Tuesday, 31 May 2016

On Zoos, The Gorilla, The Death & The Reaction


I'm soon expecting to see the first of many memes expressing the following:

"Every day hundreds of people are dying in x conflict or under y oppression or of z disease and it goes largely ignored, but one gorilla is killed in a zoo and everyone can't stop talking about it and posting photos and comments".

What's been interesting for me about human nature and the reaction is that I'll bet the totality of sadness and regret for the gorilla dying is much greater than it would have been if the boy had fallen over the edge, hit his head and died.

There's probably a threefold reason for this, and possibly not wholly irrational either, roughly along the lines of:

1) There are far more humans than gorillas in the world, so proportional to the size of the species, one less gorilla is (sub)consciously seen as more regrettable than one less human, particularly as there is much talk about whether they could have intervened in a non-fatal way.

2) The cost of this gorilla's life is rightly seen as so easily avoidable, so there is some form of sublimation whereby underlying resentment is (un)consciously directed towards the parents for not keeping a better eye on their child.

3) There are all sorts of multifaceted emotional responses to the death of the gorilla (the photo itself is enough to elicit sadness) which extend to associative thoughts of keeping animals from their natural habitat, the effect the human species has on other animal species, and that there is a taint to the human condition - a kind of fallenness - that other primates do not possess.

Three points on the above. Firstly, as tempting as I'm sure many might find it, I wouldn't wish to see too much opprobrium directed at the parents. While we can all say with hindsight that they could have kept a better eye on the boy, I'm sure every parent will tell you that realistically it's terribly hard to keep your children in the safest proximity to a parent at all times. Even within the vicinity of their parents, children wander, they explore, and 99.9% of the time nothing serious happens. This has been a case with a tragic outcome - but I think if too much condemnation is directed at the parents there will be an awful lot of hypocrisy reflected back at those that condemn (specks and planks in eyes spring to mind).

Secondly, it's understandable why more is made of this incident than of the continual conflicts, oppressions and diseases that blight humanity every day - shooting a gorilla in a zoo is a lot more unusual to the casual observer than the regular torrent of tragedy and adversity one rather expects to see on the news every day.

Thirdly, putting aside all moral views and knowledge of hindsight for a moment - there is one thing I feel certain about: in the heat of the moment, if it were your child down there with the gorilla you'd have very little thought for the well-being of the gorilla, whether it's an endangered species, and so on, you would be terrified out of your mind at the thought of losing your child and be screaming at the response team to shoot the gorilla.

Are zoos good things?
In the wake of the death of Harambe the gorilla, and all talk of whether the fences should have been better, and whether all the decisions were the correct ones, some people have been declaring that zoos are bad things and should be discontinued. Immediately after an event is the worst time to assess a proposition like that, as people tend to be reactionary and not weigh up all the pros and cons (which in most cases are the same before or after events like this) - but I have a couple of thoughts on the matter.

When considering whether zoos are a good thing, what I mean is, do the net positives outweigh the net negatives (including for humans as well as animals)? In most cases, pet ownership seems to me to be a good thing for both the animal and the owners because the pleasures of having a dog or cat or horse at your property far outweigh the costs (food, injections, the looking after time, etc).

Zoos, on the other hand, confer significantly more costs and benefits on animals. The benefits are regular food, low risk of predation or injury from other creatures, and safety from poaching and hunting. The costs are lack of freedom in their natural habitat, and having to put up with lots of people with ice creams looking at them all day, and on the odd occasion getting shot by zookeepers.

From a layman's perspective, my instinct is that the benefits outweigh the costs for the animals, but it's hard to be sure, particularly as one can't know the mind of another creature. Maybe whales and primates in captivity suffer psychologically less than, say, meerkats or iguanas - it is difficult to know.

One of the benefits of zoos is that they offer educational programs for the children, youth and family - but in today's modern age learning potential via videos and the internet is so huge that that might be less of a factor nowadays. Another benefit, and this all depends on the country, but some zoos can help preserve genetic diversity. A third benefit is that folks who see and interact with animals are more likely to support the survival of the species. Thus, whether zoos benefit individual animals or not, they may well benefit the survival of the species and biodiversity.

As everything is a trade off, one can argue that zoos are good things overall because they can serve as important reservoirs/stockpiles of rare and endangered animals and precious genetic variation until habitats can be restored. But one can also argue that zoos are an overall problem because those benefits do not make up for the negatives associated with keeping animals in possibly sub-optimal conditions. 

