There's No Uglier Sight Than Mobs Of People Devoid Of Perspective

There is no uglier sight in society today than young lefties, with the best standard of living of any group of human beings that have ever been alive, taking to the streets to splutter and moan about how indignant they are that free sweeties that someone else has to pay for are not being given to them in such plentiful quantities.

It is no coincidence that the majority of the Corbynistas are young people. Young people have no capital and often no job yet, so directly they pay none of the costs of redistributionist policies, but enjoy many of the benefits. They are also not as experienced in life, so haven't had the chance to develop a more informed worldview.

But there is another reason why they demand such economic foolishness from our politicians - they don't actually know how lucky they are, and have been born into a world in which the many riches we enjoy are not only just taken for granted, but have actually primed young people to expect more and more without really having a proper perspective of just how remarkable and incipient this economic enrichment for humans actually is.

Young people of today live under conditions that their grandparents would have found luxurious, and that their great-great-great-great grandparents wouldn't have even thought possible, and that most of the people that have ever lived in our 200,000 year history wouldn't have even been able to contemplate was possible - yet they still go around like spoiled brats complaining about how unfair and unequal society is.

Society has many tough elements, and it may be a quite ghastly place compared to our best utopian fantasies - but when juxtaposed with the reality of 99.9% of human history, we are in the period of a great enrichment that is, lest we forget, still in its infancy. By all means, let's speak out against things that are genuinely wrong in society, but for goodness' sake, please can the parents of these young lefties help rattle a sense of perspective into their parochial little minds?

The great irony
The great irony they need to be made to realise is that it is only because we have experienced such a progression explosion in the past 150 years that we even think in such terms of an improved standard of living and harbour expectations about material prosperity for all. Such is the incredible progress we have made, that we live our lives through a lens of expecting economic progress with a sense of entitlement that would be completely alien to anyone who lived prior to the Industrial Revolution.

And just a little further back, it just wouldn't have occurred to someone living in the time of Shakespeare to ask whether they were materially better off than their parents, because nobody really had any reason to think that humans could progress very much more than they had already - after all, for the 10,000 years prior to Shakespeare, progression, compared to what we know now, was occurring at the pace of a snail wading through treacle.

And you'll notice this is why the phenomenon occurs so readily in young people: the reason young people demand such a higher standard of living is because they have such a relatively high standard of living. Far fewer older people are likely to be on the streets exclaiming how tough today's standards of living are because they have had decades to appreciate just how much progress we and the rest of the world have made. Young people, on the other hand, have just taken exponential progress for granted, and are too often mincing around with their placards utterly devoid of just how incomprehensibly incredible their lifestyle would have been for their great-grandparents.  

Perhaps the best example that underpins what I'm saying is the widespread obsession people have with the so-called injustices of inequality (a subject on which I've blogged numerous times before). Yes we do have inequality, but as above, the main reason we have it is because we have so much human wealth, and because the economy is not a fixed pie, so people who provide lots of value for others can increase their wealth and make millions of others better off by doing so.

Inequality is actually a good problem; it's not something that people in Shakespeare's time would have had to worry about much because there wasn't anything like as much wealth to focus on. Nobody in the world today is poorer than they would have been in pretty much any other time in human history.

Finally, on top of not knowing just how remarkably prosperous their lives are, the other alarming thing I find about the young left is just how full of bile, hate and intolerance so many of them are. Most of them are not careful thinkers who have weighed up the arguments of both sides - they are chameleon-like reactionaries that have joined together as part of a mob mentality that detests the things that have made humans prosper and pulled us out of the quagmire of hardship and low life expectancy.

And while they are in this frame of mind, buoyed by a simpleton cult figure like Corbyn, and egged on by a Shadow Cabinet with about as much intellectual proficiency as a KFC 14 piece Bargain Bucket, heaven only knows what damage and economic stultification they are capable of inflicting on our society if they ever get into power.

 

 

McDonnell's Fantasy Analogy

On The Andrew Marr Show this morning, Shadow Chancellor John McDonnell came out with a ludicrous analogy to try to explain the benefits of bringing services into public ownership. Think of it like buying a house, he said - you make the initial investment, get returns on renting it as an asset, and then further down the line it becomes a money-maker.

Fantasist John McDonnell has always been an intellectual lightweight, and today's analogy was no exception. Even if we're kind to him, and ignore all the obvious problems with the reasoning behind his analogy (which you can distil in previous blogs here, here, here and here), there's another obvious way that returning a service to public ownership is not like buying a house as an income-generating asset, which I'll explain.

