Monday, 28 December 2015

My Best & Worst of 2015

Best Bar: The Playhouse

Best Restaurant: Toss up between Bill's and Roots

Best Food: Lamb Moussaka, Creamy mashed potatoes and Halloumi

Best Drink: Jack Daniels for nights out, Pineapple juice mixed with grenadine for nights in

Best Event: Going to Barcelona

Best Politician: Jacob Rees-Mogg

Worst Politician: Diane Abbott and the bloke she used to have relations with (UK). Donald Trump (US)

Best Social Commentator: Douglas Murray or Janet Daley (UK), Deirdre McCloskey (US)

Worst Social Commentator: Oh, pick one from Yasmin-Alihbia-Brown, Polly Toynbee, Owen Jones - the usual bunch.

Best City: London

Best TV Drama: Breaking Bad (hey, these are what I saw/read listened to in 2015)

Best TV Comedy: Catastrophe

Best Movie: Barney's Version

Best Music: Old favourites are always a pleasure, but good new music to my life this year has been Cinematic Orchestra and Yo La Tengo. 

Best Book: Matt Ridley's The Evolution of Everything

Best Magazine: The Spectator (Matt Ridley'sThe Climate Change Agenda is a Conspiracy Against the Pooris probably the best article I read there in 2015).

Best Blog: The Adam Smith Institute

Best Thing About 2015: New friendships and enhanced old ones, and continually having an exhilarated mind.

Worst Thing About 2015: It's been a really tough year, apart from those new friendships and enhanced old ones, and continually having an exhilarated mind.

All that leaves me to say is, thanks for being with me throughout 2015. Here's to more blog posts in 2016 - and I hope next year is a happy year for you all!

Wednesday, 23 December 2015

Adding More Weight (Pun Intended) To The Gender Pay Gap Myth

Regular readers of economics will know that despite common myths to the contrary, the reality is there isn't much of an unfair pay gap between genders. As service-based industry has emerged more prominently, coupled with increased technology that make domestic jobs less time-consuming, and women's lib, the wage gap that used to exist has narrowed so much that it has equalised. In fact, if you measure just male and females in their 20s and 30s, females earn slightly more. Obviously this tails off in the late 30s and 40s as motherhood becomes the primary driving force in the re-introduction of a wage gap - but it's not to do with discrimination, it is to do with biology and life choices.

There's an interesting paper from health economist Heather Brown who observes that single women with a higher BMI (body mass index) tend to earn higher wages than similar women with a lower BMI. Married men also have a wage rate that is positively related to their BMI - the more weight they carry the higher their wages tend to be. The opposite is true for single men and married women - there is a negative correlation between their age rate and BMI - the more weight they carry the lower their wages tend to be.

Why is this? The most likely reason is that being overweight doesn't disadvantage men in the market for marriage to anything like the same extent that it disadvantages women - but it does encourage women to invest more in their careers to compensate for the disadvantage in the marriage market. Or to put it another way, very attractive slimmer women have a much higher likelihood of marrying financially well off men than overweight women, which means according to Heather Brown's studies they do not have quite such high incentives to invest in their careers as women who are disadvantaged in the marriage market.

Studies by Pierre-Andre Chiappori, Sonia Orefice ad Climent Quintana-Domeque also show that as a result of this, overweight women are more likely to marry low-income men. If single, heavy men know that a) they are less likely to marry, and b) if they do marry they are more likely to marry a low-income man, it makes sense that there would be a pattern whereby heavier women invest more in their careers.

The flip side of the coin, however, is that all the slim, attractive women under-investing in their careers because of expectation of marrying higher-income men may be affecting the 'pay gap' statistics - but in a way that makes the lack of a gender pay gap even more substantiated. That is to say, not only is it not the case that there is no gender pay gap due to discriminatory forces, it may well be the case that women in their 20s and 30s are earning slightly more than men even though a significant number of them (those with a lower BMI) are under-investing in their careers due to future marital expectations.

Tuesday, 22 December 2015

Have The Pauperised North Been Architects Of Their Own Downfall?

I saw an article today that claimed that nine of the poorest regions in northern Europe are in the UK. Ignoring a bit of dodgy geography attached to the claim, it is certainly true that many of the northern parts of England that used to rely so richly on industrial manufacturing have failed to keep up with pace of the service industry-based economic growth seen in London and much of the South East.

This article piqued my interest because it has to be said that, if the truth be told, some of the people in the north are in no small way architects of their own downfall. Not wholly, of course, but certainly in part, particularly given that the fundamentalism of the hard economic left is so often so strident and anti-progress. I mean, this current crop of Corbynites are the ones who thought that the socialist Ed Miliband was too right wing, which speaks volumes really.

For those of you who don't know, in terms of left and right economics the UK is a pretty divided place. Since the war, and the Clement Atlee socialist government, Britain had been awash with economic hardship and putrid nationalisation projects that were being choked by overly-powerful unions. This went on until the 1979 Thatcher years, when she and her party upset a lot of people by transforming an economically impotent Britain into one of the world's economic superpowers again. It's true that a lot of this comes from, and remains in, London - but power law distributions make this unsurprising - the whole point is that much of Britain is an economic powerhouse once again, and it's largely thanks to Thatcher's terms in office in allowing the free market to bear the fruits it couldn't under a stultified socialistic system.

The economic left have a different picture, but despite the myths, Thatcher didn't destroy our industry. Manufacturing output was actually higher when she left than when she began - and what the left is missing is that although the industries they are constantly talking about (like coal and steel) declined as a proportion of the aggregate economy, other sectors (like service industries) expanded. To capture the point, next time you’re in London – the country’s economic epicentre – have a walk around and see how many sectors are providing manufactured goods compared with service-based goods.

