Profit Needn't Be A Dirty Word, And When It Comes To Your Money It Usually Isn't

It's quite a common view that when profit enters the public sector through market forces there are reasonable grounds for complaint, as wonderful State-run organisations give way to cold, hard, money-oriented capitalism, and efficient service provision gives way to profit motives. But as anyone with even the sketchiest understanding of economics and moderate familiarity with post-WWII British history would know, this is misjudged. Admittedly this misjudgement is ubiquitous, but its ubiquity should not blind people to its foolishness.

All services need two things to function - they need capital to pay for the material goods, and they need labour in the shape of a paid workforce. The money for this can come from two places - it can either come from private investors, whose own money is at stake and whose interest is in overseeing a successful operation, or it can come from the government, whose money comes from taxpayers, and whose interest is always primarily in courting popularity and votes.

Already, it is obvious which of the two investors is most likely to have the efficacy of the organisation as top priority, and most likely to have carefully considered research to back this up. Profit, far from being a dirty word comparable to smelly bodily secretion in a room full of fresh food, is actually the primary signal as to whether an organisation is being run well.

Yes, of course the State-run health services, education, schools, roads, etc do not have to have profit as their overriding goal in order to provide a public service to the electorate. But for reasons that often slip by unnoticed, profit is the key ally in the measure of the service, because it acts as a barometer to measure overall efficiency. Efficiency is to an organisation as justice is to a court of law, it is the principal measure of whether the organisation is fit for purpose - and anyone who thinks that that varies according to whether the organisation is publicly or privately funded is thinking absurdly. 

Being in the public sector, as I am with my role in local government, I have to work as efficiently as possible in order to save the taxpayer money. But whereas a private company is underpinned by its goal of profit and good service, a State-funded organisation (like mine) is underpinned by its goal of savings and good service. What's being missed by people who dislike profit is that profits and savings are really two wings of the same golden eagle - they are exhibitions of efficiency and of prudent use of finances. Any profit that public sector organisations make is efficiency that benefits taxpayers.

Some people are under the impression that the service suffers when profit is the motive, but that's to overlook two things: firstly, delivering profit is delivering efficiency, which is part of the service we should desire; and secondly, if you eradicate profit motives from your organisation you lose sight of many of the signals for an efficient service. This is easy to see in the free market - businesses that see a diminution of quality in product or service will lose custom to better competition - and this is the biggest incentive for them to guard against complacency. Without similar signals in the public sector, the same thing happens, except where there is no competition to pick up lost custom, we see only profligacy, stagnation and lingering inefficiency.

In the free market, success is measured on whether the goods or services you provide are valued by the public more than the price they'd be charged to acquire them. Conversely, if goods or services are funded by taxpayers, there is much less pressure to provide something efficient and of value because those signals are lost in the continual flow of public money poured in. For that reason, efficiency of service and of resources is astronomically more likely to occur in the private sector, not the public sector.

On Addiction: The Philosophical Muser vs. Peter Hitchens

I sometimes have the odd email exchange with Peter Hitchens, and did so again a couple of days ago, this time about the so-called war on drugs. I've blogged about his drug views before (see here), but in our exchange I ended up challenging his peculiar views about addiction by sending him this blog post of mine, on which he wrote the following in the comments section:

(PH) You're going to have to decide whether you accept the concept of 'addiction' or not. You can't simultaneously refer to 'addicts' and say that addiction is a 'life choice'. The key to this is realising that the advocates of this fiction use it to mean different things at different times, an unsustainable inconsistency which would not survive ten minutes, if 'addiction' weren't so valuable to moral revolutionaries who wish to destroy the idea that we have free will.

So in his wisdom Peter Hitchens wants to deny that addiction exists at all, calling it a fiction that can’t survive a moment’s serious analysis. Here's what I responded with:

(JK) I actually can refer to 'addicts' and in the same blog say that addiction is a 'life choice' - the two aren't mutually exclusive, but you must phrase it aright, because I didn't say that addiction is a life choice, I said that humans can make life choices that lead to addiction. It's a big difference.

Most don't choose the addiction, they choose activities that can lead to addiction. That's why I used the sun-tan analogy in the article. Going to the tanning shop is a life choice. The mutations that increase your chances of skin cancer are not a life choice, but they are the results of a life choice to visit the tanning shop. If you want to avoid this risk of skin cancer, don't go to tanning shops or partake in excessive sunbathing.

Similarly, taking drugs like heroin is a free choice. However, the physiological dependencies that occur as a result of this are not a life choice - they are the body's involuntary reaction to the need for more of heroin's constituencies. If you want to avoid the risk of being a heroin addict, don't take heroin. If you choose to take heroin you may become an addict - meaning that you are an 'addict' who made life choices that led to your addiction state, so no inconsistency.

In addition to that, it's often in a very weighted sense that we talk about a life choice to indulge in substances that lead to addiction. That is to say, there is some indication that most drug addicts are addicts for socio-economic and bad personal background reasons weighted against them, more than they are for reasons intrinsically about the drugs. For that reason alone, it's not just the fact that Peter Hitchens is wrong empirically that is his problem (and he is wrong empirically - for example, there is quite good evidence that addictive behaviour is a lot do to with genetic predisposition - as studies exhibit higher rates of addiction among monozygotic [identical] twins rather than dizygotic [fraternal] twins, which clearly suggests genetic factors) - it's that he lacks so much sympathy for people who've ended up on different paths to him - that's got to be the main reason so many people respond in such a negative way to him.

