Tuesday, 30 April 2013

On Marriage, Civil Partnerships & Polygamy

On Sunday the BBC’s The Big Questions featured a debate about heterosexual civil partnerships, and why they should be the next step in legislation.  The logic is straightforward – if gay couples shouldn’t be discriminated against by being excluded from the right to marry, then heterosexual couples shouldn’t be discriminated against by being excluded from the right to be in a civil partnership.  No problem there, with a system that includes both marriage and civil partnerships for anyone that wants them (whether gay, straight, religious or non-religious), everyone’s preferences are catered for. 

Give it a few decades - once this has become the cultural norm - and I predict that gay people will choose marriage or a civil partnership depending on their religious beliefs (or lack thereof), and more and more heterosexual non-religious couples will choose a civil partnership over marriage in church, making church marriages predominantly favoured by religious people.  Everyone will be able to have a formal union with their beloved based on their beliefs and preferences – and that can only be a good thing. 

One contributor on the show, a woman from Catholic voices, objected that if we let it get that far then you’ll have people campaigning for polygamy to be legal, and goodness knows what else.  Yes it is true that that future populations may well be into things that we at present would find extreme and unlikely (don’t forget gay marriage would have seemed extreme and unlikely to our progenitors) – I hear polyamory (having multiple sexual relationships by mutual consent) is on the increase.  But I think she is wrong in fearing that we’ll one day be rooting for polygamy.  Here’s what she's missing.

Most people seem to object to polygamy on the grounds that it is bad for women (particularly given that men would be much more inclined towards multiple wives than women would multiple husbands).  They have a picture of horny men with four or five wives at their disposal, all feeling threatened and jealous of the other wives, bringing about mass insecurity and a diminishing of the traditional family unit.  This is true – but it misses a key point – polygamy is bad for women, but it is bad for men too.  It isn’t just bad for men and women because most individuals prefer to have one beloved and be in a monogamous relationship – it is bad because in a society in which a lot of men have four or five wives, there will be a lot of lonely and frustrated men with no wives at all.  This means that wives in polygamous marriages will have less reason to be faithful to their husband, because the competition is heightened by the increased number of single men out there.  So not only would you have a society full of threatened, jealous and insecure women, you’d have a society full of threatened, jealous and insecure men too. 

That’s why I think the woman from Catholic voices is wrong – if the vote for the legalisation of polygamy was on the agenda, most men and most women would vote against it.  Even if polygamy became legal, I still think for reasons already alluded to, most individuals would still opt for a monogamous relationship with one beloved.  In that case, you may ask, why not make it legal to cater for the minority that do want to be in a polygamous relationship, and leave the majority to their monogamous preferences?  That can’t do any harm can it – after all, isn’t choice always a good thing?  No, I think sometimes we humans need reining in – and this is one of those times, because I think the option of legalised polygamy would make monogamous couples much less happy and secure. 

The reason is as follows; as far as the law goes, at the moment you and your husband or wife have roughly equal strength on your side; if you are arguing lots, or if you’re going through a bad patch, your marriage is closed to the rest of the community, giving you the capacity to work through it as husband and wife (or as civil partners).  But if polygamy became legal, your husband or wife could leave and marry Alice, Jemma and John down the road – or they could invite Lucy and Kate into your marriage – and this would only increase the tension in marriages (and that’s to say nothing of the increase in legal complications).  That’s why having legalised polygamy as an option is bad, and why, if anything is going to be a preferred alternative to marriage and civil partnerships, I think it will be polyamory not polygamy – with the majority still preferring a monogamous marriage or civil partnership.

Wednesday, 24 April 2013

How Good Are You At Assessing Evidence?

How good are people at receiving some information and assessing the probabilistic evidence instinctively?  I think people overestimate their ability, as this simple test probably will show.  
In front of you are two fields full of sheep.  Field A has 70 black sheep and 30 white sheep, and Field B has 70 white sheep and 30 black sheep, but you don't know which field is which. You're blindfolded and asked to go into one of the fields and lead 12 sheep out of the gate. You lead out 8 white sheep and 4 black sheep.  From which field is it likely that your selection came, A or B?  I'm guessing you said Field B. You're wise to say Field B, but here's the real question - what percentage of confidence would you say is justifiable in claiming Field B to be a wise estimate?

