Why We Cannot Ever Get Our Money's Worth From Governments

It shouldn’t be much of a surprise that we have a natural curiosity about whether morality can be assigned some sort of value system – value systems are inherent in most of our thinking. We measure with calculus, we calculate with algebra, we assess shapes with geometry, and perhaps most essentially here, we estimate and forecast with probability theory.

A question about value was asked this week on a BBC 2 programme called Who's Spending Britain's Billions? It asked the kind of question I'm repeatedly answering, even when you don't ask (heh!) - and that is: What sort of value does the government provide for us? The programme focused primarily on all the profligacy that comes as a result of officials spending other people's money more frivolously than they would their own, but I want to take a different angle tonight.

As I'll explain, and as you won't be surprised to hear, government value is far tinier than you may think. Perhaps the main reason that people think governments provide so much value is because they do not think of alternative providers or the countless ways that the public sector could be improved. That's not to deny that the government is worth having - it's just a very mixed bag.

As you'd expect, the government quite naturally spends its money wisely and poorly. But perhaps the big thing against it, aside from its waste and inefficiencies, is that its control of the market is so minimal it is virtually negligible. An economy is so complex that no individual group can hope to predict it accurately. Even when you find an accurate prediction, what you're seeing is cherry-picking, as that prediction almost always omits the parts the predictor got wrong or incorrect parts on which the predictor chose not to predict.

When the government spends well, the world gains. If it is prudently allocated foreign aid then mostly poorer people benefit from water, food clothes and shelter; if it is on health the sick benefit; if it is on road maintenance the drivers benefit. But if it is spent poorly, on wars (some wars are injudicious), on profligate enterprises like consultants fees and think-tanks (which are often a waste of money) then everyone need not necessarily suffer financially.

It may surprise some of you, but poor government spending can still lead to a somewhat accidental overall job growth, because when people’s resources hit a significant loss, borrowing increases, which hikes up interest rates, which dissuades people from holding onto money, which has the corollary effect of increasing spending, which drives up prices, which either leads to business expansion (creating more jobs), or a concomitant rise in employees’ wages commensurate with the employers’ profit increase, which means workers have more to spend, and so on.

But excepting the above, by and large when governments interfere in the economy they do more harm than good. When the government prints extra money it expands the money supply, but that means it devalues the economy. Say a government prints £1 billion pounds – the prices of all consumer goods are increased by exactly one billion.

This principle is easily explained – when you go out tonight and spend £100 in your local supermarket you put up the price of everything else by a net total of £100. If instead you burned the £100 (and of course I wouldn’t advise it) you would decrease the price of everything else by a net total of £100. Naturally those sums are so small that society never notices when we’ve made the economy richer or smaller, but technically we have.

Just like physics has the law of conservation of energy – it can be transferred but it cannot be created out of nothing – the same principle applies to the economy. Resources can be transferred from one state to another, but equity cannot be created from nothing. If the government prints £1 million pounds, the economy as a whole is £1 million worse off. If I have a million pounds and I put it under the floorboards and nail them shut the economy is £1 million pounds better off for as long as the money stays under the floorboards. It is true that governments can sometimes do better things with resources than most individuals (although not always) but when any amount of money is transferred in an economy it has a correlative effect elsewhere.

Imagine this as a microcosmic example of a macroscopic state of affairs; the government hikes up my taxes by 13%, which means I have 13% less of my equity to spend. The government gains more roadworkers or local council administrative officers, but my gymnasium loses in the subscription fee from which I withdraw. Then the gymnasium has less money in its bank, which means that bank has less to loan to Sue for starting up her new business, which means Sue’s shelf prices are higher than she planned, which means Mary her customer spends more on a washing machine, which means the curry she was going to have at the weekend is forgone, which means Roshes the Indian restaurateur has less money in his till, and so on.

That is how the economy works – and no government can make us richer on average, they can only shuffle money around from one place to another. There is also the little matter of the futility of governments getting involved in prices. To emphasise this point, you have to realise that prices find their level based on the entirety of human market transactions in the global society. It is literally impossible to make this more efficient by tweaking a few knobs - impossible.

To illustrate this, suppose the government decided to take control of the fruit and veg industry, whereby everything grown, imported and exported is under their management. Everyone in society would still be best off if all fruit and vegetables continued to be priced at its market clearing rate, because any price the government set outside of the market value would either be too high or too low, which means there'll be the wrong amount of fruit and vegetables.

If the price is fixed too low then demand will increase and willing suppliers will diminish, creating a shortage of supply. If the price is fixed too high then consumption will decrease, which in the case of fruit and vegetables will achieve the opposite of the desired effect. The only way to optimise the price is to leave it to market forces, which, of course, involves no price-fixing at all.

Finally, I'd like to draw your attention to this article from American economist Robert Murphy, who roughly (but soundly) calculates a $2.6 trillion increase in annual economic output if "the government were to restrict itself primarily to its classic role of protecting the country's residents from criminals and invaders".
   

The Moral Fuzziness Of The Moral Calculus

Here’s a moral question for you to consider (based loosely on a real life scenario in 1884 called the lifeboat case: The Queen vs Dudley and Stephens). Four students named John, David, Derek and Alan are stranded on a boat with no food in the middle of the ocean after their engine fails.

The students call for help but their rescue crew won’t get there in time, meaning they look set to die of starvation. There is a revolver in the cabin, and a possible solution to save three of the four students - with one student being shot in the head (for a painless death) and then being eaten by the other three, ensuring survival until the rescue crew arrives. Would it be morally wrong to kill one to save the other three (the famous trolley problem has a similar dilemma)?