You might also like to note that the exact same thing happened in all the other prosperous economies too - it's just the way the world was changing, and sadly, too many Brits couldn't bring themselves to change with the economic tide - instead foolishly assenting to callow ideas that placed a premium on Britishness - "British jobs for British workers" and all that xenophobic guff.

When steel and coal industries declined across Europe and America, that declension was offset by huge expansion in service industries, all making those countries richer. The UK miners, led by Arthur Scargill (their megalomaniacal, economically illiterate leader) were perhaps most symptomatic of the prudence of the economic right vs. the foolishness of the economic left. The Thatcher government had a strategy to discontinue unprofitable industries - as it should with its responsibility to its taxpayers - because despite emotional attachments up north, this unprofitability couldn't carry on under the pretext of it being British unprofitability (replace 'British' with 'white men' and see how it sounds a lot like racism)

The reality is that due to the changing landscape, Britain's coal industry had been declining long before Thatcher. In fact, it's quite famously known that more coal pits were closed under Wilson's Labour governments than under the Tory Thatcher's ones. The reason is obvious - but also widespread across other advanced economies - we saw not only the rise of cheaper coal abroad, but also the rise of first oil and then gas and later nuclear as less ecologically unfriendly sources of power. With that comes a decline in industries that relied on coal, in favour of industries that relied on oil and gas.

A few misjudged trade unionists would have preferred to have kept subsidising inefficient and less profitable coal mines (and have the taxpayer pay to prop them up), all in name of Britishness, but as well as sounding a lot like racism to me, it certainly sounds illogical and economically parochial.

Alas, I came to the conclusion that many in the north of England - where the majority of these industrial disputes took place - had been orchestrators of their own plight. Many have spent the last 30 years on unemployment benefits, whinging that 'Thatcher has ruined our industry', and they've never got over it. I don't dispute that it was a hard pill for them to swallow, as jobs were lost, families broken up, communities clubs shattered, and so forth - but equally what holds us together is going to have to be much more than industrial nationalism.

In global economies, climates change all the time - and we humans have to adapt to those changes. So when I hear the north of England say they have been left behind, forgotten and marginalised by the much more prosperous south, I feel compelled to say that, actually, their failure to respond to the changing economic climate, and their preference for wallowing in self-pity is surely a significant factor in the bringing about of their own marginalisation.

That was a bit of hard cop, now for a bit of soft cop. The fact is, economic changes are really hard on societies that are set up to not adjust to a changing climate that easily. But what it emphasises most critically is that having poor adjustability and an over-reliance on one speciality is a problem that can go on to bite the society on the bum. Communities that are not well-equipped to enjoin themselves to diversity are going to get caught out eventually in a global economy that dynamically shifts and changes all the time.

It may surprise you to know that it was once forecasted that economic progress in Manhattan was coming to a close because the island had nearly reached its capacity regarding the horses it could contain. If you’re only focusing on quantitative change your narrow vision only has you looking to see where you can fit more horses; whereas if you’re focusing on qualitative change you look to advance beyond horses to industrial machinery, and eventually from industrial machinery to computers. Here's another example; the Great Irish Famine wasn’t just due to unfortunate infestations in potatoes – it was over-reliance on one single crop that severely added to the plight. Whether it is potatoes for food or horses for transportation, it is important to diversify, because diversity leads to increased qualitative change. That's another reason why you can be sure that our technology will continue to progress - we diversify our skills and our imagination by not having an over-reliance on too narrow a range.

What the UK has seen is that from the earliest periods of the Industrial Revolution talented people and money have been gradually gravitating towards the ever-more prosperous south (in fact, the whole process began in Scotland, where the incipient stages of the England-Scotland union, when passed in an act, was really England giving de facto permission to the wealthy elite of Scotland to move south with their money and join London's political establishment).

So although the north created a great proportion of Britain's wealth during the Industrial Revolution, the steadily increased London investment was soon going to make it the financial epicentre of the UK. I don't have any research to hand, nor am I sure if any exists, but if you measured the number of people in England moving from the north to south versus the number moving south to north, I'll bet the former figure is more than double the latter figure.

Not only are power law distributions concentrating a lot of wealth and growth in regional areas of England that are service industry-rich, it's also bound to be the case that an awful lot of talented people from the north are moving south, making it harder for the north to compete with the success of the south.

Alongside that, the other thing that disadvantages communities built on past manufacturing glories is that large-scale manufacturing countries like China, America, Germany, Japan and the ever-emerging nations like South Korea have much more of the global market share of consumable goods than our own industrial regions, which adds to the weight of the proposition that while it has been a tough culture shock for many of England's northern regions, at the heart of their stasis is a failure to keep up with the market changes in a highly evolving and competitive global economy.

Saturday, 19 December 2015

Why This Is Happening To Quality Street Tins

This picture seems to have gone viral, with everybody glad to see what they knew all along - that our products are smaller than they used to be. The term for this in economics is called 'shrinkflation'. This is where sellers surreptitiously reduce the size of their goods (the mass of a chocolate, the size of the tin, etc) as a way to put up the price of their goods while appearing to be competitive.

In other words, there are two ways to increase prices of goods of variable size and quantity - you can do it the transparent way by adding a sum on to the original price, or you can retain the original price and reduce the mass of the product. That is what is happening with those tins of Quality Street - the unit cost is increasing but at a rate whereby the purchase price, relative to former purchase prices, has not shifted in a way that puts off price sensitive consumers.

Wednesday, 16 December 2015

How Women's Lib Made Us More Unequal....Well, In One Way

The Women's Equality Party is a party whose main agenda is to use women's lib to reduce inequality and make women a more prominent force in society. Women make up just over 50% of the UK population, and we can all be glad that they have been liberated from so many of the impediments that used to hinder them.

But being the sort of seat of the pants reality gambler that I am, I can actually conceive of why, in at least one area of consideration, women's lib would actually have the knock on effect of increasing inequality. Not that that's any reason to dislike it, of course - there are all sorts of things that increase inequality that we ought to, and do, like.