A) 10%
B) 25%
C) 40%
D) 65%

Remember what you chose.  Now here's another question.  Which of these cities has the distinction of being the world's most populated city?

A) London
B) New York
C) Paris
D) Madrid

Which did you choose?  If you have a good sense of the world populations you would have likely thought 'None of the above' (and your instinct would be right - the actual answer is Shanghai). 

Now returning to the first question - what is the actual answer for the justifiable percentage of confidence in claiming Field B to be a wise choice? - you should have said 'None of the above', because the answer is 98%.  Almost nobody would look at my sheep test and think instinctively that the probability would be that high.  

Here’s something else to consider.  I didn't invent this one - it's a selection task devised by psychologist Peter Wason, to show that people don't naturally think well when logical symbols are required. According to statistics over 90% of you will get this wrong.

You are shown a set of four cards placed on a table, which must conform to the rule "If  P then Q". That means that whenever there is a card with P on one side, the reverse side of the card must show Q. The visible faces of the cards show as follows:

CARD 1 - P
CARD 2 - not-P
CARD 3 - Q
CARD 4 - not-Q

Wason asks which card(s) must you definitely turn over in order to test the truth of the proposition that "If P then Q" holds? Have a think about it for a few seconds. 

If you're one of the 90+% you've probably reasoned that you need card 1 and card 3. You want to make sure that P has a Q on the other side, and equally you want to make sure that Q has a P on the other side.  But that's not right - the cards you need to choose are cards 1 and 4, because the rule is "If P then Q".  So indeed you need to check card 1 (P) to ensure there's a Q on the back, but you also need to check card 4 (not-Q) to ensure there is 'no' P on the back. If there is a P on the other side of card 4, then the rule "If P then Q" has been disobeyed.  Cards 2 and 3 don't need to be touched.

Now what's strange, Wason found, is that although people struggle in this task when using logical symbols, they don't when those symbols are changed to more familiar real life situations, despite the logical connection between facts being exactly the same. For example, if instead of "If P then Q" the rule used is "If you come into my pub and drink alcohol you must be 18 or over" people get that one right. The visible faces of the cards show as follows:

CARD 1 - Age 15
CARD 2 - Drinking coke
CARD 3 - Age 18
CARD 4 - Drinking vodka

When presented with the task in the social context of under age drinking, virtually nobody has any trouble choosing cards 1 and 4, even though the logical connection is exactly the same.

I think a lot of this apparent irrationality is down to the mental shortcuts people take.  At least, one would assume so, given that once things have been explained nobody doubts them any more. It's like Daniel Kahneman's now world famous bat and ball problem:

"A bat and ball cost a dollar and ten cents. The bat costs a dollar more than the ball. How much does the ball cost?"

Almost immediately many people go straight for '10 cents' instead of 'five cents'.

It might also be a case of low hanging fruit. I mean, here's one that's alarmingly obvious that surprisingly some people get wrong. Which of the following is the largest set:

A} The set that contains all words in which the third from last letter is 'i'.
B} The set that contains all words in which the last three letters are 'ing'.

It is obvious that A is the larger set, because set A contains all of set B, but yet not everyone sees it. I think it's because they can easily bring to mind words that end in 'ing' so they somehow fail to assess this correctly.

Here is a further puzzle that's really uncomplicated, but yet it leaves many people giving the wrong answer:

X is looking at Y, but Y is looking at Z. X is married but Z is unmarried. Is a married person looking at an unmarried person?

A} Yes
B} No
C} Cannot be determined

Many people answer C, but that’s not right – the answer is A.  Here’s why.  If Y is married then Y is the married person looking at the unmarried Z. If Y is unmarried then X is the married person looking at the unmarried Y. Either way, you know a married person is looking at an unmarried person.