McDonnell's analogy forgets the most important problem with bringing a service into state ownership: it creates all the downsides of monopoly power, and denies all the benefits and innovations of competition. Competition doesn't just keep suppliers in check in terms of price and quality, and consumers well served in terms of lower prices and increased efficiency, it is also the driver of new ideas and improvements on existent ideas.

A service run under a state monopoly has much less of an acute eye on commercial demand, and therefore pays suboptimal regard to price and quality too. In terms of investment, the opportunity costs of buying a house are the other forgone investments and their concomitant returns. Given that house buying is about the best asset-returning venture in the marketplace, the opportunity costs in terms of a return are all-but non-existent.

On the other hand, the opportunity costs associated with state monopolies in terms of forgone opportunities are about as overwhelming as it gets. And this in a week when there is indication that Labour's re-nationalisation project is going to cost an up front sum of around £176 billion (or £6500 for every household).

This is the dangerous fantasy economics of Corbyn and McDonnell: £176 billion for more expensive, less efficient, lower quality, innovation-stifling re-nationalised services. There is almost no analogue to buying a house here - not that we should expect anyone in the Shadow Cabinet to understand this.

Why Don't We Like It When The Universe Makes Us Smarter?

The widespread human aversion to correction is one of the most peculiar of all peculiarities. People don't like being shown to be wrong - so much so that they'd rather intransigently yoke themselves to a comfortable falsehood than open themselves up to a refreshing new fact or an illuminating experience of improved reasoning. There are multiple causes of this, with some degree of overlap - the usual offenders are:

1) Lazy-thinking - the path of least resistance is, by definition, the easiest method of approach. It takes time and effort to acquire knowledge and develop your reasoning skills, and relatively few people bother to do this with any aplomb.

2) Status and ego - some people find it hard to admit they're wrong, so would rather stubbornly close themselves off from revising their erroneous opinions.

3) Tribal identity - many views and beliefs are bound up in the identity of a particular group or allegiance, particularly religious and political views, which overwhelmingly bias individuals against changes of mind.

4) Emotional biases and confirmation biases - reasoning ability can be impaired by emotions, and conformation bias occurs as we look to justify our views by seeking out information that supports what we already believe.

There are others too, but those are the main four, and between them they have quite a stultifying effect on human beings' ability to be correct about things. The only cure for this sort of thing is to wake yourself up to how painstakingly, ludicrously irrational this is - I mean, why *wouldn't* you want to be correct about as much as you can be? And related to that, why *wouldn't* you want to be shown an improved way of thinking about a situation or learn a new fact? 

Learning new facts and improving your reasoning is the universe's way of making you smarter - it is one of the things that people should embrace most, yet it is so often one of the things from which people casually shy away.

Here's what I'd advise you to try: from now on, the next time you get even the faintest hint that you're wrong abut something, or that your interlocutor appears to be making a point that could bring about a fresh perspective for you, embrace it - be enthralled by it, and look at it as an invitation to open a door you'd previously only known to be closed.

You see, when we want to be, I think we humans are fairly adept at sensing weaknesses in our own position when up against smarter people. I don't think the feelings and sensations are alien. As an experiment of self-discovery, let me encourage you to try to own those feelings when they arrive. The next time you sense you've been holding on to a view or belief that needs correcting or revising, stop and take ownership of how it makes you feel.

You may feel threatened, or embarrassed, or obstinate, or defensive, or angry with yourself, or even ashamed that if you change your mind you're going to upset people close to you. I promise you, you will feel at least one of those things. But don't worry - it's the universe's way of inviting you to be smarter, and encouraging you to embrace and be glad of the opportunity.

And if that doesn't turn out to be enough to help you engage in the opportunity, remind yourself that what the universe is asking you to do is nothing different to what you've already being doing all your life - enjoying new discoveries and welcoming fresh perspectives. You don't mind being right on whether it's okay to drop litter, or on what the hottest planet in our solar system is, or on the properties of plutonium, or on whether theft should be illegal - you're just being asked to follow what you've started to its logical conclusion and remain consistent with it at every juncture.

Every time you become a better thinker, or less wrong about something, or more rational, you've made gains for life - you've taken another step on the journey of mental exhilaration. Don't fight it: thirst for it, enjoy it, and embrace it with open arms.

With This Basic Error, Trump Is Doing His Best To Hide His 'Genius'

Oh dear, Donald Trump really doesn't get this economics thing at all. We read today that he has now declared he will use NAFTA negotiations to make Mexico pay for the wall. Alas, a 'stable genius' like this really shouldn't be making so many category errors.