My theory about addiction

I have a theory about addiction; it's that addictive behaviour falls along a similar line to a law know as the principle of least effort, which is that things in nature will, in terms of effort, naturally choose the path of least resistance. Not only are we all potential addicts in any number of areas of life, with our background and experiences being key driving forces; on closer inspection almost all of us are at the extreme end of the addictive spectrum at given times, and are probably periodically addicted to things through genetic weakness and temporary diminution of willpower.

Perhaps the reason so many of us are below the radar is that the principle of least effort is, for many, so transitory that it rarely registers in our social circles. But whether it's not being able to stop eating those chocolate biscuits we started, or curb our enthusiasm for the final two or three glasses of Jack Daniels when we're on a pub night out, or even finding it difficult to resist putting a new song we really love on repeat, our propensity for addiction is there (albeit often unconsciously) in small doses as well as in those extreme cases that stand out more. 

That would also suggest to me that the age-old chicken and egg question - whether they take drugs because they are addictive, or whether they are addictive because they take drugs - is probably based on antecedents that were laid down long before. As a Christian it would be good if Peter Hitchens exemplified a bit more of Christ's character in his appraisal of other people's weaknesses. Then again, he is not alone - too often we could all the same about ourselves.

 

* Photos courtesy of www.rehab.com and dailymail.co.uk

 

Movie-Watching That Would Shock Your Grandmother

I once pondered whether there will ever be a fully explicit blow job shot in a mainstream movie – not because I cared about that, per se, but because I am interested in how our perceptions change. As time goes by, sexually explicit and graphically violent movie scenes that would have been thought to be unacceptable in the past eventually become permissible as standards change – so just how far are we going to go?

To a 1930s audience, films in the 1970s like The Wild Bunch, Deliverance and Last Tango In Paris would have been shocking. To a 1970s audience, films in the 1990s like Basic Instinct, Reservoir Dogs and Natural Born Killers probably would have been a step too far.  And I doubt a 1990s audience would have been quite ready for recent shockers like Saw, Hostel, The Human Centripede and A Serbian Film.

This leads me to wonder; what will be occurring in future films that will shock our current generation? If we've become more indecent and sexually explicit as we've gone from The Seven Year Itch to Belle De Jour to Last Tango In Paris to The Postman Always Rings Twice to 9 1/2 Weeks to Basic Instinct to Kids to dreadfully horrible films like Hostel and Antichrist - whatever will the future films that shock this current generation be like?  Most people nowadays are so inured to the kind of explicit sex scenes that once shocked us in films like Basic Instinct that we see similar levels of explicitness in pretty much every film that contains sex scenes (some as low as 15 certificate).

What's ironic is that people complaining about the increased sex and violence in films, music videos and computer games nowadays were once the people taking forays into similar risqué things themselves in their youth. In other words, many of the parents complaining today were once kids being complained about by their parents. The parents complaining about Miley Cyrus* today were once youngsters taking bold steps forward about when they were teenagers watching Madonna's semi-erotic music videos and concerts. The parents complaining about Madonna were once youngsters taking bold steps into the decadent world of punk music or glam rock or heavy metal. The parents complaining about punk, glam and heavy metal were once youngsters getting turned on by Elvis's swinging pelvis - and in each of those cases, that which shocked the parents would have been tame in comparison to that which went on to shock their progeny.

Times change – and the standards continue to be loosened and relaxed as we become more liberal about sex, violence and the other ways humans can push the boundaries further back. I'd say one of two things will happen in the future; either we'll reach a point at which the consensus deems us to have pushed the boundaries back as far as we reasonably dare; or else we'll continue to become more explicitly immodest and daringly salacious until blow jobs are pretty commonplace in mainstream movies.

And if you can't imagine us going that far, well just remember that the people watching The Seven Year Itch when it came out would have never imagined that one day we'd be watching films like Basic Instinct. As is often the case, the past serves to warn us about the future - but as is also so often the case, we don't learn from it, and we find how freely the chickens (or should that be cocks?) come home to roost.

As Antonio and Sebastian found in Shakespeare's The Tempest when conspiring to kill Alonso the King of Naples - "What's past is prologue". But just as Antonio and Sebastian were thwarted by Ariel - I hope that the boundaries that we have pushed so far back do not become past prologues to a future in music and film that sends us into a state in which modesty, decency, propriety and decorum have been all but lost. It may not be too late to save ourselves if we are alert to the danger of the past becoming the prologue, and remain ready to let past mistakes act as a corrective for future endeavours.

* I'd never even heard of Miley Cyrus until Sunday, when a debate about her raunchy videos and the example they set her young fans occurred on the BBC.

** Photo courtesy of romantiqueandrebel.com 

One Of The Big Ironies Of Blog Writing

 

Avid readers of The Philosophical Muser blog may recall that a while ago I (we?) celebrated 100 blog posts. Well, a few blog posts ago we reached 200 (we're now on 220), so I thought I'd write a brief piece about writing, because the relationship between the writer and the reader is an interesting one, often fraught with tension. I'll explain.

Confirmation bias is a phenomenon that affects many people* - it's the habit of assessing things in ways that already conform to your views. For example, people who believe in God will often see patterns in nature that conform to a Divinely created world. People who don't believe in God will not. Socialists will often see capitalism predominantly as a nasty uncaring system that fosters exploitation and unfair inequality, whereas many pro-market capitalists will fail to see the problems for which capitalism has no solution.