Try some of these on your friends or work colleagues; you’ll be amazed how often they get their answers wrong.  You’ll also see them admit how obvious the answers were all along, once you’d told them.  I suppose that is the nature of riddles in life; in prospect they often seem tricky, but in retrospect they were obvious all along.  Not only are these puzzles fun – they inform us that we humans are perhaps not as rational and not as instinctively good at assessing probabilistic evidence as we might think.

Saturday, 20 April 2013

Natural Selection or The Invisible Hand

Now we've had the funeral of Lady Thatcher, it seems appropriate to say that there has been two extreme reactions to Thatcher's death (and legacy).  Some largely unimaginative people (usually from the north of England) assert that her actions ruined their potential for industrial earnings; and some equally largely unimaginative people (usually from the south of England) have asserted that these economic changes in the eighties were necessary because industry and market economics undergoes a kind of Darwinian natural selection where businesses are driven by a kind of 'survival of the fittest' pattern.  I think both sets of individuals are looking at the situation in an unhelpful way that skews too heavily towards their own emotional, occupational, cultural and, in some cases, national biases. 

In market economics, Smith's 'invisible hand' states that competition brings about self-interest for the good of everyone, where prices near-perfectly match supply and demand.  Biological evolution has no mechanism comparable to this.  In natural selection, biological forms acquire traits that better enable them to adapt to specific environmental situations, which results in their improved evolvability due to the perpetuation of those beneficial traits in the generations that succeed them.

The Darwinian model doesn't ideally apply to the invisible hand mechanism. What extremists have done is compared it to "arms races," where on occasions the encouragement of actions can cause harm to the group but also compromise the advantages for individuals.  This can happen when gains are relative and mutually offsetting - but this is rare in the Smithian model (in fact, if anything, the Smithian model suffers only by being too parsimonious for potential niches in the market).  What’s usually the case, as is with Thatcher’s critics, is that they have missed most of the costs, and mistaken the benefits for costs, by having too narrow a vision in supporting the parts of the economy that are not healthy (which coincidentally, always seem to be the particular industries in which they find themselves).  It's no use being emotionally affiliated to an industrial factory that's costing us money just because it happens to be one’s own, or because it happens to be based in one's own country.  That's as ill-conceived as preferring a car-crash on British roads to safe driving in China or India - the quality of the thing under consideration is important, not where it comes from. 

I explained in my last Blog why enhancing the global connectivity is good for all economies.  The argument that supports this is the same argument that supports why market economics on a global scale is more efficient than the Darwinian natural selection model for economics, and why Thatcher's critics have got it wrong - it is the efficiency of the relationship between prices, supply and demand.  It is foolish and impractical to favour bailing out and propping up industries in Britain, when Britain (and the rest of the world) can benefit more greatly (and has benefited more greatly) from the efficiency of the relationship between prices, supply and demand on a global scale.  As I explained in my last Blog, making good use of the efficiency of the relationship between prices, supply and demand on a global scale is the same as making good use of the efficiency of finding improved technology.  Whenever a Government departs from this mandate by trying to artificially improve industries on the basis that they happen to be 'our national industries' (as the Labour Government of the 1970's tried to do) it only succeeds in diminishing the extent to which opportunities to improve everyone's welfare exists.

What those protesting about loss of British industry don't seem to understand is that competitive markets is what brings about the allocation of resources with maximum efficiency.  There is no place for national identity in economics, because to insist so is to say that the different way to allocate resources is contingent on one's national identity, which is manifestly false.  Adam Smith showed in his seminal Wealth Of Nations that the different ways to allocate resources is only maximised to the best effect when competitive markets function freely (this has also been proven mathematically by Debreu and McKenzie). 

The key here is that there is 'supply'; there is 'demand' for that supply, and there are 'prices' that invoke near-maximum efficiency between the supplies and the demand.  There is not such a near-maximally efficient mechanism in natural selection.  In analogical terms, there is supply and demand in natural selection, and there are prices in natural selection - but there is no 'invisible hand' that maximises biological efficiency in the same way that it maximises global economic efficiency through prices that near-perfectly balance the weight of supply and demand, and the capacity to adapt to the continually changing environment. 