All that said, once we start to look at some figures, though, we get a better idea of how much value zoos provide. According to a quick Google search, there are over 10,000 zoos in the world, gaining over 600 million vistors per year, and with figures like that it's clearly an industry that's created hundreds of thousands of jobs. Consequently, once you add to that all the scientific research, the animals that are saved from extinction through the breeding of endangered species, and all the public education distilled from their existence, I think it's fairly easy to argue with confidence that for humans zoos are a net benefit to the world. As for whether that constitutes a net gain for humans and animals combined, my gut instinct is that it does - but I'll leave you to make up your own minds on that one. 


* This surely doesn't need saying but obviously I am always talking about zoos that treat animals well and with care. Unquestionably any zoo or circus that fails to do this is disgraceful and should have their licence taken away and never work with animals again.


Monday, 30 May 2016

Bad Ideas Lead To Wrong Conclusions


A new EU law has just come into effect telling tobacco companies they must sell cigarettes with restricted branding as well as containing images highlighting the damaging effects of smoking. Alas, we're getting rather used to these laws, but some people seem to be getting used to them a bit too keenly.

Discussing this issue earlier today on the radio, The Guardian's Zoe Williams made the obvious point that the more undesirable things we make illegal the better society will be. Like many observations of this kind, though, it may be obvious but it's also bonkers. It's one thing to not mind a law on cigarette packaging that tries to reduce the number of smokers - let's face it, it's not the worst law of the land. But it's quite another to say that the more undesirable things we make illegal the better society will be - which is, alas, a sentiment shared by many EU officials.

It's a slippery slope, because crime, like most things, involves a trade-off where if you get more of one thing you get less of other things. Deterrence and punishment are good things, but they don't come for free, therefore it is possible to have them in excess. Crime would be a lot lower if every road in the UK had its own designated police squad, but no one thinks that's a price worth paying.

If you make something illegal you automatically impose a cost on society - and that cost is borne by everyone involved in deterrence and prevention, but also in a small part by victims of other crimes too (the additional resources used preventing or punishing some crimes come at the cost of preventing or stopping other crimes).

Naturally the cost of catching criminals increases when there are lots of offenders, so when you decide to make something illegal you will find that if it is common it is going to be costly. Therefore calling something a crime means it ought to be efficient in terms of prevention and punishment. A crime that produces a net cost to society of £3 per person is not worth preventing if it costs £7 per person to enforce it.

A long standing debate has been about drug-legalisation. Increased enforcement of drug crimes raises the cost of taking drugs, but also the cost of dealing with drug users. It also raises the street price of drugs too, because if buying and selling drugs is a crime it increases the risk for both parties. Because drug demand is usually inelastic there will be increased crime for the purposes of buying drugs too.

Given that both drug sellers and drug buyers do not have the option of calling the police when deals go bad or when there is violence or theft associated with the transactions (drug gangs defending turf, extorting money from weak buyers, etc), there is naturally a lot of extra crime associated with drugs that wouldn't be there if it were legal, which increases drug prices too. And if there is inelasticity of demand then those increased prices won't decrease demand all that much.

Whichever way you cut the cloth, it just isn't the case that the more undesirable things we make illegal the better society will be. As I explained in this Blog post, some of the things people trivialise as simply 'undesirable' are things that millions of people can quite easily enjoy in moderation, whereas as we've seen above (plus with countless other examples I could give) many laws are just too costly to enforce and administer, and many are too oppressive to our liberties to contemplate.

 

Thursday, 26 May 2016

Look Who's Gaining Most From Globalisation & Why Things Are Getting Cheaper


We often hear about how much richer the top 1% are getting, and we also often hear about how many people in the lower quintiles in the UK and USA are feeling the pinch a bit. I thought some here might be interested in the latest article from Branko Milanovic (see bottom of page), which gives some nice data and illustrations about some of the things I'm always banging on about in my blogs. Namely...

1) In-country inequality in rich countries like ours has a lot to do with poorer people in less well off countries seeing increases in their real income.

2) The rich are not getting richer at the poor's expense - they are getting richer along with the poor getting richer. The poor's gains are actually greater than those of the rich, as the poor grew their rates of consumption twice as fast as the world as a whole in the past 35 years.

3) As the real income gains in percentage chart I linked below shows, even those feeling the pinch the most - that's Western lower middle classes - have seen real income gains in the past 25 years, and let's not forget they also continue to be in the top 20% of the world's wealthiest people.

4) It is primarily the globalisation of free trade that has caused these worldwide gains.

