Why We Don’t Get Many Decent Politicians

Considering that in the shape of the shadow Labour cabinet they have only an economic laughing stock as opposition at the moment, it's odd to see the Conservatives in such a shambles, what with the EU party divisions, Iain Duncan Smith's resignation over the disability cuts, and the fact that the chancellor George Osborne is really little more than a crypto-socialist awaiting his chance to be at the helm of the party in the public relations role of Prime Minister. When the opposition is so weak, it speaks poorly of the Tories that they appear so weak as well. Perhaps they think they can afford to be complacent.

But I wonder if the problem runs deeper. When it comes to listening to many of our politicians, I'm afraid often the primary thing the public has to consider is whether their rhetoric is the result of incompetence or dishonesty. I have to confess, sometimes I genuinely don't know. Take the minimum wage, which as I've shown before repeatedly in numerous past Blog posts lacks so much pull that it couldn't even shift the skin off a rice pudding. The number of politicians who call for its endorsement and incremental increase is astounding. Whether it's on Newsnight, Question Time, The Big Questions or Free Speech, you'll find they are all at it. And not just the minimum wage - price freezes, artificial protection of British industry through subsidies or bailouts - all of these things over which the State has far less control than the public realises. 

It's hard for anyone to believe that Oxbridge educated people don't know the erroneousness of their claims, so I must assume that they are simply telling lies that they know will make them popular. But they are rarely outright lies, of course - more akin to manipulative language that speaks a half-truth but is in actual fact half-empty too, making it frequently beyond the scope of the political influence that is being claimed.

Because politicians have to win votes they have to tell the public what they want to hear. They must also make claims they cannot justify - that they will create jobs (with additional value, that is), reduce unemployment, oversee growth in the economy, etc, - which means promising to do things over which they know full well they have much less influence than the public imagines.

But assumedly not all politicians are duplicitous opportunists; there are no doubt some that mean well and have genuinely good intentions. Yet most of the ones that mean well also come out with this same absurd rhetoric too - it's pretty contagious in Westminster. This leads me to think that the ones that mean well have actually been taken in by the rhetoric of those around them and those that preceded them, and the ones that don't mean well are just simply good actors who have simply perfected the art of deceiving. Given the foregoing, I think politicians can be divided roughly into two groups.

GROUP 1: Those that know much of their rhetoric is nonsense but are good at deceiving enough people to get away with it.

GROUP 2: Those that really do mean well and have noble intentions but are actually unwise enough to believe some of the things they say.

Let's call group 1 the Snakes and group 2 the Puppies.

What we long for are politicians who are well meaning with good intentions, but also smart enough to be able to see through the rhetoric and say a few candid things, bringing some refreshing wisdom as they do so. But consider what being in such surroundings would do to such a person - they would see clearly enough to all-but lose faith in the political circus, and perhaps lose a little bit of faith in humanity too. Even if we had a few rare gems, they would be the exception - and they would be swamped by the majority of Snakes and Puppies that outnumbered them.

These rarities sound like they'd be a breath of fresh air - but, alas, the truth is, the political system, coupled with the toxic relationship of co-dependency the politicians and the electorate have with each other, is not a system that is set up for truthful and candid expositions. Most of the electorate just aren't ready to digest the fact that economies, labour, house-prices, wages, supply and demand are largely beyond the control of the government (save for a few light and necessary regulations) - which means they also aren't ready to accept that a lot of the government involvement is not going to be well-informed or successful.


EDIT TO ADD: I briefly alluded to the toxic co-dependency between politicians and the electorate that votes them in - I think it's another factor as to why we have so many misjudged politicians; we have so many misjudged members of the public that demand their wishes and views are represented by politicians. Moreover, economics is about the most misunderstood subject around, largely because, as Bastiat pre-empted in his great seen and unseen essay, most people only have (or allow themselves) enough intellectual wherewithal to focus on how things affect an easily identifiable group, rather than how to affects all groups. Consequently, then, the selection pressure for politicians to be economically astute is diminished by their knowledge of the electorate's lack of astuteness.  
  

A Strange Argument About Whether Prison Is A Deterrent

Some of you may be interested in my response to an IEA writer’s peculiar argument for why Prisons do not act as a deterrent to crime. Some of you may not. 

I have to take issue with the claim that “Prisons do not act as a deterrent to crime”. There is a small group for whom that is the case – and that group is the recidivists who, as you say, have a high re-offending rate, and are being sub-optimally helped by the prison system. But saying that prison isn't fit for purpose because of high re-offending rates is an absurd complaint, and a peculiar error of reasoning. It's a bit like complaining that sea defences aren't fit for purpose because occasionally there are extreme coastal conditions that break those barriers.

It would be good if the sea defences prevented all flooding, but their primary job is to protect the land from the ordinary thrust of the sea on a daily basis. Similarly, prison's primary function is to reduce offending (by deterrence and by keeping criminals out of society), not re-offending. If it reduces re-offending then all well and good, but that is not its primary function. It's preposterous to consider whether prison is fit for purpose by only considering the recidivism rates. It's as preposterous as considering how many men in the UK take steroids by only interviewing weight-trainers in gymnasiums.

Such a biased research method would drastically skew the overall figures, and this is what is happening with Vicky Pryce’s “Prisons do not act as a deterrent to crime” claim, as recidivists are people who've already been convicted of a crime, so they are people for whom the threat of prison was no real deterrent first time out. Consequently, they are the biased sample of the population for whom prison is the least likely to be a deterrent second time around. The only proper way to enquire whether prison is fit for purpose is to ask how much of a deterrent it is for the vast majority of people in the UK - those who haven't found themselves outside of the orbit of the law. As far as we can gather, the threat of prison, loss of liberty, loss of employment, and so forth has been a very successful deterrent for a majority of the population.