The answers to that question tend to depend on how the person to be shot and eaten is chosen. If you asked 100 people whether it would be right for David, Derek and Alan to gang up and nominate John to be killed, most would feel uncomfortable with this scenario. If, however, you asked 100 people whether it would be right for the students to put the four names in a hat and then randomly pick a student to be sacrificed for the greater utility of the other three, many would feel much better about that scenario (as I argue in this blog post, in scenarios like the trolley problem we should pretty much always take the consequentialist action).

One of the many interesting things about moral dilemmas is that we get to draw the important distinction between what we ‘should’ do and what we ‘would’ do. If forced to choose between pushing a button to kill your one child or pushing a button to kill 500 randomly chosen strangers, you probably should save the 500, but many probably wouldn’t. If faced with a screaming child on the top floor of a 3 storey house on fire, we probably should go up and try to save the child, but ‘should’ and ‘would’ are two different things. It’s always easier to say what you ‘should’ do than be sure of what you ‘would’ do.

Moral philosophy enables people to exclaim (and often exaggerate) their own probity in defining what is theoretically the right course of action - but, as the old maxim goes, actions speak louder than words - and the real life evidently can bring about a gulf between what we should do and what we do end up doing. If it didn't, there would be no wrongdoers in the world.

Another thing to consider is this. Does acknowledging the right thing naturally mean that one must always do the right thing? I'm not sure it does. For example, in the trolley problem, could it be the right thing to do to push the fat man to save the five, but not morally essential to do so if one's personal deontology trumps the consequentialism of the act? It's possible. Furthermore, are there actions for which any of the two outcomes are either both moral or both immoral? It could be conceivable that pushing the fat man and not pushing the fat man can be argued to be moral, and I suspect, immoral too.

What we often find objectionable is when we think people are being used as a means to ends. But I've often thought the whole notion of means and ends to be limited - after all, what are ends to some consequentialists could be regarded as means to other consequentialists. And clearly an end isn't always an end in itself - it is frequently another means to a further end, which is a means to another end, and so the story goes on.

There is another reason why what we should do and what we would do don't always translate into a personal moral philosophy - most people don't really live their lives with an underpinning moral philosophy, they only think they do. That is to say, we humans have a tendency to place more emphasis on the theory of moral systems than is actually the case in action. We talk so often about creating moral rulebooks or philosophies, but they don’t seem to have much influence on our behaviour. 

Perhaps the theories are like maps we consult every now and then, and our daily lives are like trips around a territory with which we are habitually familiar. And just maybe that is actually good for the emotions – after all, a human that followed a book, or a rigid set of instructions, or a mathematical formula, or advice from a guru every time he was looking to do the right thing would be rather too much like a robot.  

We are not like robots, of course - we are much more dynamical, and hence much more inconsistent because of that. The trouble with the dynamical approach, I find, is for people not very proficient or balanced it could lead them into a life where they scarcely have anything of moral value at all. They end up being selfish, parochial and so unaccustomed to the pursuit of human excellence that they let themselves down and cause upset to others. 

What we actually find, in fact, is that humans tend to oscillate between what we might call "Working out our actions from emotional desire one situation to the next" and what we might call "Having a firm and consistent set of moral values" - and we are frequently trying to find the right balance between the two, which is why you'll often notice that some of our strengths lead to faults, and some of our weaknesses lead to positive qualities. And you'll find in some cases that the two are quite inextricably entangled. Or to paraphrase W.H. Auden, if you take away some of our devils you take away some of our angels too.

The danger, as always, is that those who live by their own self-regulated moral standards tend to make those standards comfortably low - thereby making it harder to fall short of them. The primary thing that reawakens our wrongness every day, every hour perhaps, is the wrongness we do in spite of knowing full well these things are wrong, even if it just mild solecisms like selfishness, bad temperedness and uncharity.   

For example, I have written a whole book on morality - and it's a very long one too - it covers just about every aspect of morality through the lens of philosophy, economics, psychology, religion and science. But even with all that knowledge and understanding I am, and continue to be, way short of where I want to be morally, and every day is a reminder of how much better I can be.

By no stretch of the imagination am I one of the world's worst people - but most of my badness is not contingent on any lack of knowledge or any logical inconsistency or lack of symmetry - it's to do with the fact that with our daily goings on we have continual daily reminders of how much better we can be. The knowledge, logical inconsistency and symmetry that increases our morality simply makes us aware of how, on a daily basis, we can do so much better.

On that spectrum our general human behaviour is bell curved shaped. That's why for most of us our failings are failings that we humans have made largely socially acceptable due to their commonality - failings like being too impatient with someone, acting a bit too selfishly, not speaking to someone nicely due to being a bit tired and grumpy, needing to take more time to show care for people we haven't seen for a while, not volunteering more of our time for good causes, being unwilling to give up more money to worthwhile things, and things of that nature.

There is no real moral philosophy in the equation - most of us are very rarely in positions in which we get to see how we'd react in those age-old moral dilemmas. And most of us are very rarely in positions in which we and are under great pressure to be amazing human beings, or ensnared in a situation in which we are terrible - our lives are played out as a kind of weighted average of the whole spectrum, in which we usually never allow ourselves the self-rebuke or the self-congratulation of extreme badness or extreme goodness.

On The Higher & Lower Pleasures

The test of a higher pleasure, according to John Stuart Mill, is that those who have experienced both the lower and the higher always prefer the higher. So, for example, a man who could claim categorically that he always prefers the works of Sophocles to the works of Ibsen can say that, to him, Sophocles constitutes a higher pleasure than Ibsen.

There are a few problems with Mill's higher and lower pleasures - not the least of which is comparing apples and oranges (and oranges and books, and books and holidays, and holidays and sex, and sex and fast cars - you get the point), and the issue of the distinction between pleasures necessary for survival (food and drink) and pleasures unnecessary for survival (Shakespeare and The Beatles) whereby the latter may be higher in terms of pleasure but lower in terms of necessity.