What women's lib probably has produced, albeit indirectly, is an increase in household income inequality, by which I mean inequality between sets of households. The logic is fairly straightforward. Women now work in the job market a lot more than they used to, and like men they tend to (but not in all cases) have a job roughly commensurate with their education. Given this fact, which means they are going to mix more with people in their academic group, and the fact that assortative mating is very prominent in selective choosing, you are going to find like-minded people will tend to marry each other, which means high end earners will marry other high end earners, and the same with middle and low ends.  

This means that household incomes will be increasingly unequal. Two shelf stackers and two lawyers are more likely to marry each other rather that two shelf stackers married to two lawyers. Obviously there are plenty of exceptions, but generally what I've said is true. But what it also means is that household rises in income inequality are not only not much of a problem at all - they are, in fact, very directly linked to the things we rightly celebrate, like the liberation of women.

Tuesday, 15 December 2015

A Budget Surplus Is A Trivial Achievement

I was just catching up on my Guardian reading, and came across this article about George Osborne relying on rising immigration numbers to reach his fiscal target of a budget surplus by the end of the decade, with Osborne feeling the pressure by assuring us that "the economy will grow robustly every year"

The Guardian writer isn't enjoying himself either though, expressing a worry that "the only feasible way to achieve a budget surplus by 2020 would have been through additional spending cuts or tax rises".

Alas, judging by the language they are both using, both Osborne and the Guardian columnist are paying precious little regard to the concept of value, as they speak as though the nation's value-based economy as a whole is the same as the government's economy. It is not.

A budget surplus is where the government's income is greater than its expenditure. A deficit is the opposite. But just because a government runs a deficit that doesn't mean the nation as a whole is in deficit - a government can run a deficit while the country overall has an income that is greater than its expenditure.

Furthermore, given that government income comes from taxation, even Osborne's goal of a budget surplus by 2010 would not be guaranteed to be anything as like as good for the nation as he supposes. That is to say, although we'll be glad to see the back of a deficit, a surplus does not guarantee value because the government does not earn money in the same way that businesses creating value earn money.

When a business makes a profit it is because its output is worth more than its input, which is based on the extent to which people value the good or service more than money. If you buy a Domino's pizza for £12 you are signalling that you value it more than the £12, otherwise you'd buy something else. Suppose you value a £12 large Domino's pizza at £15, the £3 difference is what is known in economics as your consumer surplus. If Domino's makes £7 on the pizza (their producer surplus) then society has a net value gain of £10. That applies to anything – cinema tickets, washing machines, clothes, DVDs, and so on. Because both buyer and seller benefit from the transaction we know value is being created in society. Firms that cannot create value do not make profits and they are likely to go out of business.

Nothing like what I described above occurs when the government 'earns' its money through taxation, because its earnings are not based on the value it creates. We taxpayers do not choose how the government spends its money - on wars, on public sector salaries, on agricultural subsidies, on hugely uncompetitive contracts, and so on. If by 2010 George Osborne's government spends £800 billion and has a surplus of £3 billion that does not show that the citizens of the UK enjoyed £800 billion of value, because what the government collected in tax was not money voluntarily handed over in transactions where what we got in return for our money created value (this point is compounded when you think of all the government waste that goes on). The best thing any government can do to help create more value in society is by drastically reducing its expenditure and letting us keep more of our money.

Monday, 14 December 2015

Wowzer!! How's This For Being Totally & Utterly Misconstrued?

So this happened, and it's one of those rare things that when it does happen it reveals fascinating things about humans. I just joined a Mensa debating forum containing what seemed like a few select, intelligent people, and just as I was given access by the admin, a woman called Amber happened to start a thread with her opening statement - a statement that was definitely wrong.

So, maintaining politeness at all times, I made a statement that was definitely right and contrary to what she had reasoned, and subsequently a couple of people joined the thread to tell me how wrong I was. Then after explaining to them where they were going wrong, they were so shocked at what I was saying they accused me of being a troll and within 20 minutes the admin had banned me! By then there were about six contributors + Amber, all thinking I was saying what I was saying to wind them up, when actually I was explaining what are, admittedly counter-intuitive, but absolutely correct points.

It is fascinating when you meet people who are so confused that the opposite of their falsity (the truth) seems so bizarre that they mistake you for a trolling nutter who is not even worthy to remain in the group.

Those that want to know what the discussion was about will be pleased to know that I copy and pasted all the text before losing access to the group, and put the meat of it in this blog post I just created. It's a funny old world!

There is only one negative thing that comes from having frequent sexual encounters with multiple partners - there is more chance that sexually transmitted diseases will be passed on.

(Opening statement in a Mensa group. from a lady called Amber)

Realising that that is not just wrong, but the opposite of the truth, I responded with:

Actually, no, there is only one positive thing that comes from having frequent sexual encounters with multiple partners - there is less chance that sexually transmitted diseases will be passed on. 

Here is how the rest of the conversation went.

Amber: Do pray tell James how?

JK: Here’s how it works - the more people in the promiscuity pool, the more people having one night stands, which means those infected have a reduced chance of having sex, which equals a reduced chance of the infected ones passing on their infection. It is counter-intuitive, but many true things are.  It may seem intuitively that the more people you have in a pool of people who are having sex when one has an STD, the more people end up having STDs, but precisely the opposite is true! The more people you have in a pool of people who are having sex when one has an STD, the fewer people end up having STDs. It's a simple case of numbers - the more people in the pool, the greater the competition, so the greater likelihood that Mr. infected won't pass on his DNA.

Ronald:  Maybe this is true on the first go-round. However, that one person infects at least one other -- then you have two others with an infection to spread, and they infect two others... You begin to see the logical progression there?

JK: But that isn't correct, and here's why... I'll try to explain it in a bit more detail - first I'll show you with the mathematics, then I'll back it up with an analogy.