Consequently, once a person holds a firm view on something - be it religion, politics, economics, ethics, or myriad other topics – you’ll find it’s hard to get them to change their mind and see the situation differently, even if what they believe is absurd, nonsensical or contrary to known facts. Given the foregoing, those who write publicly for human consumption will have a readership divided roughly into three groups.

The first group, and by far the smallest, will be those with no heavy predispositions or strong cognitive biases. People in this group may consider your thoughts with quite a balanced and open mind, and may in many cases be persuaded by good reasoning and empirical substantiation.

The other two groups, making the huge majority, will be people who are going to be for you or against you.

The second group will be people that are generally for you. People in this group will share your general ethos, and they will mostly concur with the majority of your conclusions. They will probably begin your article by already being primed to agree, so may often be less discerning when it comes to spotting faults with your reasoning.

The third group will be people that are opposed to your general ethos, and they will mostly disagree with your conclusions. They will probably begin your article by already being primed to oppose, and may often be less discerning when it comes to identifying strengths in your reasoning and the good points you make.

We see this played out all the time with various public figures. For example, affiliates of Ken Ham will read his blog and look for all the ways that a creationist worldview is the correct one. Opponents of Melanie Philips will read her articles and look for all the ways that liberal, socially conservative views are the incorrect ones.

Given the foregoing, it must be said that in all likelihood the writer of articles, columns, essays and blogs quite often doesn’t have much of a positive impact on his or her readers, particularly when the subject matter is politics or religion. It’s probably going to be the case that your most avid readers are people who share your views and like what you have to say, with those who are generally opposed being the most predisposed to disagreement and rejection.

As a consequence, then, with regard to the writers that can edify and enlighten, the people who most need those writers are the ones least likely to regularly read them, and the ones who need them least will be more likely to be regular followers.

Of course, there are many exceptions to that – but it’s a pattern that clearly occurs quite regularly. Just as Shannon's information theory model observed how a message's flow can break down from source to destination, we too observe how, in public discourse, the general language and interactions of protagonists so often breaks down in communication. Take the economic propositions about welfare or the ecological debates about climate change. In either of those debates, both sides are probably not too dissimilar in their aims; they just disagree on how to achieve those aims. What causes much of the irreconcilability is often the cultural and social backdrop that underpins people’s beliefs and views.  Views and beliefs are more tribal than people care to admit.

The economic left tend to see political problems as social problems based on class differentials and as conflicts between oppressors (those successful in business) and the oppressed (the less successful and the unemployed). The economic right tend to see those problems in relation to the extent to which liberty, freedom and open trade are being hamstrung. Whenever there is a debate, you can be pretty confident that one party or the other is wrong, and usually easily shown to be so – therefore, that disagreements are so prevalent is good evidence that they are based on emotional and intellectual skews rather than genuine rational divergence.

It is often thought that the less informed a person is the more close-minded they are. I won’t deny that that is sometimes the case. Take young earth creationism (YEC). Young earth creationists' knowledge of biology, palaeontology and geology is usually very meagre – but they assent to YEC through tribal pressure and the need to proclaim piety and self-righteousness, so the epistemological side is rarely addressed with honest rigour.

However, despite examples like YEC, it isn’t always the case that the less informed a person is the more close-minded they are - sometimes proficient knowledge of a subject is what makes someone closed-minded. Quite often, people have a lot of knowledge of both sides of the argument, and that informs them more strongly of which side they are on and which views they have. For example, the more informed I became about biology, palaeontology and geology, the more close-minded I became to YEC. This plays out elsewhere too. The more informed I became about astronomy, the more close-minded I became to astrology; and the more informed I became about economics, the more close minded I became to socialism. Thus the upshot is, you’re going to find a lot of closed-mindedness in the world. Those who know lots about a subject will be close-minded to the counterfactuals that sit in opposition, and those who know little but are heavily emotionally and intellectually biased will be close-minded to views that upset their predispositions.

All that being the case, it seems that the blog writers worth reading (which is, itself, a view that widely diverges people) have a big job on their hands. They have to keep their supporters entertained and stimulated, while at the same time trying to keep their opponents interested, and gently persuade them of a better way to view situations. They have to be charismatic enough to engage with open and closed minds; and they have to conduct themselves with the knowledge that, in all likelihood, readers who most need them probably read and engage with them the least. Perhaps that's one of the big ironies of blog-writing - those that can benefit most are the same people that are predisposed to benefit least - presuming, of course, that you have something to say from which they can benefit.

* Of course, confirmation bias is just one of many human biases people have. Psychological studies over the past half century have given us compelling evidence that there are dozens of human biases that skew our thinking, and that human beings are not as rational as they like to think.

  

 

Why Politicians Are Timid When It Comes To Radical Islam

Social disengagement and being ripe to be radicalised are important in inducing terrorism, but there certainly is a correlation between (under)-developing societies and the foothold that politically-driven Islamic fundamentalism gains in those societies. Islam, being a religion with all the gravitas of a huge cult of oppressive, brain-washing nonsense preys on the kind of people for whom a free, prosperous, democratic, egalitarian society is a long way off.

But as we've seen this week with Charlie Hebdo, they adopt a playground bully approach to Western society too. At school the playground bully usually isn't tougher than every kid in the school, so he selects his victims carefully by focusing on the ones he can intimidate. Similarly, Islamic jingoists won't be able to take on nations like France, the UK and the USA in a full scale war, so they target smaller pockets of a nation, like the Charlie Hebdo offices in France, or buses and tubes in England, or skyscrapers in the USA. Terrorism is the grubbiest of all kinds of political evil; its protagonists indiscriminately kill and injure innocent civilians, and in the process destroy families that did them no harm and had nothing to do with their own nation's representatives.

