Wednesday, 29 April 2015

Why We Should Not 'Agree To Disagree' About Facts and Truths

In preparation for seeing why it's irrational to agree to disagree about facts and truths, consider the following scenario. Suppose Jack & Jill have a disagreement. Jack explains his view, so does Jill. They both still disagree. So Jack takes another turn at convincing Jill. Jill retorts and still disagrees. Jack now has to consider something new. Jill has heard Jack's reasons for holding his view, and an argument against her response, yet she still disagrees.  The difference between their initial positions and now is that they have had one round of questioning, so each holds their initial belief, plus the extra strength of that position in withstanding their opponent's objection.

This process goes on and on through several rounds, with each getting more confident about their position, because they know that the view they have has now faced the gamut of multiple counter contentions. After several more rounds of debate, Jack and Jill should each hold onto their view with even greater confidence.

Have you spotted something funny about that scenario? The above scenario I described shouldn't happen at all. If both Jack and Jill are honestly open to changing their mind, consistent with the facts, you should not see two people stubbornly and emotively arguing their position and becoming even more strongly wedded to defending their own position and undermining that of their opponent as each round passes. What you should see as the rounds of analysis progress is that one of them should become less and less confident that they are right, and the other one should become more and more confident that they are right, with the natural end being agreement.

Suppose both Jack and Jill start with a conviction value of 10. Every time there is a round of analysis where one person's view is undermined, the conviction value should increase for one person and decrease for the other. Suppose for simplicity's sake there are 10 rounds of this kind, and suppose that the debate is whether evolution happened, meaning Jill the evolution supporter is right, and Jack the evolution-denier is wrong. Here's what you should see:

Start: Jack 10 - Jill 10
Round 1: Jack 9 - Jill 11
Round 2: Jack 8 - Jill 12
Round 3: Jack 7 - Jill 13
Round 4: Jack 6 - Jill 14
Round 5: Jack 5 - Jill 15
Round 6: Jack 4 - Jill 16
Round 7: Jack 3 - Jill 17
Round 8: Jack 2 - Jill 18
Round 9: Jack 1 - Jill 19
Round 10: Jack 0 - Jill 20

Naturally, this rarely happens, but if both were honest truth-seekers and fact-finders, that outcome is what we should expect. When it comes to facts and truths, then, it is irrational to agree to disagree. The person we have to thank for this is Nobel Prize winning mathematician Robert Aumann.

When it comes to truths and facts (not subjective things, obviously) Aumann's Agreement Theorem shows that it is nigh-on impossible for two honest, rigorous and diligent truth-seekers and fact-finders to agree to disagree (see my blog post on it here). In addition, computer scientist Scott Aaronson's mathematical paper showed that these two honest, rigorous and diligent truth-seekers and fact-finders can be expected to reach an agreement in pretty quick time.

That's all very well, but this doesn't mean people will suddenly start agreeing, does it?

No. Let's be clear, the agreement theorem isn't saying that everyone will agree - it is showing that people can (and should) in principle converge on an agreement as long as they honestly wish to get to the truth.  That is to say, the reason humans disagree so much is not primarily down to lack of availability of data or methods of assimilating that data (although it can be), it is down to factors inhibiting that person's honest, rigorous search for the truth.

But we wouldn't want to stifle diversity and uniqueness of thought, though right?

It depends on what kind of diversity and uniqueness of thought you mean. Hitler was quite diverse and unique, but it's good that his aims were stifled (albeit too late for many people's survival). The upshot is, Aumann's theorem is a beautiful and elegant contribution to humankind that when considered properly has the potential to be very enriching. The diversity and uniqueness of thought that the theorem can encourage people to help discontinue is stuff that's unhelpful to the human race, either by being factually wrong, or immoral, or retarding progress.  

Take the morality one as the most obvious example. Is diversity and uniqueness good in moral situations? Sometimes yes, but often no. Applying Bayesian thinking to issues of ethics, you'd find that if you gathered in a hall the most diverse people in terms of their ethics there would be a lot of views you'd find pretty repugnant. Diversity in one sense is great, but alas not always in all senses. Under the terms of being factually wrong, or immoral, or retarding progress, the human race prospers far more when diverse elements - that is, the elements that are factually wrong, immoral or an impediment to press - are weeded out. That's not to deny, of course, that there are numerous ways that diversity of thinking, culture, imagination, creativity, passions, tastes, experiences and talents enrich the world.

Oh I see, a lot of it is about pre-empting thin end of the wedges?

It's important. There is a lot of deception, manipulation and propaganda out there, which evidently engenders a reservoir of lazy thinking in society, which has the knock on effect of causing lots of unnecessary disagreement, disharmony, resentment and, when left to fester, extremist conflict that can lead to horribly brutality. The Agreement Theorem encourages us to try to cut it out at source.