THE MATHEMATICAL REASON: Suppose you go for a night on the town full of people on the pull. That is what we've called the 'pool' - and it consists of, say, forty people; twenty are infected, twenty are uninfected, and you don't know which is which. This means you have a 50-50 chance of finding a safe partner. Now let's say that next weekend the same forty people are out, but it's the annual carnival, where an extra one thousand people are out on the pull. You now have about a 1/25 chance of finding a non-safe partner - hence, the more people you have in a pool of people who are having sex when a few are infected, the fewer people end up being infected. Further, you mustn't mistakenly think that every single person is going to get lucky - the pool won't facilitate everyone's success (mathematically it's almost impossible) - so by adding more to the pool you increase the number of safe people, and thereby reduce the chances that the infected people will get lucky and thus pass on their DNA.

THE ANALOGY: Think of it in terms of pollution - pollution is when a pernicious external force finds its way into a benign or neutral system (it could be ecological, physiological, or whatever). Having a smaller pool is analogous to increased pollution because (to put it bluntly) by not being in the pool the uninfected majority would diminish the chances of an overall de-pollution. Or if you prefer, the pollution rates are greater with a smaller pool. If you are one of the recklessly promiscuous people with a high probability of being one of the infected you add pollution to the pool every time you ingratiate yourself into it. If you are one of the infected, your chances of pulling are decreased by the greater numbers in the pool, because competition for mates becomes fiercer.

Let's now put this into practice by looking at your statement and seeing which way the logic takes us. You said: "Maybe on the first go-round. However, that one person infects at least one other -- then you have two others with an infection to spread, and they infect two others... You begin to see the logical progression there?"

Now then, you are right that one person infects at least one other, and you are right that you then have two others with an infection to spread. But looked at carefully you should be able to see that your statement vindicates me, not you. The reason is this; what would make the pool safer and less polluted - by making it smaller? No, that will only make it less safe and more susceptible to pollution. But if we do what I said the logic dictates and add more people to it, we make pollution less conducive - thus we have a safer pool.

Amber: James your scenario is unsound. It assumes that your small group will be heavily infected, and a large group will be strongly uninfected, thus diluting the infected group. But there's no valid reason to assume your starting assumptions.

JK: Amber, I'm afraid you're mistaken - what I've said is not to do with forecasts about the difference between a small and large group's infection rate. It is to do with more people lowering the probability that the infected ones will get the chance to pass on their infection.

Ronald: But if you pick 20 random people from the population and have sex with one, or pick 1,000 people at random from the population and have sex with one, your odds of encountering an STD are exactly the same.

JK: This is another mistaken approach because it requires an assumption based on no background information. But with the above example you do have background information - you know that the people entering the pool are low risk entrants because they are not promiscuous. I have explained this in my last post - the logic is correct, and its veracity is self-evident because it is based on mathematical facts.

Ok, look, you mustn’t think of the non-promiscuous people having lower probability than the promiscuous people, because you’re forgetting my original claim – that an increased pool of promiscuous people would reduce the spread of infection. That’s the point – we are saying the whole pool is now promiscuous, so you cannot simply imagine that it is only the infected people who are promiscuous.

The reality is, the pool is full of promiscuous people, and the more people that enter it the less likely that infected people will spread their infection. Pretend you are one new person in the pool, and you have been sexually cautious in the past. It's great for the pool that you've decided to become promiscuous. Your presence in the pool is good on two counts (probabilistically): if you pull an uninfected partner you divert that partner from a potentially more precarious tryst; if you pull an infected partner you divert that partner from giving it to someone who might spread it at a more proliferated rate than you. Rinse and repeat that cycle every weekend! ;-)

It's not just that the individual's chances of safe sex are greater, it is also the case that a larger pool = the less likely that infected people will spread their infection! It's a 100% mathematical fact of conditional probability. You keep mistakenly assuming that every single person in the pool is going to mate every single time, when I've already said that's not the case.

Louis: "having frequent sexual encounters with multiple partners - there is less chance that sexually transmitted diseases will be passed on" says James Knight. I think we have a troll in the midst, only an attention-seeker would make such a ridiculous claim. 

JK: Yes, it could be that I'm just trying to seek attention from a bunch of people I've just met and with whom I'm only ever going to have the weakest of social ties, or it could be that, in actual fact, everyone who has contributed to the thread thus far is not quite yet seeing why what I've said is right. I believe that what I’ve said already in this thread more than comprehensively conveys the truth of my claim. I grant you, though, it is somewhat counter-intuitive, and is perhaps akin to a circuit board epistemology where one sudden eureka light can light up the whole situation, leaving you wondering how you missed it to begin with. I suppose these things require a bit more wrestling with precisely because they are counter to our intuitions. Our minds have not evolved to accept counter-intuitive notions very easily - and when one considers things like, say, monotonic voting systems, 0.999 denoting a real number that can be shown to be 1, water being heavier in liquid form than in solid form, the Monty Hall problem, and things of that nature that confound the more intuitive feelings, one understands why a crowd can pull together and argue in the opposite direction.

The picture makes sense to me because, as I said, I imagined a heuristic model in which infection was seen in terms of pollution. In this instance the pollution model meant that a counter-intuitive notion was quite clear. What I've argued is not incorrect - perhaps it requires you to gather it together in a different way - but whatever works for you really. Once you think of it in terms of economics it's fairly obvious really - that if you are a frivolously promiscuous individual with a high probability of causing infection, you are going to pollute the partner pool every time you enter into it with the intention of promiscuity — and for the good of the pool you should be discouraged, just as anybody causing pollution should be discouraged. Therefore, the corollary of that - arguing with the signs reversed - is that that if you are a very circumspect individual with less propensity for promiscuity and a low probability of infection then you are going to improve the quality of the partner pool every time you enter into it. Evidently, in the case of the latter, that’s the opposite of causing pollution, and it would make the pool less polluted - the more of these types, the merrier - for precisely the same reasons that pollution should be discouraged.