And that's not the end of it. Have you noticed how much prices have fallen in so many of the goods and services we buy these days? A whole range of things: food, drink, books, movies, music, clothes, computers, cameras, mobile phones, software, fuel, airfares, solar energy, furniture, and most household electrical goods (televisions, fridges, freezers, microwaves, washing machines, cookers, etc) have all become cheaper in recent times, and it is primarily because of more globalised free trade.

The more trade expands, the more competition there is, which means things get made more efficiently, which means humans get better at making things, which means humans feel the benefits in lower prices.

The network of the free market is rather like other networks that benefit from increased connectivity - phone networks, railway networks, social media networks - the more connections added to the nexus the greater (exponentially) its utility.

Think of Facebook as a good illustration (which is very possibly where you were notified of this Blog post in the first place). When you set up your Facebook profile, you gain local connections (real life friends), and if you're like me, broader connections too (friends from all over the world, gained usually through common interests or group connection).

Now the thing is, you don't just benefit from your connections, you benefit from your connections' connections too, and their connections, and so on - because it is through that mass connectivity that you get to share in all the interesting and edifying things out there.

The intriguing article you read about Camille Paglia, or the mind-blowing video you saw of some crazy guy doing a stunt that most of us wouldn't dream of attempting, or the really special friend you now associate with who lives in a continent you've never visited were all thanks to the connections you've gained, or connections friends or friends of friends have gained and made their way into your life.

Just as on Facebook you don't just benefit from your own connections, but by connections generally - similarly, the market works that way for our benefit too. As more and more people from other countries enter the global marketplace, we find an influx of new skills, new innovations and increased competition, which drives up efficiency and drives down prices.

To read the full article (click here).

For further reading, in April 2015 I wrote an article on Branko Milanovic's findings from last year (click here).

Wednesday, 25 May 2016

The Economics Of Terrorism, And Why Islamic State Will Eventually Crumble


A recent poll revealed that just over 70% of people in the UK think that immigration increases the likelihood of terrorism. They are right, but not in any way that should cast aspersions over the merits of immigration, because immigration increases the likelihood of terrorism only in the same way that having roads increases the likelihood of speeding. The cause of an increased likelihood of terrorism is down to something else.

Terrorism, like fruit, vegetables, cars and holidays has a supply and demand curve. Consider terrorism as a good with a demand curve - by which I mean that terrorism is an activity that currently some people wish to engage in to achieve a religious or political goal. The price of engaging in terrorism is paid in the form of the risk of death, injury or imprisonment.

Similarly, there is a demand curve for burglary, speeding, and fraud, and the price paid to do these things comes in the cost of a fine or a prison sentence. To put it in formal terms, we could in theory draw a demand curve for all of these crimes and then plot the likelihood of punishment on the vertical axis, and the number of crimes committed for each on the horizontal axis.

Ascertaining the steepness of the demand curve is like asking whether an increase in the probability of punishment will amount to reduced instances in crimes committed. Measuring the slope of the demand curve for, say, burglary is equivalent to measuring the deterrent effect of the punishment for burglary. Crimes like burglary, which are often committed to feed a drug habit, are likely to have steep demand curves because drug demand is usually fairly inelastic for an addict, which is why recidivism rates for drug addicts are so high. With speeding, on the other hand, the demand curve seems to be pretty flat. In other words, the single appearance of a speeding sign or a camera leads to a huge decrease in the incidences of speeding.

Now when it comes to terrorism and the sort of people who are likely to commit terrorist acts in the name of ISIS, the demand curve is about as far from flat as it is possible to be, because most of the causes with which the terrorists identify are causes bigger than the crime deterrents (including even death). In other words, many terrorists are perfectly willing to die for their cause, believing that in doing so they are offering a noble service to Allah, meaning in most cases there is no deterrent to flatten down the demand curve for terrorism.

If terrorists have no care for the consequences in terms of punishment for the crime, and if Islamic State continues with the same momentum in recruiting willing participants to fight for their cause, then terrorism is going to continue to be a problem, and immigration only changes where the incidences of terrorism take place - be it Britain, France, Germany, Holland or Belgium.

Regarding the aims of Islamic terrorism, and the fact that those aims even seem able to subvert the moral compass of the perpetrators, I see no signs of incidences of terrorism decreasing. The wide scope of this evil regime is that Islamic State leader Abu Bakr al-Baghdadi wants to establish the Caliphate of all Caliphates, unleashing terror everywhere he can, and ruling Islamic State nations under the thrall of their terror-inducing domination.