Sadly, Western civilisation is very timid when it comes to standing up to Islamic thugs. One occasionally hears torpid platitudes about 'Being tough not on Islam but on Islamic fundamentalism' but there is a very real reason why the establishment won't get as tough with Islam as it needs to - it's because tough measures would bring about radical reactions in the currently more moderate Muslims, with many being edged towards a tipping point. In other words, if politicians respond to even semi-radical Islam with the contempt it deserves they would turn lots more young Muslim men towards semi-radical and radical Islam. As history shows, to assert that you are for or against something very often drives scores of radicals in the opposite direction, and it's with that fear that politicians deliberately adopt a very circumspect approach towards the influence of radical Islam.

What People Often Forget About Free Speech

There are some issues about which so much has been said in the past that it's nigh-on impossible to say anything original. One of those issues is free speech - written about so well by people like John Milton, Voltaire, John Stuart Mill, Thomas Paine and George Orwell. John Milton's Areopagitica is perhaps the best of all works on this - being acutely perceptive not just about free speech but about the need for a free press too.

Alas, even though these great men make it difficult to say anything original on free speech, if what they've said has been forgotten by modern politicians to the extent that the qualities they propounded are gradually being eroded away by our ever-increasing nanny state authorities, there will always be the need for a reminder.

The general wisdom that has been distilled from these great writers on our liberty of free expression is that we will not agree with every opinion being proffered, but we should defend everyone's freedom to proffer those opinions. We should do this not just to protect the right of the person with the opinion, but also to protect our right to hear opinions too. In other words, in denying someone the right to voice an opinion, we at the same time deny ourselves access to that opinion, so we decline the opportunity to hear something that may differ from the consensus or challenge widely held viewpoints.

We may not agree with everything we hear, and some of the things we hear may be vile, controversial or damn stupid, but we do ourselves an injustice if we fail to hear the dissenting voices, because even the most discordant and discrepant opinions may contain within them at least a grain of truth. Therefore we should be impelled to consider them carefully, for in doing so we force ourselves to question how we know what we do and whether the sources from whence our knowledge came were reliable and verifiable. 

When it comes to free speech, then, so long as no threat is being made, or slanderous or libellous lie about a person being told, or employer/employer protocols breached, it is in our best interests to have complete freedom to say/write down whatever we wish, however controversial or repugnant.

Sadly, it becomes ever more apparent nowadays that these important principles regarding free speech are being gradually forgotten, or in some cases deliberately eroded away, by the kind of charmless busybodies who would call for the arrest of a Tweeter or the sacking of an MP or journalist who says something they don't like. As is evident to anyone with even the sketchiest understanding of human nature and basic philosophical familiarity, the more censorious and nannified we become the more we become prisoners of our interference.

 

* If you're interested, in two previous blog posts I talked about how we should respond to the issue of offence, and also why, despite a popular myth to the contrary, no one is actually entitled to their opinion.

 

* Photo courtesy of sodahead.com

 

How The Universe May Fool Us Then Enlighten Us

I remember reading an interesting paper a few years ago on the theory of a pixelated universe. Gerard ‘t Hooft and Leonard Susskind proposed a theoretical model of the universe as being comparable to how a newspaper dissolves into tiny dots as one zooms in on the fine detail, as if nature is ‘pixelated’. All these years later it seems physicists at the Fermi National Accelerator Laboratory are going to put this to the test with what's being coined as The Holometer Experiment.

It'll be interesting to see how the experiment plays out, because a few years ago I wrote some material of my own on how the pixelated universe idea is a good illustration for how we humans deal with information theory, and how the universe itself is a mathematical object that is ultimately reducible to lots of single bits of information. The logical corollary of ‘t Hooft and Susskind’s pixelated universe model is that the universe is a physical 2 dimensional set of patterns that are brought to 3 dimensions when light bounces off them (much like what happens with the holograms on credit cards).  In terms of the universe, we are thought to be experiencing holographic projects (our 3D world), that without minds would be a 2D series of pattern storage. 

The newspaper illustration is a good one. Technically a newspaper can be expressed as millions of single bits of information that come together as an aggregate whole in the form of words and pictures that then take on newly invested meaning. Both the newspaper and the universe have something important in common - there is a necessary relationship between information and sentience. A newspaper is merely paper and ink without a mind able to expend its resources on interpretation of the content of the paper and ink.

Whether we are talking about information in Shannon terms, or even as a more generalised concept, information can't reasonably be treated merely as some kind of intrinsic property embedded in the system itself - it is necessary that information should be seen as an extrinsic property of a system too. That is to say, a system contains information by virtue of its relation to another agent or system capable of perceiving, interpreting and responding to that information.

For example, a computer program, a set of songs, or a bunch of holiday snaps burned onto a disk is information only inasmuch as it consists of patterns that can be used by that computer as instructions. Likewise a universe only contains information by virtue of its relation to minds that have the capacity to correctly interpret the patterns though cognitive instructions. Ostensibly we have a universe of patterns awaiting their informational content when interpreted by minds.

If we wish to call the patterns in nature 'information' in an intrinsic sense, then that's ok, but we must always bear in mind that expending resources on information through interpretation and analysis requires a second descriptive sense, because it is "information" intrinsically and yet also "information + mind" extrinsically. That's why whenever 'information' is talked about as pattern, those patterns are 'information' only when related to minds that have the capacity to correctly interpret the patterns.