This is compounded by the fact that when it comes to the change in social status from being an ordinary citizen to a convicted criminal, the first cut really is the deepest. That is to say, the first time a recidivist became a criminal was the worst time for him (or her). It was on that first occasion that he became incarcerated, when up until then he had only been used to freedom, and it was then that he first experienced the change in status that would give him a social stigma and make him harder to employ. If that wasn't a sufficient deterrent, we shouldn't be too surprised that criminals are even less likely to be deterred second time around. I should finish by saying that it’s only on that point I have a quibble – I agree with the rest of the article.

Best 

James

Er, No, Cannabis Legalisation Will Not Raise £1bn In Extra Taxes

There was a claim in the UK's Independent newspaper paper recently that Cannabis legalisation in UK would raise £1bn a year in taxes – and they are not even talking about gains to the economy in terms of reduced costs in law and enforcement – they only mean a projected view of the approximate value of the black market drugs trade and the extra tax they think the treasury would get by taxing those transactions. We are told that this conclusion is the result of getting together a so-called 'panel of experts' who apparently came up with 'the most detailed plans ever drawn up for the liberalisation of UK drug laws'.

Alas, if only they'd invited someone who understands economics to join their panel, they would have had a better chance of realising that the headline is, at best, misleading, and at worst, plain nonsense. What they mean when they tell us this is that the economy will be better off to the tune of about £1 billion once the government gets all the tax from what would be legalised drug sales. But the reality is very different. What they've done is simply over-inflate the figure by not understanding the economics of how tax and money are generated. Let me explain.

Of course the economy wouldn't be £1bn better off in taxes with the legalisation of cannabis. The tax generated from drugs involves a lot of tax that would have come in via some other route - it's not going to be a huge net gain. In other words, the tax the drug sellers paid through drug purchases when drug dealing became legalised is simply money that the participants would have paid through spending it by some other means when drug dealing was illegal.

Although there will be some gains to the economy in terms of reduced costs in law and enforcement, and in the reduced cost of production and sales (there will now be no costs in avoiding detection) which will as a result also increase consumer surplus, any money that is spent is tax revenue for the government, whether it is on drugs, food, car parts, or whatever.

What the article writer doesn't get is that legalising drugs will increase tax revenue as a proportion through drug sales, but it will be offset by a proportional reduction elsewhere, as people spending taxable money on drugs will be spending less elsewhere.

Perhaps an illustration will help. Tom is a drug dealer, and Dick buys currently illegal drugs from him at a cost of £100 per week. As things stand, when Dick gives Tom £100, there is no drug-buying tax, because the sale is a black market one. The government legalises drug-buying and slaps a 20% tax on drug sales. Now when Dick gives Tom £100, Tom has to give the government £20, meaning the Treasury is £20 better off, right? Not quite.

Prior to drug-buying becoming legal, it's true that when Dick gives Tom £100 the treasury doesn't collect its 20% tax from the drug deal. But it still collects its tax the next time Tom spends some of that £100. So Tom, having £100 instead of £80, uses the money to buy food, drink, petrol or clothes, at which point the treasury gets its tax. There is certainly no big net gain, it's just that the new law would mean the treasury gets its tax from Tom via the drugs sale, instead from Tom via the sale of food, drink, petrol or clothes. Or suppose, as may happen, Tom doesn't spend it yet, but hides it under the floorboards. Well, then, any 'black market money' that stays hidden under drug dealers' floorboards is money that keeps prices down, until that money is eventually spent, at which point it is taxed.

There is not going to be a £1 billion net gain, or anything like it. Increased tax revenues almost never amount to net gains for the economy - they are simply money transferred from some people’s pockets to other people’s pockets. To show how silly this is, imagine if everyone whose surname begins with A to M gave five pounds to everyone whose surname begins with N to Z. Sure Mr Zimbardo would be better off than Mr Adams in the transaction, but no one sensible would argue that the economy as a whole is better off. There is no net gain, only a transfer of resources.

When it comes to drugs and taxes, once you factor in that drug users will end up paying most of those taxes anyway when they spend the money outside of drug use, and the fact that the transfer almost certainly has administrative and deadweight costs to the economy, it's laughable how much of a mess of the argument the article writer makes.

Great Discovery: But Most People Seem To Miss What This Actually Says About Mathematics



If, like me, you're a bit of a numbers nerd, you'll have been excited by the recent news that a new largest ever prime number has been discovered - one that exceeds 22 million digits. The operative word here is 'discovered', and the article explains how:

"The search for new and bigger prime numbers is conducted using software developed by the GIMPS team, called prime95—it grinds away, day after day, until a new prime number is found."

 

It may be a subtle point that's so often missed, but the fact that mathematics has unknown properties that we need to discover empirically ought to tell us an awful lot about the primary nature of mathematics - a primacy, as I argued last July in this blog post, that indicates that even the entire physics of our universe is only a tiny representation of mathematics as a whole. Or to put it in terms your grandma would understand, not only is mathematics more than just a human invention, it actually gives every indication that its truths exist over and above anything that exists in the physical universe.

 

As well as being an exciting finding in the field of mathematics, the discovery of this new prime number also, to me, serves as a subtle reminder that mathematics is both a creation and a discovery, and that it's in David Hume that we can see the astounding way that this plays out philosophically (as I write about here in this blog post - Why We Never Have, & Never Will, Predict Anything New). Some of you may be inclined to read it later if you have time. Some of you may not. For the latter group, to illustrate the point in that blog, I said that if you find one day that a fundamental law of nature gets changed (such as we no longer can have a magnetic field through the application of electricity), the only way to discover this would be through experience.