There is, though, perhaps one fly in the ointment - if only he was a bit more familiar with the works of Plato and Aristotle, or even a bit more cognisant of historical antecedents, he and his fellow Jihadi thugs would see that their aspirations are probably unrealistic in the longer run.

Here's why. A general pattern throughout the history of military or political coups is that even when they are brutal and catastrophic for the citizens, they soon reach a point of relative stability, not least because it's nigh-on impossible to rule a country under continual internal strife. In other words, good conquerors, even Caliphs, totalitarian as they were, still allowed at least a semblance of autonomy and harassment-free administration of people. That's why, even though it is likely that these horrible terrorist incidents will continue to occur, and Islamic thuggery will continue to pop up, the idea of ruling nations consistent with the backward, brutalised, oppressive, freedom denying methods of Islamic State is wholly unrealistic in the long run.

Tuesday, 24 May 2016

Could A Basic Income Work?


Recently Tim Harford, in an article in the Financial Times, talked about the idea of a 'basic income' - a much vaunted idea in some circles and a much deprecated idea in others. It's not even an idea that's more popularly left or right - figures as far to the right as Friedrich Hayek and Milton Friedman, and groups as far to the left as the Green Party have both come out in support of it, although as you'd expect they differ on the nuts and bolts of the mechanism.

But can it work? Obviously, as most people would concur, it's ridiculous and absurd to offer a basic income universally, because lots of middle and high earners don't need it. However, a basic income given to people who have no work-based earnings or low earnings from work would be okay, as long as it tapers out according to a certain threshold of earnings, but in a way that doesn't disincentivise work either.

Whether there is a basic income system that could get the balance right between managing the varying and complex needs of a whole range of people and not being too expensive and bureaucratic, I'm not sure. I'm even less sure about whether our politicians are intelligent enough to devise such a system.  

If such a thing were to work then off the top of my head I could envision it being along these lines. The government could set a basic income of x per year by using a cut-off point of y per year, and a withdrawal rate of 50%. That means that a basic supplement to a person's income would be equal to 50% of the difference between annual income and the y cut-off point. So a person out of work would get the basic income of x, and a person who earned an amount lower than y would get a supplementary income, and this keeps narrowing as earnings increase up until y.

So, picking a figure for simplicity's sake (a proper study would need to be done by people with all the facts to hand to find the optimal figure), if y = £17,000, and the basic income is £8,000, someone earning nothing gets a basic income of £8,000, someone earning £11,000 per year gets a £3,000 supplement (half the difference between his or her earnings and y), and someone on £15,000 per year gets a £1,500 supplement, and so on, and then when y is reached (£17,000) there is no supplementary income, and y is the point at which every pound earned thereafter is taxed.

Whether it's with a basic income, or other kinds of change, something needs to be done to revise our welfare system - it is anachronistic and has evolved far beyond the original scope of its intention, in a country that's very different from the one at the time of its inception in the late 1940s. The method of tackling a diverse range of welfare needs in a one-size-fits-all fashion is now entirely unworkable, as is the perverse conflict between whether a claimant is better off working or on benefits. Basic income or no basic income, the UK has for a long while now needed a new Beveridge Report for the 21st century.

Monday, 23 May 2016

Can You Think Of A Victimless, Rational, Morally Good Crime?


After reading the recent news bulletin about how in Italy it may now be legal in the eyes of the courts to steal food if you're poor and hungry, I was reminded of a debate I had a few years ago. On a cafe forum for debating I once posed the following question; Can anyone think of a victimless crime, where 'victimless crime' means a crime committed whereby in the general sense there is realistically no possibility of anyone other than the agent in question being a victim or coming to harm?

Just to be clear; you can’t say something like “I could make a call on my mobile phone whilst driving (which is illegal), and then hang up with no one harmed” – because although in the specific instance no one was harmed, in the general sense someone could easily be harmed (if you lost control and had a crash).

Despite lots of evidently faulty suggestions (see below), one that came close was “smoking weed on your own in your own house”. I felt compelled to add the caveat; if you are growing the drugs yourself, then fine, that's a candidate for a victimless crime. But if you are buying the drugs from a drug dealer, then there are costs (you are aiding someone else in committing a crime).

But even the growing of the drugs yourself and smoking them on your own still does not really qualify for there being "realistically no possibility of anyone other than the agent in question being a victim or coming to harm", because if the effects of weed smoking in excess are true, then eventually for some people there will be negative externalities - if, for example, you end up imposing an excessive burden on the health service, or addicted to harder drugs, or becoming dangerously paranoid and volatile. If any or all of those things happen then others will feel the effects of your drug-taking. Here are some of the other suggestions I got (with my comments included):

1) Downloading music or films from pirate internet sites

My Comment: No, the victims are the artists/companies that are losing money through loss of revenue. Of course, there's no guarantee that they always incur a loss, if, for example, sales increase due to dissemination of information - but some will.