There may be plenty of reasons to criticise Mrs Thatcher – but claiming she ruined our industry is not one of them – because, in fact, the opposite is true; she helped enhance our economy in ways that seemed unlikely in 1979.  To criticise her for that is as foolish as criticising all the people driving safely in China and India because you happen to prefer car crashes in Britain.

Saturday, 13 April 2013

How To Split A Restaurant Bill, and How To Reform The NHS

How To Split A Restaurant Bill, and The Future Of The NHS
Consider this question: you and nine others are going to a restaurant for a meal.  Purely on economic grounds, and assuming the time taken to pay is the same either way, is it better for you if each person pays their share of the bill based on what they consumed, or is it better if you all agree to split the bill into ten equal shares regardless of consumption?  The answer is, it depends, and I’ll explain why in a moment.

We've seen a lot of inflammatory articles recently about the supposed gradual abolition (privatisation) of the NHS - with the Tories getting much of the criticism, particularly from ill-considered, hyperbolic columnists in The Guardian and The Independent.  Now, I'm no mouthpiece for the Tories, but in fairness to them, the first assumption that needs correcting is that the degree to which NHS privatisation has occurred under the Tories is no greater than under the previous Labour Government. Irrespective of which party governs, the most important thing about the NHS is that it must continue to be free for everyone equally at the point of service. And ideally, it must also be run efficiently; and the money spent on it must be spent as proficiently as possible. This can happen in both a public and private spheres, but generally introduction of private companies needn’t be to the detriment of the NHS, because competition (when introduced well) increases efficiency and raises standards.  The often trotted out pro-public sector argument based on economies of scale is faulty, because the success of economics of scale is not based on whether an institution is private or public, but on how well it is managed.  

But there is cause for concern; because my prediction for the future of the NHS is that it is gradually going to more closely resemble one of those monolithic nanny-state structures that is run by Governments looking to penalise people for what is deemed to be excessive use of the system.  In short, they will use cash incentives to encourage us to live well. 

Who pays the restaurant bill?
In order to see how the NHS will be reformed, we need to look at the restaurant situation in more detail.  If you have a meal with nine other people, then your consumption habits probably will depend on how the bill is paid.  If each person pays their share of the bill based on what they consume, then the chances are individuals won’t over consume.  A fairly reliable rule of thumb in economics is that when an individual is able to impose some of the consumption costs on others, he will over-consume relative to a level that is maximally efficient across society.  That’s another way of saying that people respond to incentives, and if there are no incentives against overconsumption, people will over consume.  If each person pays for their own meal, then there is an obvious economic incentive to not over consume.  At the other extreme, if a billionaire Arab tells you he’s going to pay for the entire cost of all your meals then that amounts to ten people’s potential willingness to over consume. 

But what about when the bill is split evenly between the ten people – will the average consumption per person be greater or less than when each person pays for their own meal?  I’m pretty certain that if this were researched you’d find increased consumption when the bill is split evenly.  Here’s why.  Suppose you’ve all finished your main meal, and as a group of ten you are now pondering whether to have a dessert, where all desserts are £4 each.  If you have a dessert, and you’re the only one, then that dessert has only cost you 40p, because the £4 is going to be added to the bill, and thus, divided evenly between ten of you.  If everyone else is going to pay 40p for your dessert then there is equally good incentive for them to have a dessert as well.  Naturally the more people that choose the dessert the higher the average cost.  If everyone joins you in having a dessert then each pays full price for their own dessert, because the sum of dessert expenditures rises to £40 (£4 x 10 people). 

Suppose that you valued the dessert at £2 worth of enjoyment – if you were only paying your own costs you would not have a £4 dessert, because its cost is double your benefit.  If you valued the dessert at £6 worth of enjoyment, you would have a £4 dessert, because its cost is only two thirds of your benefit.  When you’re the only one having a dessert (for 40p) your enjoyment exceeds the cost; when six of you have a dessert, your enjoyment no longer exceeds the cost (because you’re now each paying £2.40 for the share of desserts consumed).  