Is there a danger, though, that this realisation will make us want to be right all the time?

I actually find it incredible how often people are so unenthusiastic about getting things right. I think we are so blessed to have the faculty of language, the multiplicity of words, and the most advanced cognition we know about in the universe (of all the created things, I mean). Besides, just about everyone wants to think they're right - they just differ on the particulars.

For example, meet Jeremy: he works in the lab to improve our understanding of cancer in order to help ameliorate its pernicious effects on people; he believes in driving on the correct side of the road consistent with the highway laws; his view is that people should be faithful to their partner; he is passionate about ending animal cruelty, and he thinks people should be respectful of their neighbourhood and not drop litter anywhere except in a bin.

Upon hearing those things, you don't immediately think it's such a shame that Jeremy thinks he's right about those things, and regrettable that he would like it if more people thought like he did. Presumably most people reading this have no problems with those examples of claiming to be right: it is very important to do all we can to diminish the effects of cancer, and end animal cruelty. Infidelity is hugely damaging; litter makes the streets look messy; and there would be catastrophe if people decided to drive on whichever side of the road they fancied.

The point is, it's easy to support unanimous concurrence on things like cancer treatment and keeping our streets tidy, but it's also fairly easy to support unanimous concurrence when it comes to all matters of fact and truth. Yet one meets people who are less comfortable with this: they do not like it when social commentators express views they think are correct and when they lament because more people don't agree with them. But like cancer treatment and keeping our streets tidy, facts and truths are enriching to human progress - in fact, it's only because of facts and truths that we even know that cancer treatment and keeping our streets tidy are preferable to the alternatives.

So to any charge us social commentators face that "You want everyone to agree with you all the time" - well yes, of course we do, because we value fact-finding and truth-seeking as being hugely beneficial to the human race, so why would we want it any other way? But more to the point - be under no illusion - you are the same as us - you believe that the things you think are objectively true and morally right are things others should believe too - it's just that you think the facts and truths we propound belong in a different category to the ones you propound. In all sorts of ways you value the unanimity of concurrence as much as we do - it's just that we think there are a lot more things about which we should agree if people can only train themselves to override their cognitive biases and emotional skews.

* Note: The issue of what qualifies as a fact and as truth is not unimportant, but we'll save that for another day, as the essential drift remains, and at no cost to the principles this blog post is endorsing.

EDIT TO ADD: As a response to the response, it's worth pointing out that some of the issues mentioned, such as what constitutes truth, what qualifies as a fact, what can reasonably be posited as consensual, and how to deal with complex analyses and intractable considerations, are all able to be dealt with by Aumann's theorem.

When dealing with questions about whether something can justifiably be called a fact, or when tackling a complex area of consideration that may or may not have a justifiable consensus, the agreement theorem still does its work, because the process by which we should agree on facts or truths is the same process by which we should agree on the above issues I just mentioned.

For example (as one person mentioned economics), economics does deal with a very dynamic set of data points, but there are plenty of routes by which two people can arrive at an agreement, even if that agreement involves concurrence on degrees of intractability and open-endedness. Here are a few examples. The law of diminishing marginal utility will indicate that when it comes to consumption of a banana, the first unit of consumption (the first banana you eat) yields more utility (is more beneficial and enjoyable) than the tenth banana. It's quite reasonable to agree that by the ninth banana one might be quite sick of them. Extrapolating from the law of diminishing marginal utility, it would be easy to agree that paying a second cleaner to clean your apartment an hour after the first cleaner has cleaned it is a poor use of resources.

Another example, the Laffer curve measures the relationship between how much a government taxes us and the resultant government income. Two people who disagree on the optimum level of taxation for the fifth quintile could easily come much closer to agreement if they both carefully analysed the evidence. Another example, we expect increasing returns to have a positive effect on productivity when there is increased growth in output. Two opposing politicians could argue all day about the best way to achieve this, whereas two economists (without a political agenda) would likely agree quite quickly.

Last example, when there is elasticity in the final product demand, wages will likely increase, which consequently knocks on to affect the quantity and level of the demand. Again, two politicians may argue about this all day, whereas two unbiased economists would have no trouble understanding that this is because under those conditions the wage elasticity of demand for that category of labour will be high.

The upshot is, whatever the area, be it economics, science, faith, psychology, politics or philosophy, Aumann's Agreement Theorem doesn't just bring to bear the routes by which we can agree on facts and truths, it also factors in all of the anomalies (complexity, intractability, human failings, different levels of intelligence, asymmetry of information, etc) that need to be redressed or overridden. So irrespective of anything that can militate against agreement, Aumann's model gives exhibition to the pathways by which people 'can' agree as long as the enquiry is honest and rigorous.