 

The reason being, we are learning something new about nature by the process of discovery. As I will expound below, it is with prime numbers we can see how we are doing the same thing with numbers - a fact which enables us to understand just how complex and other-worldly mathematics actually is. It is here that we can see the important difference between physical discoveries and mathematical discoveries. With physical properties there comes a point when there is no longer anything new to discover about them. Suppose you have a plank of wood in front of you. Once you try to discover new things about the wood you find that it is made up of smaller constituents: atoms, electrons, protons, and perhaps even small elements as yet undiscovered. But there will come a point when there is nothing more we can discover about the wood - we will be left with the bare bones of mathematics.

 

Things are very different, though, with numbers - we never reach the point at which we have discovered everything about them - and prime numbers are a wonderful illustration of this. Given that almost every fact about numbers is not known by humans, it’s pretty obvious that they are far more than mere human inventions (think about it: by its very nature, mathematics is so infinitely complex that however much we know about numbers we will still only know a tiny fraction of all the possible things there is to know). How can anyone expect us to believe that we invented something that we don’t know most things about?  Prime numbers give us a great indication that our construction of integer symbols is the construction of a map that relates to a much wider territory of undiscovered mathematics.

 

In 1989 mathematicians discovered that between the 2 consecutive prime numbers 90874329411493 and 90874329412297 there is an astounding 803 composite numbers. We didn't know that fact back in 1889 or 1789, because in 1889 and in 1789 the fact “there exists 803 composite numbers between prime numbers 90874329411493 and 90874329412297” was a fact still awaiting discovery. There would have been a time when no one knew that wood was made up of atoms, electrons, protons, and so forth, but the difference between wood and prime numbers is that there is guaranteed to always be a time when no one knows about most prime numbers.

 

The reason being; we discover facts about numbers in the same way that we discover facts about nature – through experience (as per the Hume blog I linked earlier), and many numbers are just too vast to be experienced. Prime numbers is a perfect example of the consistency of mathematics combined with our having to deal with the subject probabilistically as we increase in complexity. 

 

One famous modelling of the primes is the Riemann map, which consists of the distribution of the primes in the shape of a staircase (showing the steps as each prime is higher than the last). Then running a Gaussian curve through it Riemann composed it into a sum of simple waves, which are graphed with positive and negative discrepancies. 

 

The complexity of the natural numbers lies not in generating the numbers per se, but in generating true statements about those numbers. The complexity of a set as a measure of how hard it would be to generate that set is a good indicator. On complexity alone, generating all the natural numbers isn't too difficult, although it is infinitely time consuming.  You could spend the rest of your life counting integers if you like …1..2..3..4..and so on, and not much will stand in your way. But generating all the prime numbers is harder to do because you need more than simple bit by bit addition - you need vast division. The checking of whether a very large natural number is actually a prime before including it in the set is a measure of complexity that increases as the task increases in size. If it wasn't then the discovery of a 22 million digit prime number wouldn't make the news at all.

 

Let’s look further at how this relates to knowledge and probability. We can plot the primes as a binary sequence; that is as 11101010001.  In this sequence I have plotted a "1" wherever a position in the sequence is a prime number (you'll notice that a '1' appears in positions 1, 2, 3, 5, 7 and 11 - denoting the primes). The Riemann hypothesis about primes states that an infinite number of frequencies is needed to define this sequence of primes in their entirety. In other words, he is telling us that it is not possible to use short-cutting compression to reduce the sequence of primes to a finite form. This translates as; an infinite amount of data is needed to specify the primes in terms of frequencies - but this is not to be confused with the term 'infinite' which necessitates that primes will go on and on infinitely just like the natural numbers will. In actual fact, just as we can specify all the natural numbers with a very short counting algorithm, we can also define all the primes using a very short prime number generation algorithm.

 

The infinite number of frequencies Riemann conjectures to be needed to specify the primes is not because they go on infinitely - it is because the only known prime number generation algorithm that generates primes with certainty involves the vast and lengthy task of factorising. Factorising is a very long winded task which means working through all the possible ways a number might be confirmed as a prime number - which basically means that after a very large prime number in a sequence one has to check each large number that follows it in the sequence and work out whether it can be divided by a number other than 1 and itself, and carry on doing that until another prime number is reached in the sequence. That is how a prime number is identified. If we are only interested in the length of the data string then the infinite prime number sequence can be defined with a finite amount of data. What it cannot be is specified with a finite amount of data because no periodicities exist in this sequence that we can exploit to help us calculate primes with certainty using any quicker method than factorising.

 

The way it relates to knowledge and probability is because of this need to factorise. To predict the next prime one has to keep factorising the numbers ahead until one strikes a number that won't factorise - but this comes at a huge computational cost because the numbers one is targeting are very unrepresentative compared with the numbers one has to compute and discard. Riemann tried to stumble upon a more succinct method of calculating (predicting) primes using the perceived organisation of their layout in the integer sequence. But he found that this couldn't be done because purely from the patterned layout point of view it is not possible to predict primes with certainly - one can only predict them probabilistically (which is better than chance predictions). 

 

As interesting as this is, more generally, I think this is interesting as a template for knowledge in general, as least by way of analogy. Just as prime number sequences in binary form (11101010001 ...etc) sit between the spectrum of being a maximally disordered sequence yet retaining enough order predictable with a range of outcomes, so too is knowledge much like that. In fact, if you can paint yourself a fairly clear picture of what factorising for primes is like, you’ll see that it is a beautiful illustration for knowledge of the complex world in more generalised terms. The main difference between numbers and information about the physical world is that with the latter we are discovering knowledge of what we can add to our map, whereas with the former we are discovering more about the territory to which those maps relate.

 

 

 

The Global Map Of Where It's Good & Bad To Be Gay

I was interested to stumble upon this page which speaks of a global map of homophobia. Unsurprisingly the two big findings were that sub-Saharan African and Muslim-majority countries are the least accepting of homosexuals, and Western and Latin American countries are the most accepting.

While, as you'd expect, you're better off being gay in a country in which Islam hasn't had very much political influence, you're also much better off being gay in a country that's wealthy and prosperous.