Trump has spent the best part of a year explaining to Americans how, under current NAFTA rules, Mexicans export far too many goods and services to America, and that that is hurting the domestic economy.

Yet now through NAFTA renegotiations he's "going to take a small percentage of that money and it’s going towards the wall” - which infers that Americans will receive either US dollars or Mexican pesos as payment for the wall.

At which point, one has to ask: what the heck is Trump on about? If he's on about payment in dollars, then Mexicans first must acquire the dollars to pay the wall bill – and to do this, Mexicans must sell goods and services to Americans. It is only through selling more goods and services to Americans that Mexico will get more dollars to pay for the wall. But this contradicts Trump's rhetoric about dissuading more Mexican exports to America.

And if Trump means payment in Mexican pesos, then his reasoning is equally flawed, because he unwittingly commends the very thing he has spent the last year rejecting - that is, increased sales of goods and services from Mexico to America. 

The upshot is, the only way that Mexicans can fulfil Trump's wish is if they export more real goods and services to America - something Trump mistakenly presumes is a benefit to Mexicans at a cost to Americans. Trump needs to make up his mind whether he wants to slow down the Mexican imports he thinks harm his domestic economy or whether he wants to speed up the Mexican imports to pay for the wall.

Lastly, there is an outside chance that a 'stable genius' like Trump thinks (although I doubt it) Mexico will pay for the wall through US import tariffs. Yet as anyone with even a sketchy understanding of economics will know, tariffs do not just hurt foreign exporters, they hurt the domestic economy too.

If Trump raises import tariffs he will raise the prices of imports from Mexico too, meaning Americans will buy fewer of those goods or pay higher dollar prices for the goods they keep on buying. Either way, Americans are paying for the wall.

And where Mexicans are hurt by higher tariffs, they will have fewer dollars from their exports to America, which means they will have less to spend on American goods, which will do the other thing Trump claims to hate - hurt American jobs. Must do better, Donald!

Healthonomics:

This is a frequent phenomenon called Gammon's Law (after Max Gammon), which follows a predictable pattern whereby increase in expenditure will be matched by fall in production, where the more resources a system swallows up, the less efficient it becomes in terms of production per unit of investment. Pretty much any big centralised institution - health, schools, taxation, the EU, the church - when it gets so big that it passes through the efficiencies of economies of scale and begins to suffer from diseconomies of scale (see also the Dunbar number) will show a pattern whereby increased input produces decrease quality of output. In economics, the Rahn Curve (named after American economist Richard W. Rahn) is a graph that illustrates that there is a level of state spending that helps increase growth rates, but that there is a point over which it reduces growth rates. 

Research from the Cato Institute indicates that when government spending expands beyond about 20% of GDP, economic growth diminishes. This often works alongside Gammon’s law, where increase in expenditure will be matched by fall in production, and where resources get sucked into a black hole of diseconomies of scale and the overall production as a ratio of resources inputted diminishes. At the time of writing, the NHS has 1.6 million employees, and there are 66 million people in the UK. That means there is one NHS worker for every 41 people in the UK. You recall we mentioned Wagner's Law, which observes that with increasing economic growth we generally see a rise in state expenditure. Research by the Adam Smith Institute revealed that the total health budget exceeds £100 billion a year, and that management staff numbers increased by about 12% over the past five years, while the number of frontline staff increased by only 2%. It seems clear that the UK's NHS could be managed better: it appears to be simultaneously falling foul of the dangers of Wagner's law, post the optimum point on the Rahn curve, and exhibiting the kind of inefficiencies that Gammon’s law portends.

But whether it is the right type of system being sub-optimally managed, or the wrong type of system altogether is a complex question - not least because the question of the right size of government is an even more complex question. This is due to the fact that humans are adaptive, goal-oriented beings involved in a complex social nexus with lots of incomplete information. And consequently, the wisdom of central intelligence sometimes serves the system best, and other times it is best left to the price systems in the market. 

The challenge, as ever, is to find a way to incorporate the qualities of a kind of socialist-individualist-libertarian triumvirate at the personal level with the qualities of the free market and its concomitant mechanism for price theory to efficiently balance supply and demand. I am naturally sympathetic to a system that draws from the efficiencies of market prices, but I believe that good health care is essential to individual well-being and society's ability to thrive, and no one should be without it, especially society's poorest and most vulnerable people. I'm friendly towards a system in which taxation is collected to fund health care for anyone who is poor and can't afford it, to fund research, to subsidise low earners, to support vulnerable people, and to provide a safety net for every single person who needs it. A nation that doesn't start with that premise is ignoble. But given this as a sine qua non, there are some more complex elements to health care that need addressing. I'm not sure that any health care system that's ever been created is efficient and comprehensive enough to manage the full gamut of complex human needs without sub-optimality in some of its parts - and therefore, the studies that compare different nations' health care systems and look to highlight the relative strengths and failings are probably of limited scope. I think any analysis of health care is (distally) also a study of human society, and is going to have to include the concession that it impossible be maximally efficient and get everything right.