Given that the informational property of the universe's patterns exists extrinsically by virtue of its relation to agents of perception and conception, there is good indication that nature only reveals the topographical secrets that we ask it to. But what does that mean in any sense that might be epistemologically useful?

To my mind, when it comes to human perception of reality, it means there is a logical discontinuity between the actual and the theoretical, which I'll try to explain.  In mathematics we have a clear conception of infinity.  We can conceive countable sets, which are sets with the same cardinality (number of elements) as some subset of the set of natural numbers where every element of a set will eventually be associated with a natural number. We can also conceive uncountable sets, which are sets that contain too many elements to be counted. Once we step back and have a reality check we are entitled to find infinite sets a bit peculiar.  What does it mean for finite physical human minds locked into a finite physical nature to be able to deal with infinities?

Here's my best guess. You've no doubt heard of pi - it's the irrational number 3.14159. Not only is it the ratio of a circle's circumference to its diameter, it's a pattern that appears regularly throughout nature in many other ways. Nature has various physical constants (speed of light, gravitational constant, Boltzmann constant, etc) that are mathematically consistent. Pi also runs right through physics in the form of constants: it appears in masses of elementary particles, in the molecular quantity in a volume of a gas, and the forces that knit matter together like the strength of the electromagnetic force that governs the behaviour between electrons and photons. 

So pi appears in nature in the physical substrate, but it also appears as a number with an infinite series. That is to say, if you tracked the decimal digits of pi beyond the sequence 3.14159, you'd find the number series would carry on infinitely. Humans currently have the computational ability to calculate pi to over 13 trillion decimal places - which is impressive - but that is only a minuscule number compared with the actual n sequence in its entirety. Consider a simple illustration to show what's particularly strange here; if you were able to step outside the universe and drop in a grain of sand for every digit in pi, you would run out of space in the universe long before you ran out of sand. That's an astounding thing to grapple with, and leads to other interesting questions, like what does the ability to abstractly conceive an infinite pi representation mean, and what does it mean that a computer can calculate to 13 trillion decimal places? 

It appears to mean that theoretically if the computer kept on calculating then the computation can map to a size greater than every particle in the universe and still be far short of the whole pattern. In other words, as far as human perception goes, we are contemplating the logical discontinuity between the actual and the theoretical, and finding that that is probably because the physical aspect of reality is only a tiny fraction of the far broader and complex mathematical reality.

We've seen that nature probably is pixelated, and that every part of physical reality is amenable to be described in informational terms, where its constituent parts can be broken down to n single bits of information, where n is as large as its informational content goes. But given that the n of the informational content of even the whole physical universe is dwarfed by the informational content of just the pi sequence, the only reasonable conclusion, I think, is that mathematics belongs to a reality far broader and more complex than the physical reality we physical beings inhabit.

It probably is the case, then, that the conceptual and the physical aren't at odds with one another - the conceptual infinites are examples of our interfacing with the fact that mathematical realty is much more primary and grander than physical reality.

A bit more speculative, this, but given that mathematics and rules of numbers seem to be contingent on sentience perceiving them, and that the universe consists of patterns with evident mathematical constraints imposed on the system (see my Blog post here for more on this), we humans may well be perceiving patterns generated by a Cosmic Mind capable of orchestrating those highly unrepresentative constraints……a Mind that may well be justifiably referred to as…*drumroll*…..God.

Bad Predictions Are Usually A Failure Of The Imagination

If bad predictions are a failure of imagination, then look at this one for a whopper….

"Inventions have long-since reached their limit--and I see no hope for further developments." Julius Frontinus (Rome, 10 AD)”

 (That was actually said in the 1st century).

Not only is this statement by Julius Frontinus a great candidate for being as wrong as you can be, it is evidence of one of the most astoundingly erroneous predictions and poor forecasting I've ever seen. Bear in mind too that the person who said this was actually an engineer.

It is interesting to see some of the many other bad predictions made here, often by people who understood the field in which the mistaken prediction took place. When Einstein said "Imagination is the preview of life's coming attractions" it seems this is the kind of failure of imagination he had in mind.

 

There's Foolish....And Then There's FOOLISH

If I set you all a challenge: see how many clowns you can gather together in the shortest time, you'd probably contact all the circuses in the UK. Beth Granter at Care2 Petitions has shown us an even quicker way; she has gathered together a whopping 20,471 clowns (at the last count - it's undoubtedly more by the time you're reading this) who, despite the fact that City Link is an insolvent business that reeks of loss-making for its investors, wish for it to be nationalised so taxpayers' money can be fuel added to that flame. That's impressive clown-gathering at its best.

The City Link insolvency was due primarily to larger competing forces, but also inefficiency in performance too. Better Capital is a private equity firm that invested quite a few million pounds in City Link, and it proved to be a bad move. Of course, private equity firms are subject to market forces like everyone else - sometimes they make lots of money, other times serious losses. People are happy when the former occurs and unhappy when the latter occurs, but the market is the best determiner of efficiency and inefficiency there is. Bankruptcy is bad for those involved, but a good thing for the country overall, because it's a signal that inefficiency is giving way to other competitors' efficiency  

Better Capital structured the company’s finances to ensure that it would recoup the funds if the firm collapsed - which, of course, is bad for the people now redundant, but is also a security measure that goes on to be profitable for other firms when investments are sound.