On first glance the article writer seems to be favouring the idea that wealthy nations are more open and accepting of homosexuality, and more willing to institutionalise it in marriage. In my view, that proposed causality is slightly adrift of the truth - it's more probably the case that many of the same things that helped the nations' prosperity just happen to be the same things that make them open to homosexuality - that is, respect for the rights of individuals, a stable society, and high value of freedom and tolerance - all of which are what helped those nations become prosperous.

It's also worth adding that the more a country is influenced by Islam* the less likely it is to be broadly tolerant and open to individual freedom, which means not only is it more likely to be unaccepting of homosexuality, it is also less likely to be wealthy and prosperous.

The upshot is, if you're going to be the sort of society in which gay couples can win the freedom and tolerance they require to foster acceptance of homosexuality, you're going to need to be the sort of society that values freedom and tolerance anyway. So my hunch is that it's not that economic prosperity has made homosexual acceptance possible, but rather that the same qualities that engender economic growth are also the qualities that engender the qualities required for acceptance of homosexuality.

* Sadly, I'm sorry to say, there are a few parts of the world (some African countries, for example), in which Christian homophobic intolerance is pretty rife.

This Could Be The Most Interesting Programme On Television All Year

I was just watching some catch-up TV, and the show I was most looking forward to was the Channel 4 documentary about the hitherto 'undiscovered' tribe of Amazonians, centred on the studies of the Brazilian anthropologist Carlos Morellis, and the first meeting of a tribe that were ostensible hunter-gatherers.

To begin with the tribe were very fearful of white men, and it took Morellis a whole year and a practical understanding of their language and mannerisms to realise that these Amazonian hunter-gatherers had been treated very badly by white fortune-seekers looking for gold, by illegal loggers, and by those who enslaved native men to tap rubber trees. In fact, in one of the most startling moments, a photo was shown of such a group from yesteryear with chains round their necks and wrists.

After Morellis had spent some time patrolling up and down the river, sussing them out, there was a meeting, which was sufficiently successful enough to ensure the Amazonians no longer feared all white men. When both parties finally learned to put their guards down, there were some very moving scenes between the two groups.

Some will be perturbed by the fact that more advanced people have come along and disturbed a tribe of people otherwise living in virtual isolation from the rest of the world's population. But the Amazonians weren't exactly having a blast there - their daily existence was a continual struggle for survival, and always with the spectre of being attacked by poisonous snakes and jaguars, and, particularity interestingly if you're someone who knows your Bible, experiencing repeated feelings of shame for being mostly naked.

This programme was a rare chance to experience something terrifically fascinating and unique - a real life present-day social experiment back to our hunter-gatherer past (even more intriguing given the fact that rainforests are not the most natural habitat of hunter-gatherers). As well as getting to observe the behaviour of people one is never going to meet in virtually all other places in the world, there were for me two other notable things. Firstly, the Amazonians had no obvious status ornaments, yet there was evidently a hierarchy. And secondly, despite no socialised views of religion or the divine, they believed in heaven and the afterlife.

The programme was compelling viewing for virtually every minute of its duration. But perhaps the standout thing I observed is this. It's quite possible that in just one hour of observing these Amazonian hunter-gatherers we have clear exhibition of an analogue to the precursors of all the world's religions: that homo-sapiens have evolved the hardware to experience awe and wonder in a way that appears to make us worshipfully inclined (something the writer of Ecclesiastes noted in chapter 3 verse 11), and that we have always possessed all the blueprints for hierarchicalism, which makes the organised religions that have emerged from our evolved hardware not in the least bit surprising, and perhaps even somewhat inevitable.  

It's So Easy To Lose Interest

I doubt I've ever made this known, but in a life that is so abundantly demanding of any interested person's mind, I am highly unlikely to attempt to read or get very much out of hugely long articles or lengthy papers - I just want the back of the envelope version pretty much all the time.

 

Don't get me wrong, if there are books or papers I really want to devour, I can easily enjoy digesting them in the comfort of a relaxing armchair, but online you're unlikely to pique my interest with interminably long-winded blogs, articles or papers. To use a food analogy, when I'm online I don't want to be eating big meals, I want to be nibbling at little tidbits

 

I'm sharing this not as any kind of act of prescription, but just because it's a realisation that has become more and more prominently acute in my own awareness of myself, and I was starting to wonder why I didn't used to feel it with quite so much vigour, and whether it's because the internet now makes more demands on our attention, or whether, as I think is the case, most of us prefer the back of the envelope version but differ in the extent to which we own that desire.

 

 

The Economics Of Valentine's Day & Other Related Matters

Economists are always being accused of trying to reduce everything to money and mathematics. Critics will make assertions such as: "You can't put a price on love" and "There are more ways to analyse life than mathematically" and so on. But as one of the most well known quotes from any economic text book reminds us, economics is even grander in its claims:

"Economists are often accused of believing that everything — health, happiness, life itself — can be measured in money. What we actually believe is even odder. We believe that everything can be measured in anything."

David Friedman

When it comes to matters of the heart, perhaps the key thing that underpins it is information. Romance is about discovering more and more of a person, rather like how an explorer discovers more and more of a new country. Discovering more and more of a person is about obtaining more and more information.

A friend once asked me for some advice about a guy she was seeing: do I stick with him or cut and run? I neglected to answer, as I didn’t feel it was my place - plus I lacked most of the relevant information couples require to decide whether to stay together.

Information, of course, is the key thing about their relationship that couples have and outsiders don’t. At the point of asking for advice my friend had a trade-off between what she presently knew and what she might go on to know in the future. Being in a relationship means learning new things about your beloved every day, and this new information is bound to have an effect on whether any decision to stay or go was the right one. Given that at present she was unsure about whether her partner was the one she wanted to stay with, her dilemma was really down to one question: will future information change things for the better or the worse?