But the problem I want to focus on here is the possible bias a Victorian polymath philosopher might have towards pleasures, compared with, say, a twenty-something working class female in 2016. Let me first start by trying to identify what I think the best physical pleasures are. I'm assuming that if it's true for me there's a good chance it'll be true for others too.

Good sex with someone you love is right up there with the best physical pleasures, as is eating a delicious meal when you're famished. Relaxing in a comfy recliner chair after some hard exercise is a very nice sensation, as is the feeling of freshly washed and ironed sheets on your skin when you first get into bed. A nice scenic view is very pleasing, as is cuddling, and doing something kind and generous for somebody else is highly rewarding too (you may want to classify the last one as an emotional pleasure).

But what about the intellectual pleasures associated with things like philosophy, art and literature? Is the complete works of Shakespeare a higher pleasure than the complete works of Alan Bennett or the complete box set of Nicolas Cage films? Is Van Morrison's Astral Weeks or Radiohead's OK Computer a higher pleasure-pairing than David Bowie's two Tin Machine albums?

John Stuart's Mill's test of a higher pleasure - those who have experienced both the lower and the higher always prefer the higher - may not apply to a man who loves Nicolas Cage films and is bored stiff by Shakespeare. It may be very difficult to get him to prefer reading Hamlet to watching Con-Air. In what has become a hugely famous quote, John Stuart Mill explains how we understand and not understand higher pleasures:

"It is better to be a human being dissatisfied than a pig satisfied; better to be Socrates dissatisfied than a fool satisfied. And if the fool, or the pig, is of a different opinion, it is only because they only know their own side of the question.”

I think a good way to frame it would be like this. We can accept that there are people who prefer the complete works of Shakespeare and people who prefer the complete box set of Nicolas Cage films - but if you found people that know them both, and asked them whether they would choose to spend the rest of their life in the Lake District with only the complete works of Shakespeare or the complete box set of Nicolas Cage films, the vast majority would choose Shakespeare.

The reason being, of course - it would not be difficult to find out that works of genius like Shakespeare's plays are imbued with possibly unsurpassed deep and enriching qualities that get right to the heart of the psychology of being human, and the important questions of life that we grapple with.

Why is it, then, that in these modern times (particularly) more people seem to gravitate towards the easier and more superficial pleasures over the arguably more rewarding and deeper pleasures? I think there are two main reasons. The first, and probably the lesser of the two reasons, is that people are getting a smidgen of those rewarding and deeper pleasures in their more superficial pleasures - be they books, TV shows, movies or video games.

The second, and I think by far the primary factor, is that when it comes to straightforward simple pleasures that demand little brainwork versus the more complex intellectually satisfying pleasures, humans have a tendency to favour the path of least resistance. Or to put it another way, when faced with the immediate prospect of watching Citizen Kane or Face Off, more people would choose Face Off because, although Citizen Kane may turn out to be ultimately more artistically nourishing, it's a lot easier to relax on the sofa with a beer watching an action movie like Face Off.

Implicit in this is the phenomenon known as hyperbolic discounting - the tendency humans have to prefer current rewards over distant rewards of a higher value. So for example, if I offered you £100 tomorrow or £110 this time year next year you'd probably pick £100 now. But if I offered you £100 on this day in 2017 or £110 the day after in 2017, you'd quite rationally choose the latter. Humans are said to discount the value of the later reward by a factor that increases with the length of the delay.

Psychologist Daniel Read of Warwick Business School and his colleagues have conducted experiments that indicate a connection between hyperbolic discounting and why we are more likely to choose a film like Face Off over a film like Citizen Kane the majority of the time.

 

What Read and his colleagues found was that experimental participants (students, from what I recall), when given the opportunity to select a film like Citizen Kane or Face Off to watch next weekend, were more likely to choose the highbrow film. But when the weekend arrived, they often changed their minds if given the option.

I think hyperbolic discounting has a lot to do with why so many people tread along nicely with the lower pleasures like surfing YouTube for funny videos when ultimately they'd find life more enriching if they pursued the higher pleasures. There is a human habit to suppress those deeper desires for fulfilment whereby what wins through more often than not is the seduction of the low hanging fruit.

For many it would take being stuck on an island or in a log cabin with a choice of lower or higher pleasures before they invested their time in the indulgences of the higher pleasures. But those higher pleasures definitely do exist; even if, prior to the effort of commitment, they can be quite abstruse and arcane.

Some Things You May Not Have Considered About The Process Of Voting

The hideous Trump vs. Clinton contest has probably made more people feel like not voting than in any time in recent American history. The prospect of choosing their President this time around is rather like voting for a four year dose of haemorrhoids or a four year chronic earache. 

If you are someone to whom the above applies (and ditto the British political equivalent), I have one or two things to say. I've written before (here and here) about how in terms of probability your individual vote in an election or a referendum almost certainly won't make the slightest bit of difference to the outcome.

 

A challenger once tried to prove me wrong by posting a link doing the rounds to a low-turnout local election in which a councillor had won a district seat by two voles. What he should have realised is that the fact that an outcome like this is so newsworthy and shared so many times is all the indication one needs that 99.9999% of the time individual votes (or even a few hundred votes) don't make any difference to the outcome.

 

That doesn't necessarily mean I'm advising everyone not to vote - for some people the experience is worthwhile, and it's not for me to tell people how to behave. When it comes to deciding on whether to vote, people should do whatever is valuable to them. But it's always important to remember that value is measured in a whole range of things, and everything is a trade off. If you get x, you get don’t get y.