My Articles for The London Institute for Contemporary Christianity

Agents Of Love And Grace - (9/4/15)
Lovelocked - (5/6/15)
Real Freedom - (14/8/2015)

My Articles For The Adam Smith Institute

Why Emissions Tests Are So Exhausting - (15/1/15)

The Green Spectre - (6/2/15)

Markets Make Us Greener - (29/9/2015)


Monday, 27 April 2015

Stephen Hawking & The Electorate's Crazy Cycle

Today we read in The Independent that Stephen Hawking, the so-called finest mind in the universe, is backing Ed Miliband's Labour party in the election. I don't think Hawking is the finest mind in the universe. He is certainly excellent in his specialised field, and I thought A Brief History of Time was superb - but outside of that field I think he frequently shows himself to be pretty mediocre, particularly on the subject of God and philosophy, and, it would appear from today's endorsement, economics and politics too. If I were to take a stab at how the finest mind in the universe (whoever that is) would view the up-coming election it'd be something like this.

Frivolous Fred has a spending problem. He can't stop wasting the household budget on things they don't really need. His spending got so out of control that he went on a borrowing spree so he could be even more profligate. Thankfully his wife Wise Wendy is much more prudent. She decides to impose austerity cuts on Frivolous Fred in order to get their finances back under control.

In real life Frivolous Fred is Labour under Gordon Brown and Wise Wendy is the current Conservatives, who were shrewd enough to realise that the right balance of austerity cuts, along with relying more heavily on the private sector, had a better chance of turning round the economy than Labour's perpetual plan of high taxation, high borrowing and high spending. Why isn't this simple piece of wisdom more widely understood? 

Here's a suggested reason. The crazy thing about voters is that they easily have their attention swayed by political cycles that bring about change, which means it is fairly inevitable that if you've had a left-centre government for a while a right-centre one will be voted in pretty soon, and so on as the cycle goes. After 13 years of New Labour, the Tories got back in again, albeit in coalition with the not always comfortable bedfellows the Liberal Democrats.

The last five years have been quite good in terms of an economic recovery - not great, but not bad, and certainly astronomically better than things would have been with a government like Miliband's Labour that thought increased borrowing and increased spending was the answer.

But after a fairly successful Conservative/Lib Dem period in government, where the response to the financial crisis was to look to the free market and private job creation as the answer, what then happens is that the opposition party seems to be able to pull the wool over much of the electorate's eyes by promising to redistribute much of the wealth that has been created. Stephen Hawking's comment hints at this too when he says "The city needs a Labour government to get the kind of investment we need again"

It's quite easy to see what is happening with this kind of thinking. When standards have improved, employment has risen and inflation has been fairly well managed, instead of voting for a party that is likely to continue with this growth, many people vote for the opposition party that promises to increase taxes, increase spending and have greater inference in the free market (through things like minimum wage increases and rent controls, and a cap on NHS profits).

And that's the crazy pattern of voting cycles: very often an opposition left-centre party that builds its pre-election promises on redistributing the wealth the right-centred party helped create appeals to the average voter more than keeping power in the hands of the right-centre party that helped create the wealth they want to redistribute.

Then, after they get elected and the promises soon turn out to inimical to increased growth, the electorate loses its amnesia and remembers the party that helped the economy grow. Consequently, instead of the kind of steady growth we'd see with the continuation of a party that looks to the free market and private job creation as the answer, we get a staccato rhythm, where periods of growth are punctuated by periods of inertia – otherwise known as Tories in/Labour out, Labour in/Tories out cycle. Now, sadly, it looks to be Labour's turn again.

Saturday, 25 April 2015

Hmmm.... Pondering What To Listen To Next

I'm starting a new musical phase in my life. I own approximately 1500 CDs, and they belong roughly in two categories.

Category 1: Those that I know are good because I've played them lots and like them very much.

Category 2: Those that I know are good because I have played them a few times, but nothing like as much as Category 1 CDs.

Every time I go into the office in which I write, I have a choice. I can put on a safe CD from category 1 (bands or artists I know I really like) or I can try something less familiar. Like most of us at times, being susceptible to hyperbolic discounting and periodically allowing the id to get its way over the superego, usually I tend to opt for a category 1 CD, particularly as when I'm reading or writing it's good to have background music that I can enjoy without having to give it my full attention.
However, recently I've given more concern to the fact that among those 1500 CDs are lots of potentially good Category 2 albums that I've listened to less frequently, and that was so long ago that I hardly know them at all.