If she thought the former she may well be inclined to stick it out for longer; if the latter, now would be the time to say goodbye. The trouble is, of course, future information is by definition unknown in the present, as the present merely gives us probability indicators about future stages of a relationship.

Because information is key, and because relationships are dynamical, your relationship with your partner is, like most things in life, based on a series of probability estimates. A Valentine's Day card to your partner is, from your point of view, a way of signalling that at this moment in time the probability of staying together is greater than not. And unless you're married, the probability that you'll repeat the process next year is conditioned primarily by the information you'll obtain between now and Feb 14th 2017. In the meantime, if you want a test that's a bit edgier and intrepid, you could always try this one on for size.

 * You can, of course, send a Valentine's Day card to a prospective beloved - an act designed for those who can't charm the pants off anyone they fancy.

On That So-Called "Ghastly" Substance

I wonder what Gordon "Let's nationalise our oil fields" Brown and Ed "The nefarious multinational oil companies monopolise to the tune of inflated prices" Miliband are thinking today with the news that crashing oil prices have engendered a market slump. Are they finally ready to understand how supply and demand work in the oil industry?

 

The problem is, the left, being prone to conspiracy theories, were quite willing to go along with the confused narrative. In the run-up to the last election Ed Miliband had convinced swathes of people that energy providers were a monstrous cartel that were ripping everyone off (an imputation I was happy to call out as rubbish at the time).

 

A little bit of common sense ought to tell anyone that the oil industry is quite different to the picture the left paints. Except in extreme cases (see below), oil companies are not making unconscionable profits, and therefore the calls to tax the bejeebus out of them and impose price controls are fraught. When there is a spike in prices, most people ask how the so-called monopolising companies can get away with ripping us off. I'm guessing it never occurred to them to ask why, if they really are monopolising the industry, the prices weren't higher much sooner? That is, if providers suddenly became greedy when prices were high, why weren't they greedy when prices were low?

 

The answer, of course, is that what changed wasn't a sudden bout of greediness from the suppliers, it was a change in supply and demand. As more countries become prosperous their demand for oil increases, which affects prices. As the world is chaotic and prone to lots of interruptions in the supply of oil (both present interruptions and future instability), there are inevitable spikes in oil prices in times of stress and unrest. Governmental tax increases on oil or price controls won't redress turmoil in the Middle East or severe weather conditions or instability between Russia and the West - hence they won't make the situation better. In fact they would have the opposite effect as oil companies would be more insecure about repairing their supply chains and about making future investment if politicians are just going to over-tax them or restrict the natural price mechanisms from which their initial investments bear fruit.

 

Oil companies invest in the industry by playing the long game to the tune of tens, often hundreds, of millions of pounds - investments that require years, often decades, to reach fruition, and part of that investment is based on derivatives concerning future supply, future demand and future prices.

 

Ironically, the major problem with oil as a resource gets mentioned far too infrequently - and that is the problem of over-reliance on it by some countries, and an over-abundance of oil reserves concentrated in a handful of countries with highly unstable populations and dictatorship governments.

 

On the first part, the over-reliance is known in economics as Dutch disease (a term that was coined to describe the decline of the manufacturing sector in the Netherlands after the discovery of the large Groningen natural gas field about 50 years ago), whereby relying too much on the revenue from one type of good leads to under-investment in the country's other goods and resources.

 

On the second part, slow growth and economic hardship have often been correlated with oil wealth in the hands of dictatorships, where the resources are controlled by the government and not very beneficial to the population. Naturally, nations that rely on these dictatorships for oil often have a cosy relationship with them, when really they should be standing up and condemning many of their barbarian practices.

David Cameron's Confusion Over Statistics & Racism

David Cameron has launched a scathing attack on the universities of Oxford and Cambridge today for failing to recruit more BME (black minority ethnic) students, saying that racism in the UK’s leading institutions “should shame our nation”.

He is right that it's a shame that there are not more BME students in our leading universities, but he is quite wrong to lay the blame at the door of Oxford and Cambridge universities. The so-called fact of Oxford and Cambridge being under-represented by BME students is not to do with institutional racism at our top universities, it is to do with the fact that prospective BME candidates are far outnumbered by white British candidates, which has a lot of complex causes - but none of them are the fault of Oxford or Cambridge.

It is quite easy to be outraged at statistics if you don't understand them, and clearly David Cameron just doesn't get that there are simply not enough BME people in the country to fulfil his wish. A quick Google search reveals to me that if a top university accepted students in a way that precisely represented the UK demographic, then for every 100 people, there would be 87 whites, 7 Asians, 3 blacks and 3 others. Even on strict egalitarian grounds it is very difficult to justify a selection policy that doesn't see BME people outnumbered by whites.

But, of course, that's only part of the flaw in David Cameron's reasoning - the other thing wrong with his misunderstanding of statistics is that Oxford and Cambridge are not looking for a representation in terms of ethnicity or skin colour, they are looking for representation in terms of academic ability. That is to say, Cambridge and Oxford universities are the seat of academic excellence in the UK - and if the statistics show that only a small proportion of BME people get into Oxford or Cambridge, and a large majority of students are white, that does not show any institutional unfairness on the part of Oxford or Cambridge. It merely shows that if Oxford and Cambridge are trying to attract the most academically gifted students in the country, and if by far the greatest proportion of the most academically gifted students in the country are not in the BME demographic, then Cambridge and Oxford's admission policy is completely fair.

There is certainly a conversation to be had about all the ways that BME and under-privileged pupils in schools are disadvantaged or coming up against barriers to fulfilling their potential, but that's not an indictment against our two best universities - and David Cameron should know better - particularly as it's very likely the case that this phony 'outrage' is really just an attempt to court popularity amongst the BME demographic.

Sometimes I Have The Nicest Fans

 

I got a nice comment today on one of my blogs on the misjudged minimum wage law…..