2) Jaywalking

My Comment: No, this has every potential to cause harm to others. One car swerves to avoid the jaywalker, hits another, and *biff*.

3) Suicide

My Comment: What a bizarre choice, as this manifestly doesn’t qualify. Suicide destroys entire families left behind.

4) Speeding on an empty highway

My Comment: I think that's stretching it a bit, and I don't think I can allow it, because the crime is 'speeding', which won't generally qualify as "a crime committed whereby in the general sense there is *realistically no possibility* of anyone other than the agent in question being a victim or coming to harm". Moreover, I don't think we can grant omniscience to a driver and give him or her any kind of certainty that the highway is empty.

5) Bigamy

My Comment: Again, no, bigamy potentially imposes costs on one of the wives, and one other prospective husband.

6) Polygamy

My Comment: No, polygamy imposes costs on other men and other women. Some people asked the question; what if all people involved in bigamy or polygamy are aware of the costs and the arrangement is entirely mutual between all parties? Even then it is not enough because the cost is still incurred on those whose chances of finding a partner are minimised by the practice. Technically that is true of marriage as well - when John marries the girl you love he imposes a cost on you because your sweetheart is no longer free to marry you. But in marriage the social benefits outweigh the social costs, which is why we don't opt for a world full of unmarried people, which would then reverse the cost-benefit situation.

7) Walking nude in the street

My Comment: No, that's not an argument with much economic utility - a practice becomes prudent if the social benefits outweigh the social costs. Evidently, the costs of allowing public nudity far outweigh the benefits as it imposes costs on anyone that doesn't want to see nude people walking around the streets.

As you can see, it proved very difficult to find a suggestion for a crime committed whereby in the general sense there is realistically no possibility of anyone other than the agent in question being a victim or coming to harm. 

The only good one was, ironically, related to marriage. One contributor proposed the following; “A victimless crime is finding a way to gain the legal benefits of being married to a person of the same sex in a place where same sex marriages are illegal”. That's a good one; there I can see no reasonable grounds to call anyone else a victim. Cleary, as well, I think it is also ironic that the one valid suggestion put forward is one that most pressingly involves the need for a law change. This shows that laws are predominantly about protecting potential victims as well as potential felons.

(Note: If you have any other suggestions to proffer, you're quite welcome to email me)

Now we’ve considered that, I want to consider three corollary questions in terms of economic analysis; one, concerning a crime with an unaware victim; two, concerning whether there is such a thing as a rational crime; and three, whether there such a thing as a morally good crime. 

What about a crime situation whereby the victim has no awareness that a crime has taken place?
Suppose Frank sees that Jack has a wallet full of money. Feeling confident that Jack won't notice a missing £40, Frank steals it while Jack is asleep, spends £39 on junk food, and then bets the last £1 on a 40/1 winning horse, enabling him to surreptitiously return Jack's £40 before he wakes up. Being completely unaware of any crime, it could be argued that it's hard to call Jack a victim of crime. In fact, suppose that with the last £1 Frank bets on a 60/1 winning horse and returns all the money to Jack's wallet while he sleeps. Here we have a crime in which both Frank and Jack have benefitted (Frank with free food and Jack with an extra £20). Yet even then I wouldn't feel happy with the events that took place because theft is theft. That's a good example of a situation in which everyone benefits yet still there are things of which we disapprove.

Or suppose an admin clerk in a large Pension fund organisation with 1 million clients hacks into the computer system and takes one penny from each account, and then donates the £10,000 to charity - is that a victimless crime, or is it a crime with one million victims that did not notice they'd been the victims of an astronomically small theft? Technically I suppose the latter is true - and either way, it still doesn't make stealing right, even if the net gains surely exceeded the net costs.

Is there such a thing as rational crime? 
From an economic perspective, yes. A man who illegally parks on a single yellow line might find benefits of the crime over the year outweigh the annual costs. Suppose Bob works 250 days per year, and the only car-park within walking distance charges £4 per day - that's £1000 per year. If the road on which Bob parks illegally only generates a £30 parking fine every 4 weeks due to a feckless traffic warden, then it could be argued that Bob is committing a rational crime, as his total fine expenditure throughout the year amounts to £390 (13 x 4 weeks x £30) leaving him £610 ahead against the annual car-parking expenditure of £1000. That’s not to say that we should endorse a crime even if it is rational, but it is rational by any standard definition in economics (see Gary Becker’s Rational Choice Theory* for more on this).  