Amber: Your whole argument is surely set on the faulty assumption that there's a reliance on the external forces diluting more than helping it spread, is it not?

JK: No Amber, it has precious little to do with the extent to which external forces dilute, it is to do with rates at which infected people copulate, and an increase in pool size reducing the rate, where everyone in the pool is equally promiscuous. More people in the pool, more competition, less success for the infected ones. Hence, my above comment. If you keep increasing the pool further, you will keep diminishing the chances of one of the infected ones pulling a mate, because statistically more of the safer people will pull (this is the nature of probability). You'll keep making the pool safer by adding more fresh promiscuity to it, because those additions will increase the competition further, and continue to lessen the probability that one of the infected will get to pass on his or her DNA on any given night! The competition means that they will pull less frequently. Which means they will get the chance to pass on their infection less frequently. Add even more to the pool and this infrequency is more probabilistic, and so on.

Louis: Yep definitely trolling.

JK: Or in other words, Louis, you don't have a comeback because this conversation is over your head, so you resort to crass, baseless accusations. Look it's fine if you don't get it - like I said, some counter-intuitive things require a bit more of a lateral approach, but if you think about it carefully you will be able to arrive at the same conclusion I have.  

Ruedi: If I understood James Knight correctly, I think his argument works as long as he can keep the sample population expanding at a faster rate than the infection rate. That's not really a feasible approach - sooner or later, the population will reach infinite or somewhere near that, and at that point, the infection risk will catch up and neutralize earlier gains

JK: Hi Ruedi, thanks for an attempt at least at some kind of sensible engagement. I think you nearly got it right when you said "his argument works as long as he can keep the sample population expanding at a faster rate than the infection rate", but then you go off track by saying "That's not really a feasible approach - sooner or later, the population will reach infinite or somewhere near that, and at that point, the infection risk will catch up and neutralize earlier gains."

No, no it won’t. You're missing the vital component in the equation, which is increased competition. As the percentage of infected people is reduced (or equivalently we add more uninfected) there is less chance that they have sex because competition is greater. This could even eventuate in a situation where there is only one infected person who as the group increases in size never gets look in and is thus squeezed out, never seeing intercourse. If you keep adding fresh blood to the pool it is likely you will have a situation where the infected percentage actually goes down as they die off and fail to breed new germs by passing them on. How do I know that? Because that is exactly what happens in biological evolution where alleles get fixed in a population in evolution and others die out. What my pollution model shows is that there exists some critical value of the percentage of the infected where it starts to increase – it’s what’s call the tipping point; on one side of the tipping point the infected percentage goes down and on the other side it goes up – we just need more and more fresh blood to ensure the infected percentage continues to diminish.

Louis: I just cannot believe you've got us all engaging in dialogue about a ludicrous claim that more people in a pool where because of sexual activity diseases will spread makes it more safe than when there are less people in the pool. I'm still calling troll.

JK: Ah, still nothing to contribute except this tiresomely narrow philosophical pez dispenser analysis, Louis - I've all but given up on you guys. I'm not sure I can say much more to convince if you don't already get it by now. I'm reminded of the obvservation by Charles Babbage about having an opponent who strikes him as so confused that he is difficult to understand - "I am not able rightly to apprehend the kind of confusion of ideas that could provoke such a question". Ho hum!

I'll have one last crack and then I'm outta here. What you guys have done is erroneously made an assumption that assumes that the probability of infected person copulating is a constant whereas I have repeatedly told you that this decreases with the percentage of uninfected persons in the pool due to competition factors. This in itself would lead to a reduction in the rate of increase of the percent infection; however the absolute numbers infected would still increase.

I haven’t even needed to do this yet as the mathematics justifies it alone – but if I wanted to present more of the real life model I could factor in the disabling effects of the infection - that is the infection causes a loss of the ability to breed the infection - hence infected people are going to drop out of the copulatory pool (when most people find out they have an infection they wilfully remove themselves from casual sex). The infected population is subject to, not one, but two competing rates; not just the rate of increase of new blood but also the rate at which they fall out of the "germ breeding" pool. This means that as the number of uninfected people increases the rate at which the infected persons can spread the infection is less than their disablement rate. Hence their population involved in breeding the germ reduces. If this continues they will die out completely.

It is not that being infected significantly affects competition, it is being in a group in which more members are added - it's not just the infected people who are having less sex - almost everyone in the pool is having less sex (on average) - but because the uninfected new blood astronomically dwarfs the infected, the rate at which the infected's sex drops is more significant than the rate at which the uninfected's sex drops - because remember we are showing that the infection is getting diminished in the pool.

There really isn't much more I need to say in this conversation except that everything you need to establish my opening remark - that with more new people in the pool there is less chance that sexually transmitted diseases will be passed on - is contained in this discussion.

(End of discussion)

After that discussion thread, which I'm glad I saved now, I found I could no longer access the thread or the group, which means I must have been banned - a truly odd thing to happen given that everyone else was getting the wrong end of the stick, and I was actually the only one getting the right end of it. It's a crazy situation to encounter people so unable to grasp the truth that to them the truth seems crazy, and the messenger a troll. I suppose one is reminded of Nietzsche and the quote about those who were seen dancing being thought to be insane by those who could not hear the music.

Anyway, after my ban, I decided to do a bit of research to see if anyone had undertaken any studies on this matter - and to my (not that much of a) surprise I found that a guy called Michael Kremer has a 54 page paper that goes into all the ins and outs of why what I said above is the case.

There's a lot of text to sift through, which I sped-read earlier before wring this blog post - but the first equation on page 16 and the surrounding text is most germane to the discussion above  The first equation on page 16 gives us the value of the rate of change of infection (the Y with a dot over it), with the tell tale being the minus sign where the "Y dot" is equal to the rate of increase of infection minus the death rate of the infected.  