But now assume something different; you didn’t really want a dessert, but you thought that anything from 40p to £2.40 for a dessert would be too good a deal to resist, so you decided to have one.  Generally, artificially low prices encourage people to spend needlessly and consume wastefully – so artificially low dessert prices will encourage diners to consume wastefully.  This analysis is called a ‘marginal cost’ analysis, and it follows another reliable rule of thumb, which is that if a price is set below a marginal cost, people will over consume (or, in the case of services, over use); and if a price is set above a marginal cost people will under-consume (or, in the case of services, under-use).

Suppose now that instead of all the above restaurant situations, the billionaire Arab walks in to the premises and offers every diner a choice.  He gives each diner £25, which they can spend in the restaurant, but any leftover money they get to keep.  This means that if Jill prefers to eat and drink moderately, and take home some of the leftover cash, she can; and if Rachel prefers to eat and drink excessively, and spend the full £25 in the restaurant, she also can.  This is the kind of mandate that I imagine future Governments will think is needed for reforming the NHS.  It’ll go something like this; people need incentives to not over-consume, which is linked back to incentives to live well, which is linked to a dialectic that aligns cost to choice of lifestyle (if you want to abuse your body or live excessively, then fine, but in this model it’s going to come at an incentive-based financial cost too).  The NHS reform’s big impediment is that it has got somewhat out of hand, as this would have been better implemented early on in its inception.  In other words, it’s better to pre-empt a bomb going off than to let it happen and then struggle to find volunteers to help clean up the mess.  Here’s how the restaurant illustration informs us about the future state of the NHS.

In the future, our future Governments probably will reach a stage at which the state runs the NHS and its concomitant tendering contracts through a much more rigorous central system (yes, I know, that's counter to what you might reasonably expect, but so are many future things) - one that seeks to maximise the incentive to not over-consume the health services, one that rewards healthy living, and one that manages the funds in the most efficient way. Governments will eventually realise that this can work if we have a universal health system in which the State ensures affordability of services and care through a system of mandatory savings for all earners, State subsidies for children and non-earners, and cleverly regulated controls. Each citizen that accumulates funds through earnings will generate mandatory savings that are funded by replacing the antiquated national insurance.  Already your incentive to not overuse is there because your use of the NHS comes at the expense of some of your savings.  All money not consumed on the NHS through your life will be added to your pension. Those who don't over-use the NHS can have larger pensions, and those that can't afford this are paid for by the immense net savings across the board. This also directly links your equity to your choice of lifestyle, and incentive to live longer.  By then the future Government will have developed a fairly straightforward means testing system that links taxation to revenue, overspend to insurance (and increased welfare for the most needy), and under spend to an equitable distribution used to fund those that can't pay (like children and non-earners), or those whose perennial bad health exceeds their mandatory savings.   This means people who act on the incentive to live healthily will be rewarded; people who are dependent on welfare and people who have serious health issues or bad luck with repeated health issues will be covered by the State, and people who had the propensity to misuse and show a disregard for the system will now have an incentive not to do so. 

Here's another reason why future Governments will think the reformed system will improve the overall situation - currently everyone's health care is more or less paid for from your national insurance contributions (along with unemployment benefit, disability allowances, and state pensions).  The trouble is, NI has become antiquated and not fit for purpose.  NI was originally introduced to provide cover for (primarily male) earners who endured tough economic times, by taking a slice of their wages to cover the cost of them and their family. But nowadays we have a much more diverse nation of workers, in addition to thousands of young people trapped in a cycle of benefits, Illiteracy, lack of education, lack of confidence, and ensnared by deprivation and feelings of hopelessness.  Add to that the numerous people who are beset by problems associated with unhealthy eating, and excess use of drugs and alcohol, and it will be clear that things need to change. 

I don’t disagree that incentives are good in particular cases.  Most of us can agree that currently too much of our National Insurance money is going towards things like gastric bands for the morbidly obese, cosmetic surgery for the vain, and to a much greater extent, on people in the aforementioned social brackets (particularly high users of substances, cigarettes and alcohol).  But while it’s all very well focusing heavily on the kind of poor health that is self-caused – it is obvious that a lot of poor health occurs through no fault of our own.  This point above all other points must be primary in the Government’s thinking if this future reform is going to have any success.  I say that because if the reform is actioned with the intention of not abandoning those in need, or refusing them help - it can endeavour to change the scenery over time, and link incentive with cost reduction, while still engendering an improved health service, where the NHS will still be free for everyone at the point of service, but that instead of NI, the Government will be collecting the funds to pay for it more efficiently through an improved system of taxation. 