If you choose y you get less of z, and so on. One is ill-advised to just think of voting as ‘Well everyone should do it!’. Those for whom voting is a beneficial trade off should do it, and those for whom it’s not, should not. As with most things, it’s easy to plug in the numbers and ascertain probability for whether a trade off is beneficial, to yourself and to the wider population.

 

Here's an illustration to show why it probably isn't worth your while voting. Suppose a single vote costs you £3 of your time. In addition you are made an offer – if you care that much about the outcome you can buy as many additional votes as you like for £50 a vote. In other words, if you want to vote 11 times for your local MP or councillor it’s going to cost you £503 (that’s £500 in cash, and £3 in time).

 

Given the astronomically low chance that your additional 10 votes are going to make any difference to the outcome, I would think that most rational minds would agree that in the trade off – negligible chance of securing a candidate vs. not sacrificing £500 – you’d be ill-advised to waste £500, because in all likelihood your £500 of additional votes is likely to mean that the winning margin will be, say, 6031 instead of 6041 (or reverse that if you vote for the winner).

 

It’s pretty obvious to me that if offered additional votes for money, your individual demand curve for increased probability of outcome is pretty flat, and ditto almost the entire population. Therefore, taken to its rational conclusion, and in full knowledge that almost nobody else is going to change their voting habits based on the above wisdom, you’d be wise to take the logic to its farthest conclusion and trade off the vote that costs £3 of your time.

 

A friend replied with the following comment:

 

"I suppose the exception would be in the cases where the difference in the outcome would be so high that it would offset the negligible probability when working out the expected value. In the recent Scottish Independence referendum, 400,000 votes would have altered the outcome. At £50 a vote that would mean £20million would be the cost of a different outcome - so if you thought Scotland being independent would bring more the £20million in value to you then the £50 investment would be worthwhile (not to mention the £3 of time to vote). Admittedly, this exception would only apply to a very small number of people.

 

Also, there's surely an altruistic implication to this. If the £20million of value wasn't something that I saw for myself but for society as a whole (and people on both sides of debates of these kind are throwing around numbers much larger than £20million), then surely that provides a very compelling reason to vote - I am using my time (or in your hypothetical example, money) to produce a greater expected value for society than the cost I have incurred to do so. It seems to me that the smallness of the odds of an individual vote changing the outcome is mitigated by the largeness of the potential payoff of changing the outcome compared to the cost of casting that vote."

 

My friend is partially right - I could conceive of instances in which that’s the case, yes. However, by equal measure, uncertainty of the ramifications of an outcome has to be factored in too, as does the trivial nature of some outcomes.

 

In the case of the latter, in the grand scheme of things it really makes little difference whether the city councillors for Blackpool south wards are Labour councillors or Lib Dem councillors, so even if a millionaire could affect the outcome by buying £50,000 pounds’ worth of votes, I’d argue there are far better ways he could spend the money.

 

In the case of the former, it’s very difficult to know the exact ramifications of a massive decision like Scottish independence or hard and soft Brexits – much of it is contingent on numerous factors not yet apparent, so you could argue that spending millions of pounds affecting the outcome might be a bit of a blindfold in the dark-type of bet.

 

Finally, sometimes in life we find that even big outcomes could be settled in trivial ways, particularly if the democratic process has primacy, as I argued in this blog post about deciding the Scottish referendum by tossing a coin.

 

 

 

Ladies, Strength Not Timidity Is Surely The Answer!

I've written before about how this hyper-sensitive 'generation snowflake' society that is being created is turning our young men and women into liberty-unfriendly, censorious whinge-bots that are thoroughly unprepared for reasoned critical debate and understanding the superlative qualities of free expression for all.

I also pointed out on Facebook the other day the sharp contrast between thin-skinned second rate MPs wanting sexism to be a hate crime, and women on the front line in Syria courageously doing battle with the sanguinary thugs of Islamic State.

It's not for me to tell others how they should fight their battles, but I can, I think, make a couple of suggestions on how all this is being perceived in some quarters, and on whether there may actually be a method of handling these situations that's possibly a teensy weensy bit better.

In a blog a few weeks ago I made a point about how exposed modern day socialists are when they shout in anger about issues in which free market economics has claimed victory long ago. This got me thinking about whether, just possibly, the same might be starting to be true in the UK about women’s liberation. It’s pretty clear that for most of our history men have dominated the landscape and oppressed women in all sorts of horrible ways.

As a consequence, women’s liberation has certainly been a necessary and laudable part of history. But now that brains are the key to a successful career, not brawn, and that from the years up to 40 women are now out-earning men, is it perhaps worth considering that in some cases women’s liberation is beginning to send its artillery into battles that have already been won?

I ask because if the answer is largely yes, then there are probably an awful lot of feminists expending energy in places in which such energy is no longer needed, which, by definition, means they are not expending energy in places where it might well be needed.

I'll leave it to feminists themselves to judge where best to devote time to causes - I shall not presume to know the battles they should pick better than they do. But I'd happily offer a couple of suggestions of battles that need a reappraisal.

First, as alluded to in the link above, a good example of poor use of energy is in a video like this one, with the reliably misinformed feminist Kate Smurthwaite arguing with the reliably well-informed Kate Andrews from the ASI about gender pay, and making a mess of things because she has her facts wrong, and is therefore pursuing something that needs no pursuance.

Second, I think when it comes to women facing negativity in the public arena - insults on Twitter, unpleasant comments on Facebook, or vile abuse at the bottom of the articles they write, the women who are saying the right things on this matter and doing the most for women are the women who absolutely refuse to be timid and self-pitying, and who repudiate the merest suggestion that women require any special treatment in the hostile world of Internet debating (contrast Ella Whelan's response at 7mins 38 compared with the feminists on the their side of the debate in this video clip here).