I wish I could have survived just an extra few hours so that people in the group could have seen the proof, rather than them all thinking I'm some kind of trolling nutter who was just there to wind them up. Like I said, it's a funny old world!

Friday, 11 December 2015

Inequality - 5 Myths Debunked: Myth 5

Concluding the series…

Myth 5: Only a few people make the world unequal.

Reality: In actual fact, we all make the world more unequal.

It's not just those in the top earning bracket that make society more unequal, we consumers make it more unequal too. In most cases however you spend your money you are making the world a more unequal place. When you buy £100 worth of goods at Sainsbury's you are helping shareholders earn a bit more in dividends. Most shareholders are better off than most people in the UK, and nearly everyone in the developing world - therefore you are contributing to income inequality. Even more extreme, when you buy a new CD, or go to the cinema, or buy tickets to Jimmy Carr's latest comedy show, or purchase a new car, or buy a best-selling author's new book you are distributing some money to some of the richest people in society - authors, actors, musicians, car manufactures, and so forth.

Clearly from an economic perspective there is nothing wrong with that. When you buy Radiohead's new album you make the band members and the record company a little bit better off, but you also reward their hard work in making an album. Equally importantly, the transaction is full of winners; Radiohead and the record company and the retail seller all gain by making a profit, and you gain because you obtain something that you valued more than the money it cost to buy it. But you also made the world a bit more of an unequal place.

Tied into this myth is the myth that when a country increases its inequality it decreases its prosperity. I don't know how anyone could think that's true. The reality can be conveyed by simply imagining this. If the UK saw its own equivalent of Bill Gates, Warren Buffett, Michael Bloomberg and Mark Zuckerberg rise to the top, it's obvious that as a result the UK would become simultaneously more unequal yet more prosperous.

End of series - hope it was helpful and edifying!


Thursday, 10 December 2015

Inequality - 5 Myths Debunked: Myth 4

Continuing the series…

Myth 4: A rich place like the UK has far too much inequality.

Reality: The UK's inequality is a sign that things are improving for developing nations.

To see why inequality in the UK is not a problem, we need to talk about its relationship with global inequality. The general wisdom on global inequality is roughly this: that a much more globalised free market is helping poorer countries develop a lot quicker than they used to, and incidentally at a faster rate than the richer ones. Notice the key word there being 'global' inequality. National inequality - that is, in-country inequality in places like the UK and USA is rising.

An increase in in-county inequality in places like the UK and USA is exactly what you should expect to see when there is a decrease in global inequality, because people in wealthy nations in the lowest and second lowest quintile are now competing for jobs with people in the lowest three (or in some cases four) quintiles in developing countries. In other words, increased inequality in the UK and USA is good news, not bad news, because it signals that tens of thousands of people in developing countries have been and will continue to be lifted out of poverty by being competitive in the global market.

If people on the hard left are really true to the Marxist conception of fairness that they so frequently espouse - "From each according to his ability, to each according to his need" - then they should be pleased and optimistic about this, because increased in-country inequality amounts to increased well being of the ones with the greatest need - the poorest and least well off people in the world.

You may assert that in-county inequality is a lot due to the increased wealth of the very richest in society, so there is every reason to moan. But it's the richest in society who are doing the most to engender a broader and more inclusive globalised market, so this is exactly what we would expect to see. It's true, of course, that people struggling in wealthy countries still need help, and their situations are not be trivialised, but it would take a pretty parochial, ethnocentric, even possibly xenophobic person to prefer the diminution of the UK and USA's pretty bad poverty situations over the diminution of the wider, more futile and life threatening poverty situations in the developing world (unlike the UK and USA, many of the world's poorer countries don't have a properly functioning welfare system).

I'd be wary of anyone who wants to make a reputation writing dissonant articles about the 'speck' of increasing UK or USA inequality while paying no regard for the 'plank' of increasing global equality that a globalised market is bringing to the world's neediest people. There's a long way to go yet though - but we're continuing to move in the right direction.

Wednesday, 9 December 2015

Inequality - 5 Myths Debunked: Myth 3

Continuing the series…

Myth 3: Inequality is all about income

Reality: Incomes aren't as much of a great indicator of people's well-being as is often assumed.

What's far more important is how people are able to live. That is to say, inequality of income isn't that important compared to inequality of consumption - i.e. having a home, food, drink, warmth, transport, access to education, health care, and so on. There is a bad tendency to frame the debate in terms of inequality income - but after tax, and after consideration of people's well-being in terms of consumption, inequality isn't a big issue at all, and post-tax, things aren't anything like as bad as the reactionaries suggest. According to the IEA, those in the richest quintile earn about 15 times more than those in the poorest quintile before the government intervenes with tax, and only about 4 times as much after tax, which isn't outrageous, and gives exhibition to an awful lot of redistribution already taking place. It's a lot easier to feel outraged if you measure inequality by capital and nothing else, but it's the wrong way to measure it.

In actual fact, society needn't dole out equality with fanciful measures. There are lots of ways that Rich Ron and Poor Pete are unequal besides money, and not all to the benefit of Rich Ron. Perhaps Rich Ron could complain he pays far more tax and gets penalised for his success; perhaps he has less leisure time; perhaps Poor Pete has less stress, less public pressure, and less on his conscience as he doesn't make the tough decisions Rich Ron makes; perhaps Poor Pete has a happier marriage because he spends more time with his wife and kids. There are many factors.

The upshot is, using disposable income as a measure of real poverty is a mistake. Most people in the lowest quintile for earnings are beneficiaries of a welfare system that pays for their education, health, housing, and gives vouchers or allowances for food, clothing and bills.