Evidently, this was a disastrously misjudged and, as it turns out, calamitous investment. What's making the general public unhappy is that Better Capital bought the business by securing a protected interest loan from creditors, writing the investment value down in the event of liquidation, meaning creditors get paid off before staff because the creditors are the equity-owners. This is the kind of thing that causes dissonance on the economic left, as it's easy to forget all the successes when failures are lamented, particularly when lots of people are now out of work.

However, and here's the telling point - sympathy for people's losses is one thing - out and out foolishness is quite another - and it is about as foolish as it gets to campaign for the nationalisation of an insolvent company that proved to be poorly managed and inefficient against competitors. Making a loss means, quite literally, losing value by being in operation - the very last thing on which one would want public money spent. Why on earth would anyone think that a firm failing to compete against more lucrative/efficient competitors would be any better under State ownership, where inefficiency and profligacy is even rifer?

It's a scary thing that in just a couple of days over 20,000 people came forward as being either so ignorant that they had no qualms about supporting this madness, or so pliable that they signed such a petition without giving it a moment's thought.  

Thomas Piketty Winning Business Book Of The Year Is Like Luis Suarez Winning Football Ambassador Of The Year

 

The recent bestseller “Capital in the Twenty-First Century” by the French Marxist economist Thomas Piketty has been rattling a few cages this year, and I now hear it has been named the 2014 Financial Times and McKinsey Business Book of the Year. Week after week we keep seeing politicians, social commentators and bubble gum celebrities making allusions to his book and how it can influence society positively. I had meant to write about this sooner, so let's see what all the fuss is about, shall we?

So what actually 'is' the fuss all about?

 

Piketty's central thesis is that income inequality is likely to increase to devastating effect as the accumulation of large capital brings the rich ever further from the poor.

 

Is he onto something?

 

The answer isn't an all out 'no', but alas, there are all sorts of ways in which Piketty is allowing his readers to be skewed by a false picture. I will paint what I think is a more accurate picture.

 

Thanks, but there's no denying the fact that the free market is a heartless system that causes lots of poverty, corruption, exploitation and maltreatment, and that it needs endless tweaking to make it less repugnant, is there?

 

That is the first and perhaps most important assumption that needs correcting, because the only people who would say such a thing are people who don’t understand what the free market is. The free market is literally the sum total of all the billions of units (pounds, dollars, Euros, etc) that have been exchanged in mutually beneficial transactions. Therefore, the free market cannot be a bad thing - and save for some necessary light regulation from the government (anti-monopoly regulations, health and safety laws, Pigouvian taxes, etc) there is not much the government can ‘tweak’ to make the market any better than it already is, because no politician knows the incentives and desires of the individuals better than they know themselves. Critics of the free market are only criticising instances where the free market has not been allowed to operate. Where there is poverty, corruption, exploitation and maltreatment, there is a lack of freedom, and thus the qualities related to those mutually beneficial actions dissipate.

 

But nevertheless, big corporations deserve their share of public opprobrium, don't they?

 

Sometimes, but that general assumption is the next big error that needs correcting. Corporations often get hit with criticism - but a lot of the time the criticisms are absurd. Most large corporations control a huge share of a particular market niche between them - but if the market exists because of the corporations' innovations, it is foolish criticising them because they are supplying to meet a demand*. In most cases it is only through outperforming their competitors that corporations get such a lion's share of the market (as Tesco, Sainsbury's etc show).

 

So, many of the people that complain about inequality are unwittingly doing their bit to engender more of it?

 

Yes, but that's fine. When Sainsbury's shareholders become rich it is because the general public spend their money in the stores, preferring it goes to Sainsbury's in exchange for groceries instead of going to George Osborne in exchange for public services. The same is true of rich people like 2014 headline-grabber Gary Barlow - when millions of pounds are spent on Take That CDs the public is saying they are willing to pay the price of seeing Gary Barlow becoming rich in exchange for hearing his music on their CD player. It may upset the likes of Piketty** that he lives in a world in which this can happen, but the wealth of people like Gary Barlow comes from mutually beneficial transactions, where a lot of people distil a lot of pleasure from his music in making him wealthy (even if he is not my cup of tea).

 

And Adam Smith's 'invisible hand' metaphor is important in all this too, right?

 

Yes, in society, the Smithian invisible hand acts as a social mechanism that channels collective objectives toward meeting the needs of the people that make up that society, by ensuring competition between buyers and suppliers, which channels the profit motive of individuals into providing products that society desires at prices which are rarely above cost. This means that in a market in which consumers are free and happy in being able to make mutually beneficial transactions, it would be expected that sellers or entertainers who could make a lot of people happy would naturally have a lot more capital than the majority of people who can't. This is what makes the argument for laissez-faire economic philosophy so compelling - it is that markets automatically channel self-interest toward socially desirable ends. 

 

Piketty's tax projection on capital seems to want to tweak the status quo with some radical tax reforms on capital. However, the Chamley-Judd Redistribution Impossbility Theorem demonstrates a proof that it’s actually impossible to make the worker, or the workers, better off by taxing capital.

 

Wow, that's news to me. Why haven't more people heard of the Chamley-Judd theorem?

 

Yes, why isn’t this proof more widely known? I suspect the reason is the same reason a lot of libertarian qualities are not widely known – they involve lateral brainpower to work out, but also they are largely unappealing to the majority of people who prefer leftist delegation rather than laissez faire individual responsibility.

 

Is that everything?