In my estimation, the most efficient healthcare system would be one that reflects the spirit of community libertarianism: that is, it has all the efficiencies of market-based allocation of resources and competition, but it is provided under a framework that reflects a health service free at the point of delivery for all, so no one, rich or poor, ever has to worry about not getting the range of health care they need. Consequently, I think the market is not fully equipped to tackle the complex problem of health provision. 

A typical libertarian argument is this: Doctors are professionals; they know things about our health that we do not, and they can make us better, which is why they command high salaries. Patients, on the other hand, are professionals too - they are professionals over their own lives. But when it comes to our health and well-being, we should approach this kind of reasoning with caution. There is a lot we don't know about our health, our future needs, how our behaviour affects others down the line, what viruses may be lurking round the corner (Edit to add: think of Covid-19 as a prime example), and how much health care we are going to need throughout our life (especially in old age). Even if it an imperfect model, there may be some mileage in preferring a centralised health system, as long as implicit in that framework would be a scenario for individuals where their preferences and their expenditure are more closely aligned. 

The main reason that the healthcare considerations are too intractable for purely bottom-up local market management is that health is a far too complex lottery to reflect the same incentives and value created by the market. Through no fault of their own, some people will have the genes or misfortune or accidents that mean they cost the health service tens of thousands of pounds, whereas others will go through life costing virtually nothing. A civilised society should be one that cares for all its citizens equally, giving everyone the security of healthcare that's free at the point of delivery. A health system that resembles an insurance model with coverage funded by pooled resources is a must in a society that purports to provide a security net for its citizens. The thought of a society that bases health care on what people can afford is one that should be repudiated at every level. When it comes to health, there are some outcomes that some individuals have no chance of managing without the pooled resources of others - and the bottom-up market system doesn't contain all the information needed to factor in the range of complex human health needs.

As an economist, I believe the market solves a lot of the problems a lot of the time, but not all of the problems all of the time. But I think human health (for different reasons to defence and rule of law) is a problem that needs top down centralised information processing, because it doesn't have the foresight required to capture the diverse range of human needs. A society that successfully cares for the complex needs of human health and well-being cannot be at the mercy of market-driven supply and demand computation, which is subject to chaotic instability and power law distributions that would be inimical to comprehensive health provision if left unchecked. It's not often I'll endorse a Marxist principle, but when it comes to healthcare, I think a tolerant and compassionate society should deliver according to the Marxist principle of “From each according to his ability, to each according to his need”. I think the only model that can satisfy this is one in which every worker contributes to a health insurance scheme regulated by the government. Higher earners may if they wish opt for private insurance, and insurance companies can compete for business to provide customers with cover. This would take out the politicisation of the health system.

A system in which most health care insurance was run independently by private operators, where providers would compete with other providers for patients based on price and quality of service, can form part of the national health framework. After all, many private companies successfully provide goods and services for public health institutions. Under a benevolent libertarian system, some providers would be part of big corporations, whereas others would be large cooperatives, and others still smaller businesses specialising in particular practices. There probably would even be many charitable organisations funded by benefactors. This would also open the market for insurance companies to offer incentive based premiums for a diverse range of people with diverse lifestyle choices (and no, I don't mean like the cost inflation-inducing American insurance system). It might be a health system rather like that of a shopping mall, where doctors, dentists, pharmacists and opticians are linked together by a nexus of industry and efficiency, where prices, supply, demand, value and incentives are more coterminous in their relations. 

If that seems like moonshine, remember, someone in the 1950s would be quite astonished to think that you could walk in to a supermarket, scan the goods in your basket and tap a payment card on the sensor to complete the transaction. Imagine in the future when money earned and money spent on health care can be so much more prodigiously efficient thanks to advanced technology. An awful lot of positive developments in society are made possible by life-changing technology. Think of any detective movie in the old film noir era with Humphrey Bogart and Robert Mitchum and imagine how much easier their cases would be to solve with a smart phone. Think of how much easier the protracted scientific revolution would have been if all the exponents had laptops and the Internet. Think of how much quicker the Industrial Revolution would have gathered momentum with more advanced electrical and combustion capabilities.