Is there such a thing as a morally good crime?
It depends on your perspective, but at an individual ‘singular’ level, quite possibly. If you, like many of us, place a higher premium on helping the people most in need in the world (people desperate for drinking water and food) over the people with not such urgent needs (like having smoother tarmac on the road, or searching for alien life) then it could be argued that any singular crime that involved you withholding income tax money from the government and giving it to much more desperate people in Africa is actually a morally good crime. I say ‘singular crime’ because clearly if everyone in the country tried this then many of the nation’s vital services would be severely impaired. 

But the man who is fed up with the government's profligacy in relation to injudicious foreign policies, expenses scandals and excessive wage bill, and decides that he will take it upon himself to give the money directly to those for whom it will do the most good, must in some way be more mindful than most.  Here is a situation in which the law is being put up against a man's conscience, with the conscience coming out victorious.  Although we may be right to disapprove, it should be said that in terms of net good, the man's act is positive and has improved the well-being of the planet overall. 

As you may have noticed, the underlying commonality that runs through the above considerations is that irrespective of whether there is a victim (or victims) in those scenarios the agent committing any bad acts or having bad intentions is the one that bears the costs of the outrage on his or her conscience.

Which leads us full circle back to the person who steals food legally because he (or she) is poor and hungry. Intrinsically the theft may well be rational - at least in that it is rational to steal food and risk punishment rather than risk starvation. But where there is not even any punishment, there is a great incentive for many to steal who are not all that poor in the hope that they can get away with it on grounds that they are poor. In other words, what the lifting of this law does is create an incentive of increased theft, which passes the main bulk of the costs/risks onto shopkeepers, and will therefore probably have more negative unintended consequences than is ideally desired.

* Gary Becker's famous rational crime theory involved weighing up the costs and benefits of crime, and trying to ascertain whether some instances of criminal behaviour are rational. For example, Becker considered whether parking in an illegal but convenient spot was a rational thing to do once the probability of getting caught is measured against the benefits of a convenient parking spot. Becker famously spoke of goals in the sense of our being rational actors engaged in a diligent cost-benefit analysis of whether crime pays. Some criminal activities involve reasonable goals if the benefit from the act is perceived to be greater than the probability adjusted weight of being caught and paying a penalty. Developing this David Friedman has argued that "The amount of the punishment should equal the damage done by the crime". The point being, that if crimes are committed when the value to the criminal is greater than the societal harm, only efficient crimes will be committed.


Saturday, 21 May 2016

Why The Unthinkable Should Happen Even Less Often Than You Think


At the time of writing we are currently half way through the 2016 FA Cup final - which got me thinking: what a tremendous season the Premier League has been, not just for sport, but also for anyone that is interested in probability and enjoys those startlingly rare and unpredictable outcomes in life. Against all odds (5000/1 at the start of the season) Leicester City have done the unthinkable - they have won the Premier League, finishing ahead of much bigger teams like Man City, Arsenal, Man Utd, Tottenham, Liverpool, and last season's champions Chelsea - all teams with much more money than Leicester and for the most part better players (consider how many Leicester players would get in those teams, and it won't be many).

We mustn't underestimate just how startling this is - it's not just the most shocking upset that's ever happened in the history of football, it's one of the most 'against the odds' things that has ever happened in British history full stop. What compounds the shock factor is that while you expect upsets in cup competitions, the league consists of 38 games where the best team that season has the best chance of being champions.

Perhaps there is another reason, though, why an upset of this magnitude was eventually likely to happen. It's noteworthy to me that there is a marked difference between team sports (like Football and Rugby) and individual sports (like Tennis and Snooker) in terms of how often the superior participants beat the inferior. In team sports the better teams manage to lose against the worse teams much more frequently than in individual sports, where the better players tend to win far more often.

I think I can work out why this is the case; it's almost certainly to do with probability and ratios in relation to consistency. Given that a team's performance depends on multiple players, teamwork, group cohesion, communication, and so forth, it is understandable that their rates of consistency are slightly less reliable than individual performers.

But in sports with individual participants there is another thing that increases the probability of the best player winning most often, it's to do with numbers, and a little thing called binomial distribution. Consider normal distributions in coin tossing - with a fair coin you expect to win about half the time. In a first to ten competition a fair coin would confer no advantage on either player. But suppose the coin was biased to represent superior ability in an individual sport, let's say tennis. Say you have a 1 in 4 chance of winning a coin toss with a biased coin, what chance would you have of beating your opponent in a first to ten competition? Using combinatorial methods that I won't bore you with, I calculate that your chance of wining a first to ten is less than 1%.