Here's an analogy. Suppose Tom is poor because his household income is only 40% of the national median, and Tim is not poor because his is 80%. Would this make Tim twice as well off as Tom? Certainly not. Tom and Tim could live on the same road, have the same size house, go to the same school, have more or less the same weekly food consumption, and so forth. Their lives would be almost identical, except perhaps Tim might go on slightly nicer holidays - to New York instead of Ibiza, perhaps. Yet Tom is adding to the 'poverty' statistics and Tim is adding to the rich statistics.

Suppose also that Tom gets £5 a week pocket money and Tim gets £10. If we only count this income, Tim is 100% richer than Tom. Tim is a prince and Tom is a pauper. But both Tim and Tom's parents spend money per week (let's say £150) on their clothes, their food, their sports equipment, their bus fares, and so on. Under this consideration, Tim's real spending capacity is £160 and Tom's is £155 - a mere difference of under 4%. Evidently it is ridiculous to call Tim well off and Tom in poverty just because Tim can buy an extra £5 worth of comics and sweets each week. This is the kind of mess you can get into when you talk about relative poverty only in terms of income.

Tuesday, 8 December 2015

Inequality - 5 Myths Debunked: Myth 2

Continuing the series…

Myth 2: High wages occur at the expense of low wages.

Reality: If high earners were on less, low earners wouldn't be on more.

People's income is linked to the job they have, and the pay of that job is linked to the set of skills required to command that salary. This is what motivates people to try to do well and improve their skills and knowledge. If everyone in the UK was suddenly given £1 million pounds the incentive to work would collapse, and unless there was a mass emigration exodus the country's goods and services industries would come to a virtual stand still.

The reason why people should not be indignant about a supposed 'unfairness' in people's vast wage differences is because labour value is dictated by supply and demand, not our personal whims. When shelf-stackers at Sainsbury's sign an employment contract they agree to terms commensurate with the skills they are offering - that is, the supply and demand for those skills. If they didn't sign the contract plenty of other people would. They would not earn more if the Chief Exec of Sainsbury's earned less, because the skills and labour of the shelf-stacker and the skills and labour of the Chief Exec are not conterminously affected by each other. The price of each of their labour is equal to the supply and demand of those skill sets in the labour market. Shelf-stackers who bemoan the Chief Exec's pay are suffering from envy, not injustice.

To understand the point, it's vital to understand the fundamentals attached to wages - they are not some arbitrary figure set by government, they are a signal of value, just as the price of petrol or apples are signals of value. Paying a price for something - labour, petrol, an apple, etc is a bit like voting in a democracy. When you fill your car up you are voting for quantities of fuel to be supplied in the market; when you buy 20 cigarettes you are voting for more tobacco to be produced to meet your future demand. The price of labour is just the same - how much you charge for it works under the same principle that determines how much you'd charge for 20 cigarettes or a tank of fuel.

As we saw above, it just isn't true that your pay is made less by those earning whopping amounts. As has often been observed in peer groups, low earners don't resent multi-millionaires quite like they resent those with similar skill sets earning a little bit more than them. In fact, people positively support millionaires by shopping in their supermarkets or watching them act in films at the cinema.

There is evolutionary sense in competing against those in your earning range compared with those at the top. Evolution is the struggle to pass on genes through the vehicle of the family unit - it is those competing in that similar struggle of whom we most need to be wary. If you're an out of work painter and decorator, you don't have to worry about Bill Gates or Brad Pitt putting in a rival tender for a small upcoming job.

Let me explain how even though the rich get exponentially richer, some of that wealth filtrates down to other less well-off people, including the poor. For simplicity, let’s put the top earners in the A category and bottom earners in the Z category. High earners A, B, C and D categories have spending patters that shift consumer demand slightly downwards to E, F, G and H goods and services. That is to say the high earners spend their wealth on expensive things made by other high but slightly lower earners. High earners choose the best architects, cars, health care, clothes, etc, which improves the wealth of the practitioners supplying those goods. Those practitioners in categories E, F, G and H make the people they patronise richer too (those in I, J, K and L), and so the filtration process goes, right down to W, X, Y and Z. This is what drives economic growth, and why even though the rich get richer, most other people's absolute well-being increases too.

That is a vast oversimplification of the whole economy, but not in any way that matters here, because the pattern is a confirmed one, explaining how prosperity is a contagious blessing that affects almost everyone for the better. That point, though, won’t be properly understood without paying attention to the essential corollary fact we touched on above – that wealth and prosperity is *not* simply measured in terms of capital – it is everything; employment levels, consumer goods, better services, more leisure time, less crime, more diverse restaurants and food shops, and so forth.

Monday, 7 December 2015

Inequality - 5 Myths Debunked: Myth 1

It's fast becoming clear to me that just about everyone you encounter (barring a few pleasing exceptions) has become convinced that inequality is one of the world's biggest problems that needs urgently addressing. Alas, it's one of the biggest myths that inequality is a massive problem. It is not. What matters primarily is absolute well-being, not relative well-being. If increased inequality was making poorer people poorer then it would be a problem - but that's not happening, because the economic pie is not fixed, and because wealth creation is not a zero sum game. As wealth is created, pretty much everyone's well-being increases in absolute terms.

There are many social commentators from the left misleading their readers with dodgy economics that on the surface can be made to sound reasonable - like, for example, when they tell us how unjust it is that the top 1% of the world’s population owns half the world’s wealth. It's easy to make such a fact sound outrageous, but only if you distort the reality of economics and make people believe that a terrible global injustice is occurring. Such views about inequality are mostly centred on 5 myths, which I will set about dispelling.

Myth 1: Inequality = injustice.

Reality: Inequality does not mean injustice.