The upshot is, if a man's excessive drinking, smoking, drug-taking and unhealthy eating etc is paid for out of the pooled National Insurance, it gives him no incentive to act otherwise - and his situation is a bit like the diner who knows anything he eats in the restaurant that night will be paid for by a beneficent billionaire.  To that end, this future reform could be successful, as long as the baby isn’t thrown out with the bathwater.  And one further caveat; I said earlier that competition is usually good for efficiency, but with ill health and injuries this causes me some concern, because when you have small-scale competition for cherry-picked services in NHS, firms tend to opt for services that are easy to manage and readily profitable.  Not only does this tendering process amount to increased bureaucracy, and excessive use of time and staff resources - it very often is awarded to poor quality low bidders whose profits are made by cheap resources, and under-trained and under-staffed units. This doesn't work so well for patients whose health is at stake, because injuries or illnesses that are complex and risky are in danger of being refused.

Finally, I’ll leave you with a tip for forecasting what the future will be like; it is based on what I like to call the ‘prescient wisdom of future ages’.

Prescient Wisdom of Future Ages
Whenever you think about reform or improvement to a system, here's a good way to approach it.  Try to consider how people in the future would do things, and try to emulate that now.  That is to say, in most cases people in the future will have developed the wisdom to rectify the mistakes and inefficiencies of those that preceded them.  That is a very succinct summary of our history of progression.  If you lived in pre-democratic times and you were the first to propound the idea that people might like to choose those who represent them, you'd have made a good contribution to humanity.  If you lived in a time when slavery was the norm, or when no one had considered things like foreign aid, or welfare, or the plight of racial discrimination, or equal opportunities for women, and you propounded wisdom to correct these aberrations, you'd have done your bit to help lift humanity onto its next level of progression.

Consequently, if you want to picture a more reformed, efficient and well performing NHS, you should consider what it will be like in the future when humanity has had more time to ‘perfect’ the constituent parts of the system.   Whether this NHS reform will be morally better or worse, I won’t say – but by then I think the Government will have worked out that just like the benefits and costs attached to paying for your own meal in a group of ten, an incentive to not consume resources doesn't just reach fruition at the level of medical service, it acts as a deterrent against substance abuse, alcoholism, heavy smoking, and unhealthy and excessive eating in the years prior to your suffering the effects.  Their big challenge will be to tackle these incentive issues, while at the same time keeping the NHS free for all at the point of service, and realising that the majority of our poor health is not our fault.   

Saturday, 6 April 2013

Geography Is The Present Day Racism

A lot of people in the UK think that white people should be given UK jobs ahead of black people.  They complain when black people get jobs ahead of white people - and they get taken in by the false propaganda that exclaims black people coming into the country to work is bad for the economy (it isn't).  All that I just said is true, apart from two small details; I said 'white' instead of 'British' and 'black' instead of 'non-British'. I said it because, even today, many people who believe it is wrong to discriminate on the basis of race (a man made concept*) are surprisingly quite happy to discriminate on the basis of geography (another man-made concept). When we look back at some of the shameful acts and beliefs in history (such as stoning, witch-hunts, slavery), we are usually appalled that our ancestors behaved so reprehensibly, and with such ignorance.  Similarly, most of us are appalled at the relative recency of our homophobia and racism.  The underlying point is, I don't see why we should be less appalled at discriminating against someone based on their geography than discriminating against someone based on their race – both strike me as equally absurd, unkind and unjustified.   Furthermore, I feel fairly certain that future generations will have culturally evolved to find discrimination based on geography as reprehensible and ignorant as we of today find discrimination based on race. 