Obviously a competition involving a coin that gives you only a 1 in 4 chance of winning a single toss is going to be a harder competition for you to win the more coin tosses involved. That is, you've got less chance of winning a first to 25 than you have a first to 10. Your best chance of winning would be if the competition was a single coin flip - then you have a 1 in 4 chance. Any increase in coin tosses decreases your chances of winning. In a first to 2 your chances are 1 in 16 (25% x 25%), and in a first to 3 your chances are 1 in 64 (25% x 25% x 25%), and so on.

While sport is not quite the same as coin tossing, the same kinds of principles apply. If you as an amateur were told you had to beat a tennis player, or snooker player, or pool player hugely superior to you in ability, your best chance of beating them would be in a one game competition. The greater the increase in number of games you need to win (first to 3, first 5, etc) the less chance you have of winning, because, fairly obviously, there is more opportunity for the superior player's superior skills to affect the outcome.

What all this shows is that once the numbers are stacked against you (as they are when you play someone at sport who is better than you), those numbers get even more stacked against as the game goes on. For example, let me ask a question and see what your intuition says. Suppose you have a big tennis match against Andy Murray, with a £1 million stake, and suppose you take a magic pill that that makes you good enough to win 40% of the points (in Tennis every game is essentially a first to 4 - that is, 15,30,40, game). What are the chances that you'll win the match (best of 5 sets)  against Murray? 40%? No, way out. 20%?, Nope, still way off. 10%? No. 5%? Still not that close.

Your chance of beating Murray is actually just slightly less than 0.0005% (that's 1/20 of 1%). Think about it, if you are able to win 40% of the points against Murray you would win a game just 26% of the time (that factors in the times you'd need to win the game by 2 clear points). To win a set you'd need to win 6 games, which reduces your chances to just under 5%. As you have to win 3 sets to win the match that's why you have only about a one twentieth of 1% chance of beating Murray in a match.

Given the foregoing, and that such narrow probabilities should, on paper, apply to a team like Leicester City too, it is all the more remarkable that they went on to win the Premier League. Enjoy it while it last though, for I doubt anything this remarkable will happen again for a very long time.

Friday, 20 May 2016

Hypocrisy Or Not Hypocrisy? That Is The Question!


 
 
So I guess many of you have seen this doing the rounds - it's a 13-year-old letter from George Osborne calling tuition fees “a tax on learning” and promising that when the Tories next get in they will scrap them. It was his Nick Clegg moment a few years before Nick Clegg's actual Nick Clegg moment, and many people are now calling the Chancellor a 'hypocrite' on the basis that he is now presiding over tuition fees while in government.
 
Are they right to call him a hypocrite? Perhaps, but perhaps not. The first thing that needs to be said is that quite a few people need to look in the dictionary to find out what the word actually means. Take the filmmaker Michael Moore as a good example.
 
Cast your mind back to 2004. In his all-round pretty disingenuous film Fahrenheit 9/11, Moore thought he would appear clever if he confronted various members of Congress and demanded they enlist their own children to fight in Iraq on the grounds that those who support a war but do not send their sons to fight in it must be hypocrites. George Galloway tried the same thing a few years later in reference to Tony Blair.
 
Both Moore and Galloway were confused about what hypocrisy is. Hypocrisy means publically being for/against x but then privately not-doing/doing x - it's one rule for themselves but another for everyone else. If I say eating meat is morally repugnant, but have a sneaky bacon sandwich on Saturday afternoons I am being hypocritical.
 
A politician that votes to send our armed forces to intervene in a conflict but wouldn't want his son fighting out there is not a hypocrite. Using Michael Moore's logic, a politician is hypocritical if he supports the NHS but doesn't send his son to be a doctor, or if he supports taxi driving but doesn’t get his son to drive a cab. Those situations don't even look a little bit like hypocrisy.
 
Sometimes, though, things do look like a little bit like hypocrisy, even though they aren't. Suppose a head of State was opposed to LSD, cocaine and heroin, but there was an electoral pressure to get all three legalised. Would it be hypocritical for our head of State to strive to get LSD legalised even though he was opposed to it?
 
Not necessarily. While he would prefer all three to remain illegal, he may sense that severe lobbying could bring about the legalisation of all three drugs, whereas a compromise of legalising LSD would be a more realistic goal for him. Instead of being hypocritical, it's more a use of ingenuity, and opting for a lesser of the evils.
 