So, with that in mind, I decided to look through them and jot down Category 2 bands or artists to which I'd like to give more listening time, and actually do now plan to do so. Falling into this category are the following:

Allman Bros, Tori Amos, Badly Drawn Boy, Jackson Browne, Jeff Beck, Buffalo Springfield, Ben Folds Five, The Band, Cocteau Twins, Credence Clearwater Revival, Elvis Costello, Cream, Crowded House, The Cure, Divine Comedy, Dave Matthews Band, Depeche Mode, Fairport Convention, Flaming Lips, Garbage, Goldfrapp, PJ Harvey, Jethro Tull, Jefferson Airplane, The Kinks, Kings of Leon, Moody Blues, Mogwai, The Mission, Mercury Rev, Randy Newman, The Pixies, Pulp, Prefab Sprout, Prince, Liz Phair, Iggy and the Stooges, Primal Scream, Roxy Music, Lou Reed, Red Hot Chilli Peppers, Rush, Todd Rundgren, Santana, Sisters of Mercy, St Etienne, Spirit, Patti Smith, Bruce Springsteen, Sly & The Family Stone, Sonic Youth, Stephen Stills, Paul Simon (solo stuff), Traffic, Teenage Fanclub, Talking Heads, Van Halen, Tom Waits, Wilco, World Party.

If anyone is a particularly passionate fan of any of the above, and feels like championing their case for my listening pleasure, I'll be glad to hear from you. And if you don't wish to, that's perfectly fine too - I still love you lots.

Thursday, 23 April 2015

Watch Out: How Supermarkets Are Trying To Dupe You

An article in The Guardian this week has highlighted a few of the squalid tactics that some supermarkets are supposedly employing in order get the most money out of customers. And they are not talking about the phenomenon known as Shrinkflation, where the sizes of products are reduced surreptitiously while the prices stay the same or sometimes even increase.

Regarding Shrinkflation, most of us have been startled at the current meagreness of the Twix and the Dairy Milk in comparison to the old days. And I don't even want to mention the tiny tins of Quality Street now on offer - it's too distressing for words.

No, what the Guardian has flagged in terms of squalid tactics are examples like these:

1) Was/now pricing: the use of a higher “was” price when the item has been available for longer at the lower price. Acacia honey and ginger hot cross buns at Waitrose were advertised at £1.50 for just 12 days this year before going on offer at “£1.12 was £1.50” for 26 days.

2) Multi-buys: prices are increased on multi-buy deals so that the saving is less than claimed. Asda increased the price of a Chicago Town Four Cheese Pizza two-pack from £1.50 to £2 last year and then offered a multi-buy deal at two for £3. A single pack went back to £1.50 when the “offer” ended.

3) Larger pack, better value: the price of individual items in the bigger pack are actually higher. Tesco sold four cans of Green Giant sweetcorn for £2 last year, but six cans were proportionately more expensive in its “special value” pack, priced at £3.56.

Then the article writer Rebecca Smithers comes up with the reason why (although you wouldn’t know it from her reluctance to cite it as the cause) – she tells us that:

“New research suggests that more than 1,400 suppliers to Britain’s supermarkets are facing collapse as the cut-throat price war takes its toll on the industry. The number of food and beverage makers in significant financial distress has nearly doubled to 1,414 in the last year, according to insolvency practitioner Begbies Traynor.”

The key word missing from the above is ‘Competition'. It’s competition that is creating value for customers, but it is also competition that is sinking so many food stores and driving these dodgy pricing tactics for the ones staying afloat. It is precisely because the food-shopping industry is so competitive that supermarkets are trying everything they can to squeeze every penny out of their customers.

Shoppers who are price sensitive are the shoppers least likely to be duped, whereas non-price sensitive shoppers are the shoppers who won’t care or notice much (if you’re interested, I wrote a whole Blog post on this issue). 

Many people at one extreme of the spectrum will see no cause for the interference of the Competition and Markets Authority here. Many others will see this as precisely the kind of situation in which they should get involved. I'm not at either extreme on this one, so the advice I would offer to shoppers is this. If you care about what you're spending, think carefully before you buy, and only pay what a product is worth to you. Also, if these issues are important to you, call supermarkets out on any squalid tactics you notice, and see that they are exposed for their dodgy pricing. Over time this will give the advantage to more ethical supermarkets. Now if only those tins of Quality Street were bigger!!  

Thursday, 16 April 2015

It's The Most Ironic Thing - Lib Dems & Tuition Fees

Now that Parliament has dissolved to make way for the general election, we are about to enter a period of time when the Liberal Democrats will lose many of their MPs. One thing I find quite ironic is that the main Lib Dem legacy will be the little matter of reneging on the promised scrapping of tuition fees. I say ironic, because the scrapping of tuition fees was a completely ludicrous idea, and one that in not being delivered is probably the party's best achievement. The problem wasn't actually breaking the promise - it was making such a preposterous, economically untenable promise in the first place. To give you an idea of how catastrophic such a policy would be - it's a policy the Green Party also supports, which is usually indication enough of its economic absurdity.