F**k you are a d**k – you wish to privilege rich f****rs earning sh**loads over poor people earning peanuts.

Anonymous 

I thought I'd better say hello!

Dear Anonymous (commenters like you are always anonymous, aren’t you?),

Let me respond more charitably than you, by saying, actually, we do share the same goals (that the poor become more prosperous), we just differ on the best way of achieving this – and by ‘differ’ I mean out of the two of us we differ in the extent to which we have a basic grasp of the subject at hand.

I could explain all the ways the minimum wage is undesirable, but having already read that, you’re clearly not that interesting in knowing these things. All I’ll say, then, is that it is actually you who wishes to privilege rich f*****s because you want to endorse a state-mandated price floor that makes it more difficult for struggling people to get a job.

The best chance they have of becoming more prosperous is being denied by governmental legislation that prohibits them from bargaining to sell their labour at any price below the state-mandated price floor. By your logic, if caring about struggling people means making it harder for them to get a job, why not ask for the minimum wage to be even higher still – then you’ll ‘help out’ even more struggling people?

Yours Fraternally J

James

The Best Analogy I've Seen Explaining Why Economists 'Get It'

Tyler Cowen has perhaps the best analogy I know to illustrate how it is that economists understand the world so much better than anyone else. He refers to A de Groot’s famous experiment in which he showed several chess masters and chess novices images of chess positions for a few seconds and asked the players to reconstruct the positions from memory. The chess experts made relatively few mistakes, whereas the novices made plenty. Then he repeated the experiment but this time he showed them random positions not found in chess, and this time the chess experts performed no better than the chess novices, demonstrating that the expert advantage appears to come from familiarity with actual chess positions, not more efficient memory recall.

 

Tyler Cowen believes this is a good analogy for economic understanding (and I think he's onto something). The 'recognition chunks' related to chess configurations are similar to those of economics in terms of patterns of logic and behaviour. Economics involves understanding those patterns in ways that inform us about good and bad policies, sound and unsound arguments, predictions of human behaviour, and so on. It is one of the mind's most reliable heuristics.

 

But, of course, that's only the first part of it - understanding it is of little use to others if you cannot articulate it to others in ways they can understand. That's what I try to do on this blog - I use what I call the 'Teenager on an envelope' approach, and it comes in two parts.

 

In the first place, if you're going to explain something, make sure you have it nailed in its most simplistic form, such that you could easily summarise it on the back of an envelope. If you can't truncate it that much, the chances are you need to do some more work on it. In the second place, once you've written it on an envelope, make sure it is clear and simple enough so that a teenager not apprised in the subject can understand it, at least in its basic form. If both those conditions are met, your preposition should make sense. Then it should be ready for public consumption.

 

Naturally, the key is to master the habit of doing this without an envelope or a teenager - because when you have your next bright idea you can't guarantee that either of those things will be in sight.

Why Government Meddling Does Harm Even When It Does Good

Politicians come up with all sorts of initiatives to meddle in the market in ways they think are helping - whether it's price controls, wage controls, legal requirements that limit profits, green levies, fat tax, selective subsidies, cronyism with big businesses, and many other examples. Their efforts culminate in a net loss for the nation, not a net gain. Apart from the necessary light regulation required to avoid monopolies, to protect our health, and to protect our individual rights, politicians should resist the temptation to meddle, because a lot of the harm they cause goes largely unnoticed. And of course, as well as hidden harm, there is also tangible failure, because, as I've explained before on this Blog, astute business executives can easily circumvent governmental strictures imposed on them.

For example, if they are forced to pay a minimum wage, they will recoup their losses by increasing prices; if they are forced to offer customers cheapest price plans, they will simply configure their price plans sufficiently to stay within the orbit of the law, and yet still return the same profits as before by locating further profits elsewhere. In fact, in looking to circumvent government impositions, businesses often find additional ways to generate more profits or pay less tax. So government meddling is not only externally harmful, it is usually beset with economic futility too, as company executives are much better at manipulating the system than politicians are spotting them. This is a slight oversimplification, but not in a way that impeaches the overall point.

That was the futility of meddling; now the harmful bit. The harm caused is in the indirect consequences of the government's actions in the stability of the market. Yes of course it's possible for government meddling to benefit certain people in business - that's not in question - the issue is that in benefiting certain people, two further things happen; firstly, others are directly artificially disadvantaged (a good rule of thumb: you can't usually artificially advantage one group without artificially disadvantaging another group), and secondly, doubt and uncertainty insidiously pervades the market, which hurts (in particular) small businesses and would-be business ventures (the two groups the government is always saying it is trying to help).

The reason doubt and uncertainty prevail upon the market to the detriment of businesses is because continual government meddling acts as rule-changers that diminishes confidence in investment and innovation. If a danger exists that in the coming months the government is going to impose price controls in the energy sector, or fat tax on fast food, or heavy green levies in the industrial sector, there is disincentive to invest or innovate in those markets because future profits might be decimated by further government meddling.

Let me illustrate with an analogy. Suppose you were tasked with bringing together an instrumental ensemble to play as an orchestra at a big event at the Royal Albert Hall. With your expert knowledge you know how to arrange the string, brass, woodwind and percussion sections, as well as arranging who plays what, and when each player is conducted to play each note and chord in a carefully sequenced arrangement. Suddenly, though, your task is made difficult, because God, being in a devious mood, decides to mess around with the laws of nature to have fun at your expense. After God's mischievous tinkering you find that brass now sounds like string, woodwind sounds like percussion, and some of the notes and chords have been altered to sound different to what they did. And after going to the trouble of learning the arrangements under the new messed-up system, God decides to have fun again by altering everything for a second time, leaving you and the players thoroughly despondent once again.

God's tinkering has messed up you and your orchestra's plans to perform the concert. Not knowing which instrument corresponds to which sound-types, or which chord and note creates which pieces of music, you'd have no idea how many members of each section to have performing on the night, or what sounds they'd produce. The concert would have to be cancelled.