In my opinion, the women that do the most for the feminist cause are not the masochistic, whinging harpes with whom the word 'feminism' is most readily associated; rather they are the women who influence and inspire simply by doing what they do well - being smart, witty, intelligent, creative and (ideally) kind.

For just as it is one of those ironies that we rarely feel sorry for damaged people who are always moaning and feeling sorry for themselves - it is only when they stop that we actually feel sorry for them - so too it is the case that the women who are always running on about how much they are trying to do to fight the good fight for women are usually the ones doing far less good by imploring others to 'Look at me!', 'Look at me!', 'It's really about me!'.

In my opinion, the real champions of women are not the household name members of the witterati with those children's birthday party magic shows going on in their heads - the likes of, Julie Bindel, Polly Toynbee, Laurie Penny, Jack Monroe, Salma Yaqoob, Zoe Williams, Suzanne Moore, Kate Smurthwaite and Yasmin Alibhai-Brown. They are women like Janet Daley, Kate Andrews, Julia Hartley-Brewer, Dia Chakravarty, Gillian Tett, Camilla Cavendish, Claire Fox and Ella Whelan (who competently nails it in this interview on Sky News).

The World's Most Necessary Diet

The problem with the narrative about all the unpaid tax and all the ways the government is not getting the funds it needs to pay for these ever-expanding services is that the real issue is not being addressed - and that is that the State is far too large with far too much economic liability for public services for which it is struggling to pay now, and has no chance of paying in the future.

Unfortunately this short falling perpetuates because the majority of the people are exacerbating the problem by failing to address the size of the State and how it can give itself over to the more efficient and less burdensome private sector.

To make it clear with an analogy, imagine a mother who started feeding her son cheeseburgers at a young age. After a while she started to feed him too many, and eventually he became morbidly obese as he was eating 24 cheeseburgers a day. Her son's eating habits had got out of control, and had become a burden on the household because she could no longer afford to keep him in that many cheeseburgers.

In order to generate the burger funds she tries everything; getting a second job, doing car boot sales at weekends, even begging her friends for a loan whenever she saw them. Alas, the solution in this situation is obvious: far from trying to locate the funds to feed this horrid cheeseburger habit, what the boy's mother needs to do is get her son on a more balanced diet so he can lose weight and live more healthily. It's by helping her son live more healthily that she will at the same time free herself from the economic burden of having to fork out for 24 cheeseburgers per day.

Similarly, by way of analogy regarding its excessive size, in order to save the public sector from its economic obesity we need to stop feeding it cheeseburgers and give it a more balanced private sector diet of market principles, lighter regulation, lower tax burdens and a greatly reduced bureaucracy that's small enough to put our hands around its throat the moment it becomes too aggressive. Consider this every time you want to see more tax paid, heavier regulation, further price controls, quantitative easing and renationalisation - they are like cheeseburgers being fed to an already morbidly obese boy. 

This blog post and analogy comes at a time when earlier in the week I read the latest report from the McKinsey Global Institute, which says that total world debt may well have exceeded $200 trillion by now - the majority of which is not generated by free trade between willing agents, but by politicians hamstringing the financial economy with excessive regulation, price controls, tax legislation, tariffs, and the tens of billions of dollars in employing the bureaucrats that underwrite it all.

Even if there is a slight exaggeration in that figure - and there may well be - it's still a damning indictment, because to understand why so much of this is counterproductive for the economy, you have to understand that when left to its own devices with only very light regulation, the global economy tends towards the principle of parsimony - that is, the law of least effort.

Just as nature's laws find themselves running according to the principle of maximum efficiency, so too would economics if it were left to the principles of economic laws based on prices, supply and demand. You may object that unlike chemical elements, economics involves that complex and erratic phenomenon known as human behaviour, but that's not a valid objection, for as Adam Smith reminds us, the 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.

Note: What I'm going to finish with is only a rough approximation from my own sparse and scattered data studies in life in general - it is just something for you to ponder - but in terms of the entire global economy, based on what I've been reading in the past ten years or so, the global imbalance between trading in the supply and demand market is probably somewhere between 65% and 75% of the total size of financial transactions in the world. Just to be clear, that 35% to 25% excess doesn't include public sector industry, that is purely the excess created from all the extraneous credits and debits from things like increasing money supplies, price controls, debt interest, and so forth. On the global balance sheet, that amounts to literally trillions of pounds of an imbalance - the vast majority of which is caused by interference in a market that primarily need only rely on the price signals of supply and demand.
   

Two Words That Demonstrate Economic Confusion

Ha-Joon Chang regularly flaunts his economic misunderstandings, and this picture above that has been doing the rounds recently is no exception. There are two words that when uttered in the same sentence are a dead giveaway that the person uttering them is rather confused about economics. Those words are 'trickle' and 'down'. Anyone who understands economics proficiently well wouldn't use the term, let alone complain that money is failing to trickle down.

The term 'trickle down' has been created to be used pejoratively by the hard economic left to take pot shots at society's most successful wealth creators. Here's why no one who understands economics would go on about 'trickle down'. Wealth and value are conterminously linked; value creates wealth and wealth creates value. In other words, to create wealth or value you have to create things that people want or things that benefit people.

Supermarket workers, mechanics, cinema owners, musicians, pub landlords and manufactures of electrical goods all create lots of value for all sorts of people, including many people earning more money than they are. Equally, a CEO of a company creates lots of value for his or her customers (and workers by creating jobs), most of whom are paid lower wages.

The reality is, wealth doesn't just trickle; it drips, pours and gushes, depending on the context - and it doesn't just move downwards - it moves sidewards and upwards as well. Try replacing 'trickle' with 'earned' - that's a much better description of what's happening in a market economy. And please do yourself a favour and stop listening to people like Ha-Joon Chang and Hillary Clinton talking about 'trickle down' economics - it's the grammatical equivalent of saying your when you mean you're and it's when you mean its.