Despite the above, it is incredible how frequently people complain about 'migrants stealing our jobs', and how often they insist that 'British money should be spent in Britain'.  I don't see why a young, unskilled man from Newcastle or Liverpool or London with not much willingness to work should take precedence in the employment market over a young man from Poland or Nigeria who has the right skills, and is willing to work.  And I don't see why a family in Cambodia with not enough food and drinking water should be any less of a concern for us than a family in Newcastle or Liverpool or London living in impoverished conditions - in fact, it seems obvious to me that those in Cambodia (and other countries much poorer than ours) should be more of a concern, because they are the people in the world that need the most help. 

You may be the sort of person who thinks that £7 million of British taxpayers' money spent on a dual carriageway in Norfolk should take precedence over £7 million spent on digging wells to provide drinking water for dying people in Cambodia.  Your logic might be that British people are paying their taxes, so it should thus stand to reason that that money should be spent on British needs.  I don't think that's a good way to think, because if you recall Harsanyi's model, which tests these moral issues most honestly and prudently – his model would show that it's better to stop people dying than it is to improve their journey times on roads. 

But even if I grant you that British taxpayers’ money should be spent on British things, that still doesn’t advance the argument that’s it is ok to discriminate in favour of British people in the employment market, because the taxpayers are not paying wages, employers are (at least they are in the majority of cases we are talking about), and employers are free to employ whoever they want.  A correlative point – and one which many do not get – is that if an employer has found 100 non-British workers who are willing to work for £3 per hour less than his 100 British workers, the nation is better off (as is the global economy), because before the non-British workers began to do the jobs, there were 100 potential workers each being overpaid by £3 per hour.  In a 40 hour week that amounts to a net overpayment of £12,000. 

Ok, I’d guess some people aren’t convinced that paying people £3 per hour less is a good thing.  That’s because they’re not thinking with a proper economic model – they’re probably thinking in emotive terms like ‘minimum wage’ and ‘cheap labour’, and they probably have it drummed into them that high wages means a good economy.  This is wrong on two counts; firstly, it is erroneous to think of a £3 per hour drop as being a net loss – it is no such thing.  It’s a loss if you only think of the cost and ignore the benefit, which amounts to saying, don’t just focus on the employee who is losing £3 per hour, focus too on the employer who just gained £3 per hour.  There is no net loss to the economy, because the employee’s loss is balanced out by the employer’s gain.  And in fact, those higher wage demands that are insisted upon to ‘protect British workers’, actually end up putting the prices of goods and services up even more for everyone else, which amounts to an overall net loss.

But there’s another reason; finding someone who will do the job for less is a good thing for the economy in a similar way to how improving technology is good for the economy (and in most cases it’s a good thing for the person doing the work too – because having accepted the lower wage job, one presumes he did so because the terms offered were an improvement on his situation prior to accepting it).  In fact, not only is finding someone who will do the job for less a good thing for the economy in a similar way to how improving technology is a good thing for the economy - they are more or less the same thing.  Here’s why. 

Suppose you have a car factory in Manchester, and on the staff team you have 3 innovative engineers; Tom, who designs a machine that assembles the engine valves 25% quicker than the current machine; Dick, who synthesises two compounds that vastly improves the engine oil’s ability to clean the engine; and Harry, whose newly constructed equipment can make seatbelt holders at £2.60 per item cheaper than the current equipment.  I think you’ll agree that those three advances have improved the car factory in Manchester.  And having agreed, it stands to reason that if you want to be consistent you are compelled to agree that finding cheaper ways to employ people is also good for the economy, because it’s the same thing.

When we outsource the work attached to call centres, medical data analysis, computer software design, electrical engineering, and so forth, we are doing something very similar to Tom, Dick and Harry’s improvements in the car factory in Manchester.  That’s the wisdom that it seems too many people miss; new business and trading links across the world are good for the world as a whole, just as new technological innovations are good for the world as a whole.  Hopefully in our lifetime we will get to live in a world in which we see the end of discrimination against total strangers because they happen to live in another humanly constructed geographical border.  Economics favours it, and so does human kindness and decency.

* Generally speaking, there is more genetic diversity between a man in Nigeria and a man in Kenya than there is between a man in Nigeria and a man in Belgium, Holland or Spain.  This alone shows the absurdity and man-made wickedness of racism.