The current tuition fees system is pretty much the fairest system imaginable: the government loans to those who need the money to obtain a degree, and it only asks for payment when the post-graduate can afford to repay with a small proportion of their earnings. Anyone who thinks that that is unfair has a pretty peculiar idea of unfairness. What you have to realise is that nothing comes for free in education. If tuition fees are scrapped, then the cost of obtaining a degree is then picked up by the taxpayers. Tax that goes on to subsidise higher education amounts to lots of tax paid by low earners to subsidise people better of than themselves. We know this because we know that two thirds of working people do not have a university degree, and we know that on average obtaining a degree boosts one's life earnings by 60%.

Tuition fee subsidies do something else as well - they artificially ramp up demand for places, which has all sorts of negative spillover effects on how people value university education. Given all this, it comes as absolutely no surprise to learn that Ed Miliband wants to artificially interfere with prices by lowering tuition fees to £6000 (everyone knows it's simply a bribe to win student votes). Admittedly the policy isn't as catastrophic as the Lib Dem and Green proposal to scrap tuition fees altogether, but in proposing to artificially lower tuition fees Miliband shows a similar contempt for the notion of pricing education at its value.

The value of higher education is this. University fees should amount to exactly what it costs to obtain a degree, and fees (prices) should match demand, whereby the right number of people are getting degrees. How do we know what the right number is? This is down to a utilitarian efficiency, which is measured in terms of what we might call practical economic utility. What is meant by 'efficient' here is that an efficient transaction occurs when the overall increase in utility is greater than the overall decrease in utility. In other words, when degrees are priced at their true value - a value that measures costs associated with supply and demand - you have the right number of people doing degrees, and you have the right people paying for them, which is, it won't surprise you, the people actually doing the degrees.

* For more on this, see my Blog Why Tuition Fees May Be Too *Low* Not Too High

Tuesday, 14 April 2015

Don't Listen To The Majority Here - Inheritance Tax Is One Of The Very Best Taxes

After reading today about the Conservatives' promise to raise the inheritance tax threshold, we also learned from a YouGov poll that the public regards inheritance tax as the least fair of all taxes. Most libertarians also tend to oppose inheritance tax, largely due to the fact that it's a tax on capital that's already been taxed at the point of being earned. However, given that tax in general sits uneasily in many a libertarian milieu, their general disenchantment for inheritance tax is hardly surprising.

I happen to disagree with libertarians and with the general public on this. I think that in a world in which taxation is a current necessity in our socio-political system, inheritance tax is about the least bad tax we have. I'll explain, but let me first explain what I do think is bad about inheritance tax.

The negative aspect first
If you can get over the double taxation part, the primary problem with inheritance tax is that it encourages excessive/wasteful spending. If Betty has £650,000 that she stands to leave to her children but knows that they will be hit with inheritance tax, it incentivises her to spend it on them or on herself in her lifetime. It may be a good thing for her and her family that she's spending, but spending money just to avoid giving it to the government is probably going to involve quite a bit of expenditure on things she doesn't really need or value hugely. This wisdom soon percolates: "You can't pass it on so you might as well spend it".

Now over to the positive
I think it's good for society if the government takes something from a dead person's estate when it exceeds a high enough threshold, but it's also important that the government endorses passing on money to heirs that's already been taxed once. The real issue with the government taking something from a dead person's estate and pumping it back into public services is that it spends it on people less in need than the people on whom it should be spent - namely the country's neediest people. I'll come back to that in a moment.

Even if you are Anglo-centric in your redistributive desires, what makes inheritance tax a knotty issue is that it's a bit like higher tax for the rich in general - the majority support it because the costs don't affect them. Currently inheritance tax sits at 40% at a threshold of £325,000. If you're about to be the beneficiary of your dad's £500,000 estate you probably don't support the current threshold because it will cost you £70,000. But if you have no substantial inheritance due to come you probably do support it, because somewhere down the line you'll benefit from other people's inheritance tax.

The most desired goal of the taxpayer is to be taxed in a system that is as fair and efficient as possible. Most taxes fall below an ideal because they come with disincentives (income tax comes with a disincentive to work; savings tax comes with a disincentive to save, and so forth). Even if you are one of the people that stands to inherit a fortune and thus doesn't like inheritance tax, it has to be admitted that as far as the whole of society goes, inheritance tax ticks just about every box in terms of fairness and efficiency. Technically, the person paying the tax is the dead person - it is just a posthumous tax taken from assets no longer needed. Even if you happen to be the imminent beneficiary of your dad's £500,000 estate, you stand to gain £430,000 after tax - which, by any reasonable standard, is enough for a house, a car and a small business.