 
What needs to be understood is that the term 'trickle down' would never be uttered by a credible economist, because credible economists know that the trickling fallacy is a garbled label thought up by the left, having no real bearing on how things actually work. In short, if we don't claim it, it's silly to attempt to counterclaim it against us.

The closest we argue about wealth making its way from higher earners to lower earners is in the form of job creation, increased consumption, higher wages and more affordable goods and services.

While we're on the subject, you probably have noticed that arch space cadets Jeremy Corbyn and John McDonnell have a plan - they want to make society more equal by using taxation to take money from those on the highest income and spread it out among the masses. Alas, it's a plan that's long since been proven to be faulty by some seat of the pants mathematics. In 1996 James Mirrlees and William Vickrey were awarded the Nobel Prize in economics for proving that top marginal tax rates should be zero, not, as Corbyn and McDonnell think, high and punitive.

Mirrlees’ work figured out formally what other economists had long before realised informally - that a flat tax is the best tax for economic growth (a flat tax for everyone, and at about 20%, not the excessive rates we have today, or much worse, the super excessive rates of governments gone by).

Some politicians think it's counterintuitive to lower taxes to increase income - but it ought to be obvious that if you tax too highly you disincentivise higher earners to earn more money. Mirrlees found that not only is a flat tax rate the most preferable for all of us - he also proved that the marginal tax rate on the very highest earner should be zero.

To see why, suppose the highest earner in the UK earns £1 billion per year and is taxed on those earnings at a flat rate of 20%. A tax rate of zero for any earnings over £1 billion per year would not make the government's tax revenue any worse off - but it might incentivise the highest earner to earn even more money, which makes him and society better off (more jobs, increased consumption, more consumption tax for the government).

Not only is it untrue that you can 'tax your way to prosperity' - it's equally untrue that you can make society better off by excessively taxing the nation's highest earners. Corbyn and McDonnell really need to start learning this basic thing - that the way to engender economic growth and make Britain attractive to outside investors is to tax competitively against other nations' competitive tax rates, not greedily from within a parochial socialist dystopia. 

The Car Insurance Anomaly

An argument I see from time to time from libertarians is that "If it wasn't compulsory, car insurance would be much cheaper, and more competitively arranged, instead of being something the law compels you to purchase".

I think, on this occasion, people who make this claim are under a slight misapprehension. Whether something is a legal compulsion is not the determiner of how cheap it is - what determines prices is competition.

Even though car insurance is mandatory, there is plenty of competition among providers regarding prices. Therefore, as long as no politician looks to impose a price control on the industry, car insurance can operate contemporaneously under a system that legally mandates it, yet allows the competition to keep prices close to their market clearing rate.

Furthermore, something else of interest - from what I recall reading in Freakonomics, car insurance was one of those strange instances of a departure from the norm, whereby, actually, making it non-compulsory in one State (Philadelphia, as I recall) saw prices surge due to non-linear feedback effects.

This also isn't that surprising. To see why, let me explain about feedback effects. The general rule of feedback is that an event becomes part of a feedback loop where a cause and effect chain ends up with situations feeding back into the event. 

You have seen this happen in real situations – for example, when a guitar and speaker produce a sound loop between the audio input and the audio output we hear feedback effects. This is what happens in society too, and here are some examples. 

On the Internet an artist or a weblink can become hugely widespread by a sticking effect. A YouTube video with an unusually high number of hits may create an interest, meaning more hits 'because' of that interest, and this causes a sticking effect, where hits begets more hits, and so on.

For example, suppose 15,000 people happen to view a weblink (this may be a fairly random occurrence), the link may be passed on to an average of 7 people by each one of 80% of the people, meaning that by the second day it has been viewed by 75,000 people. Suddenly you have a lot of people wondering why this link has attracted so much attention - so people look to see what all the fuss is about. 

This then increases the weblink views, which then increase the interest further, which then knocks on to increase the viewing numbers further. In a very short space of time an arbitrary weblink can have huge popularity almost entirely on the basis that this sticking effect has occurred. Most of the views have been because others have been viewing it, and the greater the increase in views the greater the interest, and so on.

Here's another example.  As more people shop online, department stores lose custom. They compensate this loss by putting their prices up, meaning the remaining customers are hit with more expensive products, which means more will change to the cheaper option online, which means that to compensate the department stores hike their prices up even further, causing even more of their customers to choose the online option, and so on.

This same principle explains why, in all probability, if it wasn't compulsory, car insurance would not in actual fact be much cheaper, but probably more expensive. The logic is the same as above. If a US State introduces a policy of non-compulsory car insurance, there will be a reduction in drivers buying car insurance, with the knock on effect being that more drivers have to claim off their own insurance because the person who has hit them has no insurance. 

Because of this, insurance companies increase their premiums, which then prices out more drivers who chose to opt out of insurance buying. This increases the need for insurance companies to increase premiums further, which means more people do not insure their cars. One cause affects the other, and we see back and forth causal factors, leading to a situation like in Philadelphia where car insurance became discordantly high in comparison to the rest of the country.

The Philadelphia car insurance anomaly is a great example of this sticking effect - it has caused unnaturally high car insurance premiums in a place where there is no incommensurably high rate of accidents or car thefts. It is simply a mutually related causal activity where A increases B which then further increases A, and so on until it peaks and gives way to another factor.

On The Nature Of Logic

There was an age old argument from philosophers about the nature of logic. Some philosophers said logic is derived from experience, whereas others said it arises out of our own conceptualising of the world. What should have been obvious, even in the corridors of history, is that what was being presented was a false dichotomy.

