would be sad to see them demolished. But being sad to see them go is an emotional feeling, it is not the same thing as saying what the most efficient outcome is in net terms. Because, in net terms most people gain, and even the few that temporarily lose will adjust and adapt to the changes, because by and large the things valued in this situation are not bricks and mortar, they are people.

What will happen without the needless council intervention is that the sale of the Owl Sanctuary pub will generate further opportunities for other music-friendly pubs to take its place, or perhaps offer a pub looking to become more established on the music scene the chance to fill the gap. Basically, whatever happens, the market transactions, without the intervention of the city council, would have all worked out fine in the end, as people are pretty good at adapting to changes by themselves, without needing the government to hold their hand.

Wednesday, 6 January 2016

They Can Get It When It's Meat; Why Can't They Get It When It's Trees?



I was looking through some old writing of mine, as you do, and I found this little scribbling I wrote in 1998:

The recent hysteria-driven campaign to recycle more and more paper on the grounds that it's a virtuous tree-saving exercise is to me pretty evidently going to turn out to be not just incorrect, but the precise opposite of the truth. The proposition fails in its logic, which means in all likelihood future evidence will show it to be mistaken.

Here's why. Most wood used for the purpose of producing paper comes from trees planted and grown for the purpose of producing paper, in exactly the same way that farm animals are bred for the purpose of meat consumption. If you recycle paper in mass quantities you lower the need for as much tree-planting, which amounts to shifting the demand curve down and making price and quantity fall. This means that tree-planting and the land used for tree planting no longer hold the same value for wood production. The number of trees will diminish as a result of mass recycling, just as the number of farm animals bred will decrease if lots of people suddenly become vegetarians.

Almost everybody can get the logic when you talk about animals and vegetarians, yet so few people get it when you talk about trees and paper. Presumably this is because many people support recycling because it gives them an ethical buzz of virtuousness, and when people have that buzz it often makes them myopic towards the efficacy of the policy.

Seventeen years later, and with it now being evidential that paper recycling means fewer trees, the above seems quite prescient. It's always good to remind the people who claim to care about preservation of trees that if they really cared they should be against paper recycling, not for it. Understanding how prices work helps you understand that paper is cheap and that recycling is worse for trees and for consumption. Many trees are farmed for economic reasons - for making wood pulp for paper production - and in commercial terms they are planted for future sales, and plentifully so, which is why the logic is fairly easily translated into evidence.

Monday, 4 January 2016

If You Don't Understand This Yet, It's High Time You Do - It Will Greatly Enhance Your Enjoyment Of Future Blog Posts!


In a world in which nonsense is pretty uniformly frowned upon (everyone adheres to this principle, they just disagree on what actually constitutes nonsense), the biggest lot of nonsense believed by large groups of people always has at least one fundamental flaw of logic underpinning it at the start, which I'll explain.

For example, if you take the beliefs of repeat offenders such as young earth creationists, socialists and climate change alarmists, you'll find one key underlying fundamental flaw that feeds into all the other misinformation. With young earth creationists that fundamental flaw is the mistaken base assumption that evolution by natural selection is in conflict with theism. With socialists that fundamental flaw is the mistaken base assumption that human beings can arrange an economy from on high better than the natural price signals that result from the intersection of supply and demand curves. And with climate change alarmists that fundamental flaw is the mistaken base assumption that you can have your economic growth cake while eating it too.

If you're observant you'll probably be able to spot a common fault running through all three mistaken belief systems - they all involve the failure to get to grips with complex systems theory and the extent to which self-organising structures amount to each individual contributing to a successful whole while looking after its own interests locally.

Although they differ slightly in the physical mechanisms that underwrite their drive forward, biological evolution, the global economy, and the state of living things in terms of the planet are all bound up in nature's thermodynamic principle of the law of parsimony - that is, nature's principle of least effort. Whether we are talking about Newton's laws of motion, the biological mechanism of natural selection, electromagnetic radiation, the second law of thermodynamics, or running a successful clothing business, installing machinery in a new factory premises, trying to get from London to Brighton, or setting up a remote controlled railway system for your children at Christmas time, these are all underpinned by the law of parsimony - that what works most efficiently is the path that takes least effort and uses the least energy.

It is this understanding, and pretty much this understanding alone that informs us that complex biological organisms do not have to be designed by a Deity in one fait accompli swoop (as used to be thought quite commonly), that billions of individual acts of trade in an economy serve the interests of the whole far more efficiently than any government control, and that in order for humans to continually increase their efficiency in terms of the environment the energy we've expended and the resources we've used thus far have been an important stage in that process.

Perhaps the main barrier to realising all these things is that people like to feel a sense of control and they like simple explanations. Because of this, the idea that things can be managed neatly from on high and cannot be left to run on their own steam is a seductive one. Consequently, too many people are beset by a hubris that convinces them they are better at controlling systems than the natural process of trial and error - what Hayek referred to as “selection by imitation of successful institutions and habits.”

The best way of correcting this misunderstanding is developing an understanding of how those self-organising structures look after themselves locally and at the same time contribute to a large, complex and efficient whole that runs best by its own componential processes. That will constitute the real death of young earth creationism, the erosion of the economic hard left, and the diminution of climate change alarmism. In the latter case it should bring about a greater realisation that for now the fossil fuel reliant industries of developing and emerging countries are going to have to go through their own version of the kind of progression-explosion of economic growth we went through during and after the Industrial Revolution if they want to pull themselves out of hardship, and that the climate change lobbyists are often retarding their progress when they pile on pressure to cut down their carbon emissions - something that, unlike more developed countries, they are much less well equipped to do.

If you'd like to see the quintessence of this blog post in action, you should check out this awesome video, based on Leonard E. Read's classic essay I, Pencil, in which he illustrates how many people it takes to make a pencil, once you factor in the loggers, transporters, ore and graphite miners, steel manufacturers, lacquer appliers, and countless others in the production process.

 

 
/>