Now, of course, government meddling in the market isn't quite that extreme, as things can still function in spite of their meddling, but to a lesser degree it creates the same kind of instability and uncertainty. By diminishing the stability of the rules, governmental meddling deplete private innovation and initiative, and makes the market less stable and harder to enter. And as a further consequence, the more governments assume control of market situations, the more indifferent to personal responsibility people in business become. If the government legislates to protect one kind of customer, then suppliers tend to take their eye off the ball when it comes to other customers (this is also true when it comes to incentives for future innovations too). As a consequence, businesses become too concerned about the authorities and less concerned about their customers, their efficiency and their competition.

Governments that favour a laissez faire approach to the market provides its citizens with confidence in the stability of their free actions and planning based on the ability to forecast. A government that meddles in a laissez faire market only erodes confidence, induces instability, and impedes free actions and planning.

What the UK badly needs is a huge dose of deregulation - everything from housing, social services, education, the police and small business are being negatively affected by too much regulation. Let's take two of those areas to illustrate the point - housing and small businesses - and see how there would be benefits from deregulation. 

Firstly, excessive regulation hurts small businesses and prospective businesses because it makes it harder for them to enter the market and turn a profit. But while smaller businesses and prospective businesses are being stifled, this hurts not just them but all consumers, because healthy competition creates greater incentives for innovation and efficiency in big businesses too. Bigger businesses enjoy the benefits of regulation roughly to the same extent that smaller firms or would-be businesses trying to enter the market lament them. Small businesses would benefit from deregulation by having a more open market into which they could more easily enter.

Secondly, excessive regulation on housing - such as restricting where houses can be built, and carbon emission targets, is contributing to a housing shortage, as supply is not able to match demand. Environmental controls imposed on the building industry meant that "every new home in Britain would have to be built to a zero carbon standard by 2016" - although thankfully common sense has prevailed and it looks like this idiotic regulation will be relaxed. Housing companies, building industries and people looking for somewhere to live would all benefit from deregulation.

This sort of economic myopia is causing so much social damage – but as long as most of the electorate continue to be blind to it there will be no selection pressure to change (ironically, and I hate to have to say this, but only UKIP and the Libertarian Party are the ones I’ve seen wise and courageous enough to challenge this). 

Why do governments regulate so excessively when such excessive regulation is bad for the economy, and in particular for the small businesses that most need to enter the market? Assuming they are not ignorant of this fact, it is usually either A) They know most of the electorate think the opposite of the truth - that excessive regulation is good because it stifles corporation power and helps small business get a foot hold in the market; or B) When courting popularity, politicians need to keep looking for ways to make people think the government is making a radical difference in their lives.  From what I can see, pledges for bigger government intervention go down well with lots of people who don't understand that the market induces innovation and efficiency much better than the State – so it’s no surprise that they are attracted to this like sharks to a blood-soaked limb.

 

 

The Campaign To Save This Popular Norwich Pub Is Short-Sighted

It seems that in my city there is a popular music pub called The Owl Sanctuary, which has been bought by property developer Richard Pratt with the intention of building flats. However, because of the weight of discord by its regulars, and a concomitant petition to boot, it seems to be that even though the sale of the building has gone ahead in a mutually agreed transaction between property owner and property buyer, Norwich City Council has declared it an 'asset of community value' and is looking to give it protection against it being demolished and turned into flats. The result of this is that the 'community' (basically a lot of indie/goth pub drinkers) will now be allowed to band together to bid to buy it.

Alas, this is another one of those classic cases whereby only the tangible benefits (to those connected to the pub) are being focused on, and not the tangible and intangible costs (to just about everyone else). If the pub goers had more familiarity with things like Marshall improvements and Pareto efficiencies, they may understand that this sale should go ahead, and that the council shouldn't involve themselves in such ill-conceived ideas of deciding what are community assets.

Given that Marshall improvements and Pareto efficiencies are usually along the same lines in terms of optimal outcome, I will just use Pareto's model to explain. Pareto-efficiency is the measure by which an action occurs that if it makes someone better off it makes someone else simultaneously worse off. An event or action is called 'Pareto-superior' if it can make someone better off without making anyone worse off. Now although economies and societies are vastly more complex than simplified Pareto models can fully capture, they can usually do a competent job of informing us when ideas are good and bad in terms of inefficiency and consumer/producer surpluses.

The reason economists are best at knowing whether ideas are good or bad is because economic thinking attunes people to seeing where the market will naturally facilitate a more optimum outcome. Suppose between them Jack and Jill have enough potatoes and sausages for 20 platefuls of bangers and mash, but Jack has all the potatoes, and Jill has all the sausages. A mutually beneficial allocation of resources through trade means that both Jack and Jill can have 10 meals consisting of bangers and mash. Without the trade, Jack would simply have 10 boring meals consisting of potatoes, and Jill would have 10 boring meals consisting of sausages. Because Jack and Jill are best equipped to look after their own interests, nobody has to tell them to undertake a trade.

Obviously most market situations are more complex than that, but a simple application of the same principle can show us why the Owl Sanctuary transaction should go ahead. Who is made better and worse off if the Owl Sanctuary is converted into flats? We know the people connected with the pub - basically the manager, bar staff and customers - are made temporarily worse off because a handful of people have to find new jobs, and a larger group no longer have their venue in which to perform, drink and socialise. But just about every one else is better off: the two people involved in the buying and selling of the property (as well as those collecting fees), the builders involved in demolition and construction, all the other people involved in property development, and all the people that buy the properties once the project is complete. What will also be a benefit to Norwich as a whole is that the land on which the properties are built will be used more efficiently than if left as it is.