Wednesday, 3 April 2013

If You Only Remember One Thing About Government Policies....

Government policies are always making headlines – and the current ones doing the rounds are the recent Conservative Budget, and attached to that, The NHS reforms and the radical shake up of the Welfare system.  Government policies are sold to the public as courses of action that endeavour to improve a certain situation for the country.  But anyone who knows what goes on behind the political scenes knows that Ministers cover up their inability to measure policies properly by cherry-picking a few sound-bytes that show the benefits of a policy, and then by presenting them to the electorate (through the media) as though they are unequivocal vehicles for good. 

Not only do many Ministers have a poor understanding of what makes a good or bad policy, they actually leave those policy presentations in the hands of eloquent civil servants, who can carefully write the policy for the Minister in words that overstate the benefits, and omit the costs.  In fact, if you’re really proficient at creating spin you can even make some of the costs sound like benefits.  That is how the Government machine of duplicity works.

I don’t say that all policies are bad – but that’s not the point.  A Government’s principal concern is to stay electable – and to stay electable they have to create a lot of distortions to hide A) their incompetence, and B) the fact that most problems in the country can’t be rectified by Government policy.

To be fair to any Government, neither A nor B is their fault.  They can’t help it if most problems in the country are beyond the Government policy power – and, in fact, one might add that too many of the electorate must share some blame for this, as they continually fall for the delusion that Government policy power makes any real difference, which as a consequence elicits in Ministers the need to appease this demand by claiming they can change things.  To put it into context; the extent to which I blame the electorate for the Government’s duplicity is similar to the extent to which I blame the voracious appetite of the tabloid readers for the kind of crap the tabloids produce.  It is a relationship of toxic co-dependency.

As for the Minsters’ incompetence, well, again, to be fair to them, it takes a lot of brains to work out good polices from bad, and tap into the zeitgeist and assess the best way forward in multiple areas – and I don’t see why anyone would expect a Minister to have the skills to do this.  Ministers aren’t in Government long, and often they come straight into their Ministerial department for only a brief amount of time, with no training, little life experience, and no expertise in the Ministerial area for which they are responsible.

Now, here’s the one thing about policy making you’d be advised to remember.  You cannot demonstrate that a course of action will improve a certain situation for the country by listing its benefits (which is basically what a Government’s policy announcement is).  Any MP can think up a policy that has benefits; but if you want to claim that that policy will improve a certain situation for the country, you have to argue that its benefits outweigh its costs (I’ve never seen an MP even acknowledge that this is the essential part, let alone make a case along those lines). 

Not only should you insist that an MP explains that he has thought through how the policy’s benefits outweigh its costs, you should insist he shows you that he actually knows what it means for a course of action to be a benefit in the first place.  Every policy ever created has multiple benefits in some areas and multiple costs in other areas.  If a policy is to be worth implementing, then not only must the benefits outweigh the costs - those benefits must be shown to reach the standard where the benefits are worth having over the costs.  By now your MP is probably looking at you with an expression of utter confusion – as you’ve probably already lost him. 

Is a policy with 10 benefits in areas A,B, and C, and 6 costs in D,E,F and G more preferable that a policy with 4 benefits in areas A,B,C,D,E and F, and 12 costs in G and H.  How do you know, when you don’t know the full impact of any individual A-H ramifications?  Is a policy that delivers £2 billion to the poorer families at the expense of £5 billion tax increases for high and middle earners good for the country as a whole?  If so, why?  And if not, how much would the £2 billion need to increase, or perhaps the £5 billion need to fall, to make it a policy where the benefits outweigh its costs? 

A farmer who wants to know if a chicken is good for providing eggs can only find out by calibrating that chicken’s output relative to other chickens.  He can’t find out by comparing it to how much milk his cow provides.  That kind of understanding is what makes a skilled policy maker, and why I’d rather have much larger constituencies, many fewer MPs, and a much higher calibre of intellectualism in my candidates.  An MP who sells the nation a policy by only listing its benefits is merely playing the spin game – and sadly, we see far too much of this.