 

Not quite. The global evidence of wealth-sharing just doesn't support Piketty either. Here are a few facts that the economic left will find uncomfortable. The past year has seen more wealth generated than any time before - but also it has never been spread so evenly either. In the year 2000 the UN's MDG 2015 target was to halve the number of people without drinking water and the number of people living on less that $1 a day. It achieved this with time to spare.

 

The vast majority of this mass escape from poverty is happening not through government aid (although that is vitally important) but through free market of global capitalism. In the past decade or so we've seen tens of millions of people lifted out of poverty; child labour has fallen by a third, as well as extraordinary advances in standards of living in the world's poorest countries. There is still plenty to do, but all this improvement has been going on, and at a time when rich personal wealth has grown too.

 

I heard that Thomas Piketty’s book favours the solution of heavily taxing capital – he’s apparently even calling for as much as an 80% income tax rate on earnings of £500,000 or more.

 

Such a desire is so absurd that one wonders if Piketty has a VIP card in Cloud-Cuckoo-Land. For a very short while taxing at such high rates may bring about an immediate redistribution of wealth in a way that isn’t completely disastrous. But as anyone on the outside of Cloud-Cuckoo-Land knows – increased tax rates does not mean long-term tax revenue can be increased. Once you reach a tipping point, tax hikes will only disincentivise innovation, and cause a contraction in the markets of labour and consumption. Moreover, if you tax capital income and transfer that revenue to workers, then long term there will be a diminished capital stock. And considering that capital stock is what workers rely on to generate wages, the tax on capital will diminish their wages.

 

So, to summarise

Not having read the book, I don't know how Piketty thinks a global tax system would work, or what kind of tax it would be. He was probed about this earlier in the year on Newsnight by Jeremy Paxman but he didn't give an answer. But even without having studied Piketty's every detail I have no trouble seeing that a global tax system intended to redistribute wealth from rich to poor is full of complex problems. If we try to imagine it at a microcosmic level, we can propound some kind of tax system that correlates income with consumption. Tax on consumption can target individual earnings but it doesn't always achieve this. If Alan Sugar and I both buy an HP laptop, then any sales tax or value-added tax is borne equally by both of us. Whereas if consumption tax was geared more specifically towards luxuries such as buying Ferraris and private jets, then I'm not likely to pay as much as Alan Sugar.

 

The good thing about trade is that diversity in the market is what gives us excellence of opportunity and consumptive satisfaction. If we were all farmers, or all taxi drivers, we’d be all but flatlined by homogeneity. Taxi drivers don't need other taxi drivers, what they really need is people needing lifts, and mechanics, and petrol and food sellers. If a taxi driver loves making a living driving his cab, and you can't drive, you'll find it easy to get a ride and he'll find it easy to transport you. If the reverse is true, you'll be the driver and he or she the one being transported.

 

This template serves to inform us about the whole system of a market economy - we innovate because we interact with a diverse range of people that have different needs, skills, and experiences to us. Clearly an underlying factor in all of this is that incomes are diverse too. You're just not going to get an economy in which everyone has the same capital or anything close to the same. A rich department store owner won't stay rich for long if no one will work on his tills or in his store room. I don't think that anyone sensibly denies that diversity of income is a good and necessary thing. Consider that if everyone earned too much to be a taxi driver then there would be no one to transport you ten miles across town in rapid time; or if everyone earned too much to be a dentist then most of us would have bad teeth and be in lots of pain.

 

So it's not inequality that's the problem, it's how much. But that then begs the question - how much is too much? To answer that we need to look at some recent history. With good government policies (when good often means 'few'), a stable society, rule of law and protected ownership rights, we find that inequality lessens over time, not increases. History shows us that rich countries are more equal than poor countries. It's true that even in rich countries there is wealth stratification in terms of income, but that is offset by the fact that those without earned income have welfare and many public service benefits not found in the poorest countries. If you're one of the poorest people in the UK you still have many of the standards of living that the poorest in the world could only dream of.

 

Furthermore, after taxation, disposable incomes are much closer in rich countries than poor countries. The Financial Times research brought the conclusion that global inequality was on the rise, but that it peaked in the year 2000 and has been declining in the 14 years since. It's perfectly understandable why this is the case - in the eighties and nineties the global financial boom and technological exponentiation left behind countries that didn't have a stable society, a rule of law and protected ownership rights. In other words, without those basic fundamentals, as well as proper access to the global market, a lot of countries couldn’t enjoy the benefits of capitalism because they couldn't partake in it as fully as others.

 

One of the main troubles with the Piketty-esque socialism is that it has redistributive policies that forget the main wisdom of absolute improvement. That is, what matters most is how well people are doing in absolute terms, not in relative terms. One look at historical trends, particularly since the Industrial Revolution, has shown that capital accumulation has brought about growth in living standards that people like the Ancient Greeks or Romans couldn't have imagined. The reason being: unlike in, say, the Roman dictatorship, it is not just the owners of capital who benefited, it is workers too. Future capital accumulation may increase inequality, or it may narrow it - but that doesn't really matter, as long as everyone's absolute well-being continues to progress as it has in the past 150 years (give or take a few backslides in some areas).

 

This is one of the fundamental errors of Piketty's thesis - he wants a global, information-sharing effort whereby large capital is never under the radar, enabling huge tax efforts against the wealthiest. But even aside from the practical difficulties of this (which even Piketty admits are enormous), it is hugely undesirable. It is standard textbook stuff that when capital increases the absolute wages of the workers associated with that capital will rise too. What Piketty is asking for, then, is a system which makes the workers a little bit poorer in order to make the rich a lot poorer.  