Moreover, be sure of one thing - if the government doesn't get tax from inheritance it will get it from somewhere else. If it ditches inheritance tax or raises the threshold then a few heirs will benefit, with the rest of the country picking up the bill in increased taxes elsewhere.

There is some truth - much truth maybe - in the notion that it is unfair to tax people twice, but that throws up a different can of worms which I talk about here in this blog Thou Shalt Not Inherit. The content of that Blog post could cast a few aspersions over inheritance tax, but I think the real problem with it (to return to my above point) is that it would be much easier to support it if the government spent its money more wisely. Suppose, for example, the government used all the inheritance tax money it gathered to pump finances into the vital areas of the charity sector that have seen too many drastic cuts. That would be a hugely positive use of the money. But while they spend so much money so unwisely it is easy to be down on taxes like the inheritance tax - even though, compared with just about every other tax, it's just about the least bad tax of all in terms of who pays for it, and in terms of incentives against it.

Saturday, 11 April 2015

Some Very Interesting Facts Have Emerged About Poverty, Development and Inequality

There aren't many people in the world more informed on development and inequality than Branko Milanovic, the former lead economist in the World Bank's research department. He's just released a very informative article about the most recent findings on poverty, development and inequality. As you'd expect, and as some of us have been going on about for years, the picture shows that the globalised free market is the primary vehicle for improving living standards and lifting people out of poverty. As Milanovic, tells us, "We can actually find out for the first time, from a single and consistent data source, who the real winners and losers of globalization are". Here is perhaps the most significant finding:

"The bottom third, with the exception of the very poorest, became significantly better-off, and many people there escaped absolute poverty."

Yes, that's probably the most important finding. While it's true that, sadly, the bottom 5% haven't crept out of poverty as fast as we'd hoped (they are the ones for whom the free market still hasn't brought about the same benefits as everyone else), the rest of the bottom third saw real incomes rising between 40% to 70%. In fact, look at this data from CarpeDiem, which shows that in 1970 over 25% of the world's population was in poverty. Forty years later that number is as low as 5%.

What the picture doesn't show, of course, is that if we go back to before the Industrial Revolution almost all of the world's population would be in poverty compared with standards of living today. The reason that the bottom third have joined the rest of us and seen their wealth rise so much is because a great many of the poorer workers in emerging countries like China, India, Indonesia and Brazil have crept up into the mid-range as their countries have benefited from globalisation and the ability to trade more freely and openly.

The other thing you may note is that it is, unsurprisingly, the top 1% that have seen their per capita after-tax incomes rise the most. But that is only to be expected, as they are the 1% of the world's population doing most to increase the wealth of those in developing nations. And by the way, this top 1% isn't merely a handful of corporate fat cats piling up the millions - it is a group of about sixty million people earning over $50,000 a year. Given that people don't become wealthy without providing goods and services that people want, and without hiring staff to provide those goods and services, it is not difficult to imagine how much those 1% of people are contributing to the well-being of people in the world and to the rise of living standards across the globe.

You might also like to note this graph below, which shows the more important fuller picture - that as well as the increases of the top 1% and the bottom third, those who sit around the median (those between the 50th and 60th percentile of global income distribution) achieved an 80% real increase in incomes. It may be of interest to you too to note that those that sit between the 75th and 90th percentile of the global income distribution - what in the UK we'd call the working and middle classes - saw no real gains at all.

If, as is happening, the trade associated with the innovations of the richest 1% is helping to increase the scope of the global market and bring the poorest 50% into higher standard of living, we would expect to see those two groups experience income rises, and also the concomitant effect of increase in inequality in the wealthier nations, while at the same time see a decrease in inequality in the poorer nations. This is exactly what we do find.

But although the free market has been the main vehicle that has lifted us out of poverty and improved the vast majority of human beings' standards of living - there is, as mentioned, one group for whom this global success story still hasn't materialised - and that's the poorest 5% of the world's people. It's important that in being glad of all the good things the free market has done we don't forget those that have yet to be beneficiaries - and that we continue to speak out against (and where possible be proactive against) forces that remain a barrier to their progress.