I said earlier that competition is usually good for efficiency. But with ill health and injuries, this causes me some concern, because when you have small-scale competition for cherry-picked services, firms tend to opt for services that are easy to manage and readily profitable. Not only does this tendering process amount to increased bureaucracy, and excessive use of time and staff resources - it very often is awarded to poor quality low bidders whose profits are made by cheap resources, and under-trained and under-staffed units. This doesn't work so well for patients whose health is at stake, because injuries or illnesses that are complex and risky are in danger of being refused.

In summary
There must be a negative effect on any health service model because of those who use health care too much because of bad decisions (alcoholism, smoking, drug use, binge eating), making supply shorter for the majority who need health care through no fault of their own. The system might be more efficient if people who make these bad decisions pay a higher insurance premium. But I'm not sure there could be an efficient top-down system that could be less costly than the extra costs these people would cost a public health service. Equally, a health care system, like a car insurance system, that said 'yes' to every single claim everyone wanted would be providing too much health care and costing the nation too much money, so there needs to be an optimum amount of health care provide. For example, if everyone visited the doctor every time they had a cold or a blister, the GP surgeries would be inundated beyond the capacity to cope. And I'm very sceptical of large scale operations that try to operate with the dual mandate of serving the public and trying to be financially profitable - you usually get the worst of both worlds, where failure to serve the public well enough is blamed on the financial pressures of solvency, and the failure to remain financially solvent is down to the pressure to serve the public to full capacity.

Given the complex nature of health, human physiology, diseases, infections, health prevention, research and future unknowns, I have a feeling that healthcare is one of those institutions where public service must take precedence over tight financial regulatory, and that we might just have to accept that erring on the side of generous expenditure to cover pubic need is a requirement for the kind of healthcare coverage that provides the safety net that gives everyone free health care at the point of delivery, and the peace of mind too. I'm not denying that every effort should be made to ensure money is spent as prudently as possible. But in terms of outcomes, quality and efficiency, a healthcare insurance system that combines the universal 'free at the point of delivery' safety net of a public service with the consumer sovereignty, competition and the innovative dynamism of a market system looks to be the one that will give citizens the closest approximation to what they need. The free market can do a lot to reduce inefficiency in society, but markets can't do everything - they involve people responding to the incentives that markets and free enterprise provide - but health is likely to remain far more complex than that, and should continue to yield to a model that prioritises a compassionate ethos, peace of mind, and safety net.

 

Another Thing Corbyn Doesn't Get: Opinion Polls Are Deceptive About Our Preferences

Jeremy Corbyn's New Year speech was full of buoyancy about how he's a Prime Minister in waiting because the policies he endorses are popular with voters. The problem is, he misunderstands the most primary error in his evaluation: that opinion polls are deceptive about what people actually do want, as opposed to what they say they want.

Below is a recent poll showing the public appetite for the nationalisation of various services in the UK. As you'll see below, more people want energy, water, railways, post, health and education to be run by the state than not. The corollary is that although many people think Corbyn the man is a bit of a plonker, his policies are apparently more widely popular than they are unpopular. In this post I will show you why popular opinion ought to be meaningless in creating government policy.

Alas, the YouGov poll is fairly meaningless, because it doesn't tell us what people actually desire - it tells us only what people claim to desire when they don't feel the costs of those desires. I want a £4000 top of the range television if you are going to buy it for me; whereas if I'm buying my own television, I'll probably spend about a quarter of that.

Similarly, when a British citizen is asked if she wants more public money spent on health care, railways and the energy sector, and if she wants employers to be forced to lower their staffing levels so others can receive a minimum wage, she will quite happily say 'yes' if she doesn't have to bear any of those costs. She may have to bear a tiny proportion of the costs through increased taxation, but those costs are spread thinly enough that no one individual feels it very acutely.

Moreover, a poll asking you whether you support renationalisation of the railways is not very likely to have the result affected by your vote, so you are less likely to have spent much time analysing the pros and cons of a nationalised railway.

The only poll that genuinely covers your revealed preferences is the poll where you feel the full costs and benefits of your decisions - and that only happens when your decisions are market-based, with the full gamut of consumer surpluses and opportunity costs factored in. I would buy a £1000 television for the consumer surplus, and wouldn't buy a £4000 television because of the opportunity costs associated with that additional £3000 expenditure.

Polls, therefore, are fairly meaningless in telling us what politicians should do with our money, because the poll choices are divorced from the personal ramifications of those choices. To discover what British citizens really want you have to allow them to spend more of their money, and reveal their preferences in a market-based economic landscape. Unlike in state policy, the market will respond, as prices and quantity will adjust accordingly to supply and demand.