Don't misunderstand, I'm not unsympathetic to the people that are against the loss of their highly-valued pub - there are pubs I value too, and I would be sad to see them demolished. But being sad to see them go is an emotional feeling, it is not the same thing as saying what the most efficient outcome is in net terms. Because, in net terms most people gain, and even the few that temporarily lose will adjust and adapt to the changes, because by and large the things valued in this situation are not bricks and mortar, they are people.

What will happen without the needless council intervention is that the sale of the Owl Sanctuary pub will generate further opportunities for other music-friendly pubs to take its place, or perhaps offer a pub looking to become more established on the music scene the chance to fill the gap. Basically, whatever happens, the market transactions, without the intervention of the city council, would have all worked out fine in the end, as people are pretty good at adapting to changes by themselves, without needing the government to hold their hand.

They Can Get It When It's Meat; Why Can't They Get It When It's Trees?





I was looking through some old writing of mine, as you do, and I found this little scribbling I wrote in 1998:

The recent hysteria-driven campaign to recycle more and more paper on the grounds that it's a virtuous tree-saving exercise is to me pretty evidently going to turn out to be not just incorrect, but the precise opposite of the truth. The proposition fails in its logic, which means in all likelihood future evidence will show it to be mistaken.

Here's why. Most wood used for the purpose of producing paper comes from trees planted and grown for the purpose of producing paper, in exactly the same way that farm animals are bred for the purpose of meat consumption. If you recycle paper in mass quantities you lower the need for as much tree-planting, which amounts to shifting the demand curve down and making price and quantity fall. This means that tree-planting and the land used for tree planting no longer hold the same value for wood production. The number of trees will diminish as a result of mass recycling, just as the number of farm animals bred will decrease if lots of people suddenly become vegetarians.

Almost everybody can get the logic when you talk about animals and vegetarians, yet so few people get it when you talk about trees and paper. Presumably this is because many people support recycling because it gives them an ethical buzz of virtuousness, and when people have that buzz it often makes them myopic towards the efficacy of the policy.

Seventeen years later, and with it now being evidential that paper recycling means fewer trees, the above seems quite prescient. It's always good to remind the people who claim to care about preservation of trees that if they really cared they should be against paper recycling, not for it. Understanding how prices work helps you understand that paper is cheap and that recycling is worse for trees and for consumption. Many trees are farmed for economic reasons - for making wood pulp for paper production - and in commercial terms they are planted for future sales, and plentifully so, which is why the logic is fairly easily translated into evidence.

If You Don't Understand This Yet, It's High Time You Do - It Will Greatly Enhance Your Enjoyment Of Future Blog Posts!

In a world in which nonsense is pretty uniformly frowned upon (everyone adheres to this principle, they just disagree on what actually constitutes nonsense), the biggest lot of nonsense believed by large groups of people always has at least one fundamental flaw of logic underpinning it at the start, which I'll explain.

For example, if you take the beliefs of repeat offenders such as young earth creationists, socialists and climate change alarmists, you'll find one key underlying fundamental flaw that feeds into all the other misinformation. With young earth creationists that fundamental flaw is the mistaken base assumption that evolution by natural selection is in conflict with theism. With socialists that fundamental flaw is the mistaken base assumption that human beings can arrange an economy from on high better than the natural price signals that result from the intersection of supply and demand curves. And with climate change alarmists that fundamental flaw is the mistaken base assumption that you can have your economic growth cake while eating it too.

If you're observant you'll probably be able to spot a common fault running through all three mistaken belief systems - they all involve the failure to get to grips with complex systems theory and the extent to which self-organising structures amount to each individual contributing to a successful whole while looking after its own interests locally.

Although they differ slightly in the physical mechanisms that underwrite their drive forward, biological evolution, the global economy, and the state of living things in terms of the planet are all bound up in nature's thermodynamic principle of the law of parsimony - that is, nature's principle of least effort. Whether we are talking about Newton's laws of motion, the biological mechanism of natural selection, electromagnetic radiation, the second law of thermodynamics, or running a successful clothing business, installing machinery in a new factory premises, trying to get from London to Brighton, or setting up a remote controlled railway system for your children at Christmas time, these are all underpinned by the law of parsimony - that what works most efficiently is the path that takes least effort and uses the least energy.

It is this understanding, and pretty much this understanding alone that informs us that complex biological organisms do not have to be designed by a Deity in one fait accompli swoop (as used to be thought quite commonly), that billions of individual acts of trade in an economy serve the interests of the whole far more efficiently than any government control, and that in order for humans to continually increase their efficiency in terms of the environment the energy we've expended and the resources we've used thus far have been an important stage in that process.

Perhaps the main barrier to realising all these things is that people like to feel a sense of control and they like simple explanations. Because of this, the idea that things can be managed neatly from on high and cannot be left to run on their own steam is a seductive one. Consequently, too many people are beset by a hubris that convinces them they are better at controlling systems than the natural process of trial and error - what Hayek referred to as “selection by imitation of successful institutions and habits.”

The best way of correcting this misunderstanding is developing an understanding of how those self-organising structures look after themselves locally and at the same time contribute to a large, complex and efficient whole that runs best by its own componential processes. That will constitute the real death of young earth creationism, the erosion of the economic hard left, and the diminution of climate change alarmism. In the latter case it should bring about a greater realisation that for now the fossil fuel reliant industries of developing and emerging countries are going to have to go through their own version of the kind of progression-explosion of economic growth we went through during and after the Industrial Revolution if they want to pull themselves out of hardship, and that the climate change lobbyists are often retarding their progress when they pile on pressure to cut down their carbon emissions - something that, unlike more developed countries, they are much less well equipped to do.

If you'd like to see the quintessence of this blog post in action, you should check out this awesome video, based on Leonard E. Read's classic essay I, Pencil, in which he illustrates how many people it takes to make a pencil, once you factor in the loggers, transporters, ore and graphite miners, steel manufacturers, lacquer appliers, and countless others in the production process.