A quick consideration of our engagement with reality shows us that humans first have the experience and then we construct the conceptualisations through relational thoughts, of which logic is one. There is no reason why these should be mutually exclusive. To say that those conceptualisations in any way deny the origin of experience is about as misjudged as arguing that the heat of the candle's flame denies the existence of the candle.

Let me tell you about a milestone moment in philosophical history where the matter was settled comprehensively by David Hume. In his Enquiry Concerning Human Understanding Hume posited something that has shocked many, and it has confused numerous laypeople who like flirting with heterodoxy in order to appear subversive or ultra-sceptical, but it remains one of the most important observations in philosophy.

The underlying summary of what Hume gave us is that everything (and I do mean everything) we can classify as knowledge is acquired only through experience of the natural world. We have what Hume called 'matters of fact' which are facts about reality gained from sensory perception that enable us to make propositions about reality out there, and we have 'relations of ideas' which are about formulations of ideation (ideas) and concepts related to those facts.

What Hume's Enquiry laid out better than anyone that preceded him is that we could not possibly have acquired any single bit of human knowledge without experience, and as a consequence we never predict anything that is not already presented to us through some experiential pathway.

Of course, we can elaborate on previously discovered things, and we can make forecasts ("Africa will be more prosperous in 300 years' time" is a forecast, as is "Any two objects in nature attract each other with a force according to an inverse square law", albeit a different kind of forecast) - but we can never predict anything previously undiscovered about nature herself (for further detail of this, this Blog post - Why We Never Have, & Never Will, Predict Anything New)

The key thing here is that we build on experiences through those 'relations of ideas' which involves extrapolating from the data of experience and building concepts, ideas and views about our sensory experiences of the natural world, but every bit of new knowledge is a discovery, because everything new comes from experience.

So the same applies to logic then?

Yes, it is by this method that we deal with logic too. Logic amounts to human extrapolations from our engagement with physical reality - it is a formal construct derived from experience of how the world is. So we can say that all our empirical knowledge is built on logic, but equally our logic is derived from our experiences of the world. I don't mean, of course, that logic gives us new information about the world - I mean that it provides us with a system that reflects how the world works. 

Logic works like this; If, for a deductive argument, the form of the syntax is valid ("If P then Q; P, then Q") then all we need to do insert some rationally consistent and factual premises in place of P and Q , and we can arrive at a true conclusion. If the argument form (the syntax) is valid and the semantic components (the premises) are true, then the argument is sound.

Here's a simple explanation of deduction and induction. When looking at an argument, two things are considered - whether it is valid and whether it is sound.  An argument is valid when the conclusion logically follows from the premises.

All politicians wear glasses

Bill is a politician
Therefore Bill wears glasses

That is a valid argument, because if all politicians wear glasses, and Bill is a politician, it logically entails that Bill wears glasses. But while it is a valid argument, it is not a sound argument. A valid argument becomes sound when the conclusion logically follows from the premises, provided the premises are true. Clearly the above argument is not sound because the first premise is wrong (all politicians do not wear glasses). For an argument to be deductive, it must be valid as well as having premises that are known to be true. Here's an obvious one:

All men are mortal.

Bill is a man.
Therefore, Bill is mortal.

As you can see, all arguments and observations rest on there being a logical underpinning to the proceedings. Let's take a well known principle to show how inextricably linked to the physical logic is - the law of non-contradiction. Since the days of Socrates, Plato, and Aristotle many people have been employing the correspondence theories of truth, which states that how we deal with the formulation of truth is to do with our perception of the relationships between our inner thoughts and the external reality with which we interface.

The tools of logic apply so well to our world because they are based on how the physical world works - and the law of non-contradiction is a prime example. The law of non-contradiction takes the form “A is not not-A”, which basically means that one cannot logically predicate of a thing a quality which is its contradictory. 

In other words, something cannot be A and not A at the same time, and our brains literally can’t conceive of reality any other way. Close your eyes for a second and try to imagine a triangle that is also a circle, or a woman who has short ginger hair and long black hair. Why did you find that impossible to conceive? Because it would require us to simultaneously have the physical constituents of the thought A and not A at the same place at the same time - something which is physically impossible, because nature permits that it is not possible.

If by our understanding of perception of colour a woman has entirely short ginger hair she cannot simultaneously have entirely long blond hair. Our ideas of mutual contradiction are based on our experiences and on associative ideas. Try to picture a head of hair that is fully ginger and fully black at the same time and you'll find you won't be able to. Picture a head that is a mixture of ginger and black and the world makes sense again.

The law of non-contradiction has to be self-evidently valid, because any attempt to disprove it assumes its efficacy and proves the thing you're trying to disprove. To propose it is false is to presuppose that it is not at the same time true, and to propose it is true is to presuppose it is not at the same time false. Ergo: the law of non-contradiction is valid - to attempt to refute it only confirms it.

Given the foregoing, it should be clear that we derive our understanding of logic from how things are in nature. We don't choose to invent the law of non-contradiction, we find that it holds because of the way nature is. The same is true of the truth conditions of a proposition. Even though we derive logic from experience and form those conceptualisations as a consequence, we still require an inner criterion for making such judgements. 

Think of it as being a bit like the rules for chess or grammar - there isn't anything wrong with them within the confines of their constituent parts, because they serve the purpose of acting as a supporting strap for the players. Similarly, the language of logic is a human construct that provides a supporting strap for the players involved in engaging with the world and how it works.

We know that logic requires experience because no one has ever been able to convey a logical truth that can be understood without invoking some example abstracted from the world of experience. In actual fact, the logic part is relatively straightforward compared with the subjects it contains.

The logical rule "If P then Q, not P then not Q" is easy to understand. If a man is married then he is not a bachelor. John is married, therefore John is not a bachelor. But experience might tell us something more complex while still obeying the logical principles. If it is raining then the roads are wet, it is not raining, therefore the roads are not wet. I can conceive of situations in which the road is wet while it is not raining.