Wednesday, 8 April 2015

A Curious Thing About The Hand Car Wash

I caught a part of what seemed like an interesting discussion on the radio yesterday lunchtime - about the number of Hand Car Wash businesses springing up all over the country. The discussion, hosted by Jeremy Vine, was between two economists - professor Mike Haynes from the University of Wolverhapton, and Duncan Weldon, the BBC's Newsnight economics correspondent - and they both seemed pretty stumped as to why Hand Car Washing services are taking off with such prominence when by now machines should be doing all the work. I don't know why they were so confused - the answer seems to me quite obvious - but before we get onto that, let me briefly explain why such an issue is interpreted as a problem.

On first inspection, generally what's happening with Hand Car Wash businesses is the opposite of what happens everywhere else - as we usually tend to see technological progression instead of retrogression. For example, you wouldn’t see us ditching our washing machines to return to washing our clothes in the sink; you wouldn't see us choosing to cut our grass with shears instead of using the lawnmower; and you wouldn't see us ditching the vacuum cleaner in favour of using a dustpan and brush to get bits off the carpet.

Similarly, with the current technology of car wash machines in garages, technology should have brought about the gradual diminution of the culture of washing cars with a bucket of soapy water and a sponge. Further, although there are a few vehicles for which car wash machines are unsuitable (mine being one), from what I can make out car wash machines use less water and are no more expensive than rates charged by Hand Car Wash businesses.

Consequently, then, drivers ought to have very little need these days for five or six guys washing their car - but yet we find the opposite is happening - Hand Car Wash businesses are thriving, with new ones springing up all the time, giving hundreds of (usually) migrant workers plenty of opportunity to work hard and make a living.

Given the foregoing, in terms of rational behaviour, what's happening shouldn't be happening - and this is because of something in economics called the increase in the capital intensity - which is basically a measure of output, productivity and growth, where machines are more efficient for the economy than the equivalent manual work of low paid workers.  

The economists seemed stumped as to why drivers are choosing men over machines. I have a few suggestions that I think probably explain it - and they are all to do with how hand washes have various advantages over machines:

1) You can sit in your car and not have to bother going into the garage to buy a machine token.

2) Machines do not wash every part of the car body in the way that humans are likely to.

3) Machines probably come with the increased risk of body damage.  

4) Many drivers probably feel that in using hand washers they are supporting low-skilled migrant workers instead of giving money to larger corporations.

Number 4 is flawed, of course, because the people who lose out to the competition are the workers involved in making and maintaining those machines. But numbers 1-3 are pretty sound, and number 4 is also interesting because I would hazard a guess that many drivers would feel they have an incentive to pay migrant workers instead of handing over money to larger firms like Shell, Esso and BP. Here's why. Migrant workers making a living are people that are much less likely to commit crime or claim benefits - and even if it's only at a subconscious level I'll bet that's a factor in people's decision to buy their labour. All in all, then, I don't see the increasing rise of Hand Care Wash services as particularly baffling - they seem like a natural market niche that garage car wash machines don't quite fill to the same extent.

Thursday, 2 April 2015

Ed Miliband's Bonkers Zero Hour Contract Proposal

Ed Miliband's latest attempt to screw up a part of the economy is his desire to legislate on zero hour contracts:

"If you work regular hours for three months, Labour will give you a legal right to a regular contract, not a zero-hours contract."

I have no doubt Ed Miliband isn't ignorant of the fact that such a policy will harm lots of people and help only a tiny few, yet he doesn't seem to care two hoots - he supports the popularity-engendering policy because he knows most people will endorse it based on the help for the tiny few while at the same time being wholly oblivious to the wider harm it will do. If you happen to be one of those few to whom that applies, you'll be happy. But for the vast majority, the labour market of supply and demand involves a mutual allocation of resources (work and wages) far beyond the scope of any top-down management, and with far more efficiency than arbitrarily introduced state-meddling can achieve. Telling employers they must offer a regular contact after three months (a figure seemingly plucked out of the air) can only harm the qualities of mutually allocated resources. This isn't anything more than standard first year economics - something politicians seem to be happy to ignore to buy votes.

What Ed Miliband is missing is the most important point. Yes, some people struggle on zero hours - the part of the labour market that contains much of this kind of work is often insecure, unstable and volatile anyway - but the notion that this law will make things better is moonshine. Here's the key point. The labour market of supply and demand is dictated by the numerous price signals that generate all kinds of information about the value of labour, the supply of services, length of contracts, and so forth. A dentist can work in the same place for 15 years doing a similar number of hours each day. A sub-contracted painter and decorator can work at dozens of places in that time, with varying lengths of contract. Selling labour is not homogenous, it is heterogeneous - and you're just not going to be able enforce better pay or more stability without damaging a whole sub-section of people in that labour market.

So it's not that I'm repudiating Ed Miliband's proposal because I've suddenly developed amnesia about the struggles of people's ability to live or the volatility of the market - I'm repudiating it because its implementation will simply alter the behaviour of employees and employers in the supply and demand market because the vital price signals of information on which the economy runs will be distorted.