 

Don’t forget too that when someone accumulates lots of capital it generates other people’s opportunity to earn a living. My impression is that those outside of the top-earner category think that the richest few have colluded to be in league with each other, rigging the wealth in their own direction through State-cronyism rather than earning their money fairly through the open market. If so, they haven’t done a very good job of it when you consider how much tax they pay, and the multiple times that their capital is taxed.

 

If you earn £1 and use it to buy a share of stock, you’re taxed when you earn the £1, then again through corporation income, then again through stock dividends, then again through capital gains when the stock is sold, and in many cases for a final time through inheritance tax when you pass it on. When you think of it like that, it’s easy to see why the Chumley Judd theorem states that capital taxation should be zero, and that we should discontinue capital taxation, enriching everyone in the process. And given that wages are determined by capital rates, the Chumley Judd theorem naturally entails that discontinuing capital taxation will be better for wages too.

 

But the story goes deeper, because to understand how money changes hands is to understand that taxes on capital and taxes on wages are knotted together - it’s just that the rope extends between lengthy time periods. When you tax labour directly the tax occurs equally in the periods, but when you tax capital you concentrate the tax to an earlier period in the cycle. Equally, when you tax capital you indirectly tax labour, because the capital ‘now’ was earned in the past ‘then’ by labour – so a tax on that labour then would have reduced the capital now and the concomitant income stream. This means that even discontinuing capital tax still hurts capital owners indirectly through taxes on labour.

 

When you see inequality occurring in individual nations, you can seek solace in the fact that it almost certainly means that inequality is decreasing at a globalised level. It's fairly obvious why; those who can expand their enterprises beyond their own borders are those who are providing prospects to people in other countries. As a consequence their wealth will rise, which increases the gap between them and their fellow countrymen and countrywomen.

 

Suppose Adele is not a global superstar but instead only known in the UK. Her record sales, concert tour revenue, merchandise, magazine deals, sponsorship, and so forth would also be confined to the UK. She'd be one of the richest women in the UK, but not by as much as if she became a worldwide phenomenon. When Adele went global then suddenly her record sales, concert tour revenue, merchandise, magazine deals and sponsorship were no longer confined to the UK, they extended to America, Sweden, Japan, and so on. In the globalised process Adele became richer, which also meant the wealth inequality between her and the majority of Britain increased. The point being, while inequality inside particular countries is rising (mostly countries on the up), as one would expect from increased globalised markets, inequality at a global level is falling, also due to increased globalised markets.

 

Lastly, a word from others

Surprisingly, Paul Krugman, who many believe to be one of the world’s most sound economists, is in some way convinced by Piketty;

 

From Paul Krugman...

 

" “Capital in the Twenty-First Century,” the new book by the French economist Thomas Piketty, is a bona fide phenomenon. Other books on economics have been best sellers, but Mr. Piketty’s contribution is serious, discourse-changing scholarship in a way most best-sellers aren’t. And conservatives are terrified. Thus James Pethokoukis of the American Enterprise Institute warns in National Review that Mr. Piketty’s work must be refuted, because otherwise it “will spread among the clerisy and reshape the political economic landscape on which all future policy battles will be waged.”

 

Well, no worries Paul, there have been quite a few substantive counterattacks to Mr. Piketty’s thesis. All I've seen in recent months is that there is evidence that Piketty Can’t Even Get His Basic Tax History Right, as well as some other indictments of his thesis by well respected economists (see here, and here, and here, and here, and here, and in particular here).

 

And as Bob Murphy points out in this article, Piketty's weighty tome does not seem to be a set of ideas about how we can help the poor - it is mainly a lament against the rich, and a cynical desire that they'd be a lot poorer. Murphy also criticises Piketty for an omission which I often have to point out when I debate with hard leftists who have a bee in their bonnet about expanded capital in concentrated areas - that it just won't do to pay no regard to how rich people became rich in the first place, as my article here points out.

 

* It is worth noting that marketing strategies are often manipulative - but there is, as usual, an easy solution - don't buy into it if you can help it. The moment you don't worry about status and social pressures attached to faux-prestige, you are no longer subsumed by it. But there's no denying it's there. If the ‘invisible hand’ that drove Adam Smith’s economy is the consumer’s liberty in freely chosen acquisition and the seller’s liberty in freely chosen products, then what drives the modern consumer-based ethos is more like an ‘invisible fist’.  Behind the scenes of broken Britain – be it the drugs, celebrity obsession, binge culture, or what have you – is an invisible fist that tries to alter people’s psychology.  Beliefs and values are psychologically driven; therefore the way to drive people into the habits consistent with acquisition is to wave the invisible fist in a way that consumers see nothing but an innocuous hand.  The teenage girl who wants to get on reality TV and be like her pop star idol may feel like she is pursuing an innocent ambition, but unbeknown to her she is under the thrall of the invisible fist of greed acting behind the scenes.  Whether the attention is on subscription to TV channels, travelling, hotels, cosmetics, clothes, media magazines, CDs, DVDs, concert tickets, websites, or whatever – the girl (like millions of others) is ensnared by corporate machinations, intent on making themselves richer and her poorer. That's why, if you're no longer seduced by the futility of relative trend status in competition with your peers, you'll be inured to it.

 

** I note that Piketty had been topping the Amazon sales list in several countries, including America. This is hugely ironic of course, not just because his anti-wealth, anti-inequality diatribe will probably make him wealthy, but because every economic leftie who buys his book is doing their bit to make the world a little bit more unequal. :-)