Too often we hear that it's an 'injustice' that high earners can earn hundreds of thousands of pounds while other people in the same country are out of work and on benefits struggling to get by. In fact, that kind of redistributionist philosophy is at the heart of the socialist ethos. In the real world, though, while it's a nice aspiration, in economic analysis it doesn't make much sense. It's certainly a shame that unemployed people are out of work and on benefits, but when people call this an 'injustice' they misuse language, a bit like when someone says that an hour is fat or an obese person is sixty minutes. Out of work people claiming benefits are given money by the government and they have their rent paid. That's the right thing that should happen, but to call it an injustice is absurd.

When a guilty rapist gets an undeserved outcome by being found not-guilty in a court of law, there is an injustice; the injustice is commensurate with the extent to which the victims suffer, and the extent to which ordinary citizens are unsafe due to his being free. People's well-being is generally not of this nature. In a great many cases, even if you think X has received an undeserved outcome, it doesn't mean that you've suffered an injustice. Did we suffer an injustice (as some claimed) when lottery lout Michael Carroll won the jackpot? No. It’s true we might have wished it was us, and thought how much more we could have done with the money, but there was no injustice suffered by us in his winning the lottery.

What about when an auntie gives four of her nephews £10 for Christmas and her favourite nephew Tim £20 - have the four nephews suffered an injustice? No. Maybe their aunt's decision was unwise, or petulant, but perhaps in this case it wasn't. Either way, it was her money to do with it as she pleased - and surely she has reasons why she thinks Tim is more deserving. Perhaps he earns less; perhaps he helped her out in the summer; perhaps he's the kindest and most thoughtful - there are plenty of reasons.

Now when it comes to the market, there is inequality in wealth and earnings not because of systematic unfairness, but because people have different talents and they make different life choices. Wages and prices evoke lots of hostility largely in the people who have a curious sense of entitlement and not much understanding of price theory. In recent times since the financial crisis people have been keen to pontificate about the apparently 'excessive' pay of chief executives, politicians, bankers, top sports stars, and so on. Top sports stars probably are overpaid (for reasons you may not expect, which I talk about in this Blog post), but the rest aren't obviously so.

Pascal said famously "The heart has its reasons of which reason knows nothing". Of course, in this case reason knows why people think this way about perceived injustices and entitlements - it is down to this peculiar sensibility called 'fairness' on the one hand, and this disagreeable trait called 'envy' on the other hand. Envy can be good if it catalyses innovation: if Owen envies Bob's success in retail he might work extra hard to achieve similar successes. But envy is bad when it causes Owen to become resentful towards other people's fairly earned successes in a competitive market. Fairness is good but often hard to measure. If Tommy and Billy are told to share evenly a £5 gift from grandma then it is fair that they each get £2.50, and easy to see when fairness has not occurred. But if Paul earns £200,000 a year more than Chris that's not necessarily, and almost certainly isn't, a sign of unfairness. This will lead us nicely to the second myth in tomorrow's blog post.

One final point on this - the other thing that happens when people look for injustice in inequality, particularly in the UK and America, is that they start to become blind to the reasons poorer people are doing less well. The key factors in people's income are work and skills. Households in the top 20% usually have two people working in jobs that require higher skills. Households in the bottom 20% usually have either one person working, nobody working, and often only one adult in the house.

Research by David Henderson at the National Centre for Policy Analysis showed that 81% of families in the top income quintile had two or more people working, whereas in the bottom quintile only 12% of families had two or more people working, and nearly 40% of households had no one working. If you translate that into average number of earners per household, it works out that the top households are three times those at the bottom. Once you factor in education and skills as vital tools for increasing earnings, it is evident that where you are in society is not usually a matter of injustice, it is a matter of lifestyle decisions people have made. Don't misunderstand, many people fall on hard times, they are let down by others, and they have less than ideal family backgrounds. That certainly should elicit sympathy, and a concerted effort to be helped - but it's certainly a misuse of language to call it injustice.

Friday, 4 December 2015

Six Pictures That Will Tell You Almost Everything You Need To Know About Competition

In recent times we have gone from this….

To this….

And from this….


To this….


And from this….


To this….

The one word that best summarises what drives this improvement is 'competition'. It is competition that brings such significant progress shifts for people in society. If you have a monopoly on a good or service there is no selection pressure to improve and innovate, as consumers have nowhere else to go as an alternative. But with competition, providers are continually looking to improve products, innovate to offer something new, and retain competitive prices too.

It is competition that drives human progress; it is through competition that resources are most efficiently allocated; and it is competition that provides signals regarding which goods and services we want and need, and with whom co-operation will be most beneficial. The more it is realised that competition is the driving force of efficiency, innovation, improved material well-being, and the principal route by which people are lifted out of poverty, the more it is realised that we continually need more market and less government in our daily transactions.

EDIT TO ADD: When I said "we continually need more market and less government in our daily transactions.", a couple of people for some reason thought that was an endorsement for what they often like to call 'unbridled' or 'unfettered' capitalism. It was no such thing. And on that point, let me correct a popular misconception: almost no pro-market person I've ever met thinks that the market should be allowed to run with no government regulatory protocols. So, then, I do not mean that the government shouldn't regulate - here I am talking about the government as an agent in the economy in its own right, i.e. one that produces goods and services. When the government produces goods and services it is usually done so through an absence of, or too little, competition - in fact, when the government runs the service it usually has a monopoly on that service, which stultifies competitive forces.

In saying we need more market and less government, I was talking about their role in the economy as agents of manufacturing, and how competitive firms are more efficient at that. Governments need to regulate, where regulation should only mean forms of light intervention to direct for the common good the way providers and consumers behave. However, to do this it is imperative that the politicians that intervene understand the full range of costs and benefits associated with their actions - and alas they frequently demonstrate to me that they do not (in some cases, of course, they will understand but ignore that understanding because the right decision will be an unpopular one in terms of votes). A nigh-on perfectly reliable rule of thumb is that when politicians try to interfere in the natural mechanism of prices they are getting it wrong. But that doesn't mean there are not necessary government interventions - some light regulation is essential.