It's easy to think of zero hour contracts only in terms of employees, and to imagine most employers to be cold, uncaring exploiters. But it distorts the true reality. Economic policies affect employers as well as employees - and employers are the essential providers in this equation. Make a law that helps low earners and you hinder another group (usually low-skilled employers but also other low earners). Make a law that helps tenants and you hurt another group (usually landlords). Make a law that helps Brits and you hurt another group (usually anyone who isn't a Brit). Nothing comes without a cost.

Employers have lots to consider when they take on people. They have to make forecasts about the future; they have to consider market fluctuations; they have to consider what they should invest; and they have to consider which future state-interference will hamstring them. Zero hour contracts are sometimes opportunities to exploit, but they are mostly opportunities to reduce risk in a frequently unstable market, and create lots of short-term employment.

Think who the beneficiaries of zero hour contracts might be - students, single parents, retirees, those looking for additional employment to top up their main job, and those with multiple part time jobs. The ability to work flexibly as and when they want is a very beneficial thing for them. Ed Miliband's proposal to ruin theirs and their employers' flexibility is narrow and short-sighted.

What Ed Miliband also doesn't understand is that the kind of economic growth enjoyed when his party was not in government is the main vehicle that will reduce zero hour contracts for those not happy with them. The reason being, job growth increases the necessity for employee stability, which will only diminish the allure of zero hour contracts for both employers and employees, because employers are going to want stability in their personnel. Moreover, as unemployment rates fall and job creation continues to take place, greater power is transferred to jobseekers, which places selection pressure on firms offering less desirable contracts. Ironically, Ed Miliband's proposal will uproot some of the stability in the market, which will more than likely go on to have a cobra effect type scenario whereby he contributes to an increase in zero hour contracts - the very opposite of what he's trying to do.

The state's best role is to reduce the tax burden for people on low incomes or in a volatile part of the market, and give them the supplementary financial help they require, leaving those vital price signals untouched.

Wednesday, 1 April 2015

It's Not The Getting Caught, It's The Speed

I was interested to read about our politicians' recent predilection for dystopian nanny-state policies in this Telegraph article - Stealth cameras to be installed on motorways. Basically, these camouflage cameras (clearly just a way of making lots of money through increased speeding fines) will catch drivers unawares, and once these devices become ubiquitous they will all but enforce a 70mph speed limit for every driver on every motorway in the country.

While this is annoying and most unwelcome, what struck me as strange is that from what I've seen the general objections to this seem to be focused on the fact that these cameras are stealth cameras, when the real issue is not whether the cameras are hidden or not but whether the speed limit is right. For what it's worth I think the 30mph and 40mph speed limits in built up areas are about right, but motorways (and the major A roads) should be higher. But whether it's right or not is surely the only real issue here.

I should imagine the situation is roughly like this. If you think the speed limit is wrong then you're going to object to stealth cameras as an exacerbation of a current wrongness. On the other hand, if you think the speed limit is right then logically you should have no objection to whatever tactics are used to catch people speeding, any more than you would object to devices that catch theft, vandalism and graffiti.  Yes, I grant you, theft, vandalism and graffiti are different crimes to speeding, but that doesn't invalidate the point - the rationale works for all cases; that the annoyance is not annoyance at stealth tactics to catch offenders, it's annoyance at the speed limits being too low.

Put it this way, suppose a new stealth camera was introduced, but only for vehicles exceeding 140mph - there would be far fewer objections, because almost no one has any trouble with the notion that 140mph is a crazy and dangerous speed to drive. Given the foregoing, the vast majority of complaints about stealth cameras seem to me to really be complaints about the speed limits - because if the following applied in that you a) agreed with the speed limits, b) considered the speed limit levels to be contributing to safer driving and fewer injuries and deaths on the road, and c) supported laws that prosecuted people for breaking the speed limit - then you should have no objection to devices like stealth cameras being used to catch offenders and make the roads safer.

I'm not in favour of them because I'm not in favour of the current speed limits. If, for example, I thought the motorway speed limit should be 95mph, then rationally speaking I could have no objection to stealth cameras that caught out any driver doing 96mph or more, any more than if I thought theft, vandalism and graffiti should be outlawed I'd have no rational objection to any stealth devices the police wanted to use locate incidences of theft, vandalism and graffiti, so long as those devices didn't encroach on the freedoms of ordinary citizens, of course. As much as I enjoy fast driving, it's hard to deny that if the speed limit was as high as I wanted it to be, say 95mph*, then stealth cameras that penalised 96mph or more would only infringe on the liberties of drivers breaking the law.


*Adjust the variable according to your own preference