A lorry containing a tanker of water could crash and spill its load all over the road. Moreover, I have known roads to still be wet long after it has stopped raining. The reason I need experience to demonstrate this is because logic gives no indication of causation – only experience presents us with causation. Logic can tell me that John cannot be a bachelor and not a bachelor at the same time, but only experience can tell me when John gets married. 

Not only is logic derived from experience – it is the structure of interpretation that underpins almost all of our enquiries. Without logic, our attempts at knowledge would fall down. That’s why we couldn’t come up with a different system of logic that we could use to govern our epistemology – because we have grafted on to our thinking a system that provides us with rules for attaining knowledge, but also because the attainment of knowledge is built around having formal structures that provide us with consistency to attain knowledge.

Logic is like the ground on which our objects of knowledge can be placed. It also acts as a set of formal tokens which is then employed as a vehicle that reflects external reality. That is why I think it is accurate to say that logic is a true reflection of what is found in nature. Unlike mathematics, logic doesn’t have truths outside of a universe, because every form of logic with which we interface is based on facts about our universe. Logic is to the universe as paint is to the canvas.

Truly Bizarre, This: How To Get It & Yet Totally Not Get It At The Same Time

Hmm, this is a strange one! It's not uncommon to see an article in the Telegraph that's along the right lines; and it's not uncommon to see an article in the Telegraph that's a ball of confusion.

It is, however, fairly uncommon to see an article in which the writer is confused in one paragraph, then in the next paragraph comes up with the answer that explains his confusion, but then goes back to being just as confused as when he started.

His grievance is that:

"Kitchen blenders used to be made in the UK, but now no blenders are made here. All of them, every single one, is imported from abroad, mostly from China. What has gone wrong?"

Err... nothing has gone wrong; this is the nature of trade, and what makes two countries progress simultaneously by mutually beneficial transactions. If China has the comparative advantage in x, y or z, then the purpose of beneficial trade is that we buy x, y or z from China, not the other way round. Our writer doesn't seem totally unfamiliar with this principle:

"This is indeed a sad state of affairs. Kitchen blenders are relatively simple to manufacture. Until the late 1980s Kenwood made its iconic blenders in the UK, before moving its operations to China. But why don’t we still make them? The production processes involved – tool setting, machine minding, assembly, testing and packing – can mostly be learned by a workforce in a couple of days.

You don’t need much management experience to run these kinds of operations; to order the right components, ensure the correct specification and quality standards, to keep waste to a minimum, and to make sure that costs are kept under control.

Making kitchen blenders is not rocket science. So why are none of them produced in the UK today? There is a simple reason: the cost base in the UK is too high. Essentially, it costs far more to produce them here than it does in the Far East. As a result, not only kitchen blenders but thousands of other medium and low-tech products, which could perfectly well be manufactured in the UK, are all imported from abroad, mostly from the Far East."

Ahem, yes - couldn't have explained it better myself - it's because we can get these goods cheaper from abroad that it would be more expensive for Brits to buy them as home grown products rather than as imported goods. It's truly bizarre that the writer appears to get the basics of this so well, yet so abjectly fails to grasp why lamenting the lack of UK kitchen blender manufacturing is so foolishly short-sighted.

Aston La Vista, Baby!

Have a look at this picture above, and see if you can guess what type of car this is. Believe it or not it's actually an Aston Martin. It hasn't sold at all well, because there wasn't much market demand for it (it sold fewer than 150 in two years).

So demand for this ugly duckling of a car was low, but the story goes deeper, because the reason Aston Martin put it on the market in the first place was nothing to do with demand - it was due to an EU directive that said all European car companies must adhere to a law which sees CO2 emission averaging 130g/km across the range of cars produced by the company.

So alongside the seat of the pants V8s (that do sell well), Aston Martin had to produce these tosserati mobiles (that didn't sell well) in order to get the average emissions down across their supplies. It's just one of many examples of the market demand being crassly distorted by EU regulations.

Brexit glee anyone?

Can't Unite, Won't Unite, Shouldn't Unite

Encouraged by their leader today, Corbynites are peddling the narrative that now Mr C has won again, and with an even bigger majority than last time, the party must unite and get behind their leader in order to attempt to form an effective opposition to the Tories.

I think this is highly unlikely to happen, and nor should anyone actually want it to happen. The Labour Party is made up of a variety of politicians – some on the hard left, some centre left, and many in between – and whether you share their views or not, they are views that are fervently held and that form the basis of their beliefs and goals.

Except by some shadowy pretence, many Labour MPs can’t, and shouldn’t, claim to be behind a shadow cabinet and a set of policies they are not. Divisions of this magnitude exist for a reason, and they cannot ‘unite’ in their goals any more than a vegetarian and a meat eater can unite to share a chicken and bacon pizza.

The group that has taken the party this far to the left has created an irreconcilable impasse that won’t be resolved by everyone in the party pretending to be of the same voice. Given that the members have effectively taken the party hostage, and have made it very difficult for any non-Corbynite to secure enough votes to be the next leader after Corbyn, it seems to me that the non-Corbynites have three realistic options:

1) Look to split the party.

2) Mince around for probably two more election catastrophes until even the Corbynites get fed up with embarrassing losses and realise that the electorate won’t vote for a hardline socialist, and then put forward a more electable candidate.

3) Somehow try to get hundreds of thousands of new anti-Corbyn members to pay up and join in order to outnumber the Corbynites and swing the party back to being electable again.

Almost everyone involved won’t fancy 1 or 2 very much, so it seems to me the only recourse is to look for a few hundred thousand people to sign up and add numbers to the anti-Corbyn side of the vote.