So what of George Osborne then, is he being a hypocrite over tuition fees? The truth is, we're not sure - possibly only he and those that are close to him actually know. It could be that he used to be against tuition fees and then wised up once he thought about the arithmetic a bit more, and came to understand what balancing a budget is actually like in government. He may have simply had an epiphany about the prudence of price signals related to degrees, and that there is no such thing as a free lunch.
 
Or it could be that he is sullied with that quandary known as being a politician, whereby when you're itching to be in government you find yourself saying all sorts of sly and guileful things in order to get elected. George Osborne is simply going through the same kind of criticism we've seen levelled at Tony Blair, Nick Clegg and David Cameron in recent times - making promises they later went on to break in government. Doubtless, had they been elected instead, the same would be said of William Hague, Charles Kennedy, Michael Howard and Ed Miliband.
 
The upshot is, there is a real discontinuity between what politicians can promise out of power and what they actually have to deliver in power under the economic constraints of being the party controlling the purse strings. If you haven't learned the lessons by now, I'll summarise with succinctness. Take what elected politicians say with a large pinch of salt, but take what unelected, aspiring politicians say with a whole shaker full of salt.


Wednesday, 18 May 2016

Taxpayer-Funded 'Free Lunches' Are Choking Us


"Education is our right – we should be cutting tuition fees, not raising them”, declares Malia Bouattia in her Guardian column. It’s rare to see quite so much confusion all crammed into one article, but we’ve been through this before on this Blog (see here, here and here for example) so I won’t labour the points again.

There is a deeper problem, though, with tuition fees. According to Merryn Somerset Webb at MoneyWeek - one of the go to places for statistical updates - currently around 45% of student loans end up being written off, where the tipping point at which the whole thing starts costing rather than saving money is 48%. This problem is in part due to graduates earning less than expected, or sometimes nothing at all, but also due to the tax avoidance incentives woven into the system, such as salary sacrifice.

“With clever planning, an employee can use salary sacrifice to reduce their income below certain thresholds and therefore make further savings. Take student loans, for example; many students leave university with high hopes of landing a top job but can find themselves undone, with low pay and laden with debt. Repayment of student loans is 9% of income earned above £17,335 for those taking out student loans before September 2012, and £21,000 for those taking a loan out after 1 September 2012. This can often leave many university leavers with a lot less take-home pay than they need. Taking into account Income Tax and National Insurance, a graduate will take home just 59p in the £1 for part of their income earned above the repayment thresholds. This would further reduce to 49p in the £1 for income earned above the basic rate tax threshold and a quite frightening 32p in the £1 for each pound of income earned between £50,000 and £60,000 if the graduate has two children and is in receipt of Child Benefit payments.”

It's not exactly rocket science, is it? Suppose our graduate earns £30,000, and has a choice of putting money into her pension either via salary sacrifice or out of her net salary (whereby the tax is claimed back). If she does it using salary sacrifice, her official gross salary is not £30,000, it is £27,000. That cuts her National Insurance bill and her income tax bill – but most essentially, it also cuts her loan repayments from £810 to £540, where the resultant outcome is a take home pay of £20,907 instead of £20,277. That's all very nice for our graduate, but it's not such good news for taxpayers as a whole. It might well be time to ditch the salary sacrifice scheme.

The thing is, if the university supply and demand curves intersect - that is, if the demand for degrees and the supply of degrees are in market equilibrium, then a tuition fees system whereby the government loans to those who need the money to obtain a degree, and then only asks for payment when the post-graduate can afford to repay with a small proportion of their earnings, is not a terribly bad system. It's not perfect, but it isn't too shabby.

However, once the system becomes skewed whereby nearly half the graduates never pay back even a penny of their student loan, the alarm bells ought to start ringing, because it's obvious that this is down to there not being enough post-grads doing degree-level jobs. This is the market’s way of trying to tell us that there are currently too many people doing degrees.

Because the taxpayer picks up the cost of unpaid student loans, it means the surfeit of university degrees in this country end up being subsidised by the general public - many of which are low earners. Consequently, this means a great many of them are subsidising people that are doing degrees and never earning enough to pay them back, while the rest of the post-grads, the people that do pay them back, are people whose degree earns them a degree-level job, and whose lifetime earnings are likely to make them better off by approximately 60%. Any writer that entitles their article “We should be cutting tuition fees, not raising them”, really ought to think a bit more about the basics of arithmetic and supply and demand before waxing lyrical on this subject.

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