Depression

25/04/2012 2 Comments

Do you remember that time that Alistair Darling did that terribly apolitical thing of trying to tell the truth and said there was a recession coming that would be the worst since the Great Depression? And then Gordon Brown “unleashed the forces of hell” on him? I think in hindsight, there are a couple of interesting points to make about this event.

The first one, which is important to Christians, is that the forces of hell are clearly far weaker than we were taught at school. As we can see from this recent interview, Darling is alive and well, having suffered little more than a minor singeing of the eyebrows.

Secondly, we can say that Alistair was wrong. The Office for National Statistics published their quarterly Economic Review today and conveniently it contained some figures comparing the current economic cow-pat with that of the Great Depression. The below graph shows their results of comparing quarterly GDP against the pre-crisis peaks. The red line shows how GDP has changed since Q1 2008. The blue line shows how GDP changed for the equivalent period in the Great Depression (starting at Q1 1930).

(I have added a green dot to show when David Cameron came to power.)

Darling got it wrong because the current depression is actually worse than the Great Depression. By this stage in the Great Depression, the UK was going through a period of significant economic growth and had already passed the pre-crisis peak. The UK’s current GDP is still 4.3% lower than it was at the start of 2008.

The report said also, as you have probably heard today, that the UK economy has now contracted in two consecutive quarters and therefore, by the government’s definition, we are once more in recession.

If the government had achieved 0% growth as opposed to -0.2% in the first quarter they would have avoided recession and the media would be reporting it as such. The media, I feel, often puts so much weight on whether we are in or out of recession that we are essentially missing the big picture. Look at the red line on the graph above since David Cameron was elected and you see the real picture. We might be technically sometimes in growth and technically sometimes in recession but what we are actually in is a sustained period of economic stagnation.

Predictably, Cameron and Osborne have each made statements today saying that they will be strong in the face of the recession and stick with their current policy of reducing government spending. It makes me want to weep. Recession, stagnation, whatever you want to call it, this situation was caused by them. The government’s fiscal policy since they took office has been the exact opposite of what was needed to create growth in the economy and the effects are there for all to see.

When proposing a stimulus, I am often told that spending more would send us into a recession! Well, without spending more we’re now back in one but nevertheless I will explain my stimulus thoughts in a bit more detail.

Let’s take a look at say, renewable energy. By 2020 we are legally obliged to have 20% of our energy consumption coming from renewable energy. How’s that going to happen? Well it won’t happen without investing a lot of money building wind farms, tidal power stations and the like. This is money we need to spend anyway – we have agreed to be legally bound to the target. Why not bring the investment forward and spend the money now? The difference in government debt between spending the money now or in a couple of years is nigh on nothing and believe me, we won’t even get close to that target if we don’t get our arses in gear.

Or how about schools? I find it hard to believe that there are not thousands of state-funded schools not needing their ailing buildings, classrooms, gymnasiums fixing and rebuilding.

As you can see, I am not promoting the idea of spending money on things we don’t need – we need to do these things anyway so this money has to be spent sooner or later. All I am proposing is spending it now, at a time that we have economic stagnation and lots of people waiting for the jobs that such spending will create.

The government chose to implement a policy that opposed basic macroeconomic theory and that policy has had exactly the effect that basic economic theory predicts – depression. So how could they have got it so wrong? How could they not see that the fiscal policy they were pursuing was not just erroneous, it was completely irresponsible and entirely negligent?

One may as well ask, how could they not see that cutting tax on the rich at the expense of the poor was a terrible idea? Or, how could they not see that selling places at the Prime Minister’s dinner table in return for influence over government policy, was both morally and democratically abhorrent?

The answer is both surprisingly simple and hugely depressing. This government, (as with many other governments throughout history and throughout the world), did not come into power, assess the circumstances and devise the best possible policies to benefit the population and the country as a whole. They came into power with a particular idea of how they wanted the country to be. It involved private health care, lower taxes on the rich and yes, low government spending.

The fact that basic economics said that cutting spending would screw the economy was totally irrelevant. They probably knew it would. Their efforts have not gone into putting good policies into being but have instead gone into trying to make the country into their Etonian Utopia. They have cleverly coupled this with a massive campaign of bad marketing to mislead the electorate into thinking that all of these things are necessary. They know that economics is not a subject that is easily understood by the majority of the public and know they can use this to their advantage.

In forcing through the changes they wanted to make anyway, they have unnecessarily caused a depression on a scale not seen in recent history. As a direct result of these policies, people have lost their jobs and people have lost their houses.

If the 1930s was the Great Depression, then our current day situation will surely be looked on in history as the Even Greater Depression.

And the most depressing thing of all is that this was completely avoidable.

RedEaredRabbit

Filed under 10 Posts You Should Read, Economics, Politics Tagged with , , , , ,

Blessed are the Rich

26/03/2012 2 Comments

Excessive travelling for work has meant little blogging of late. The coalition’s cutting of the highest level of income tax has not failed to catch my eye though.

Yes, every time I mention that we shouldn’t cut taxes on the rich, the Osborne fans and supply-siders inform me that we are unfairly penalising the wealthy, that we are making the UK a terrible place for the rich who will all have to leave and (even more bizzarely) that tax cuts on rich people somehow means higher tax revenues overall.

The OECD recently published a report on income inequality. You can read the whole thing here but this is a graph from the report showing how the share of the income received by the richest 1% has changed between 1990 and 2007 (data for the UK is to 2005, see footnote).

Income inequality 1990 - 2007

Income inequality 1990 - 2007

So, of the countries featured, the UK has the second highest level of inequality between the top 1% and the bottom 99% after the US and has seen that measure of inequality rise from 9.8% of total income in 1990 to 14.3% in 2005.

The income of the rich has been diverging from the income of everyone else for a long time and cutting their income tax is not really a brilliant idea in these circumstances. The Osborne fans will tell me it will boost the economy and help sort out the economic mess they inherited from the last government. I’ll respond pre-emptively – the current economic problems were really not caused by the rich not being rich enough.

If you want to believe that tax cuts for the rich is a good thing then fine, we’ll agree to disagree but can you honestly look at the graph and say that the richest 1% have been getting a raw deal or that the UK is a bad place for rich people?

If you answered “Yes” to those two questions then you probably also think we are all in this together.

RedEaredRabbit

Filed under 10 Posts You Should Read, Economics, Politics Tagged with , , ,

Economic Bloodletting

19/01/2012 6 Comments

In older times bloodletting was a common medical practice. A doctor would treat a poorly patient by pumping out a few glugs of blood in the hope that it would cure them. The patient would then decline a bit and the doctor would say, “It’s more serious than we thought!” And he’d pump out some more blood. The patient would then get even worse and this bizarre cycle would continue, often until the patient died, at which point the doctor would say, “Well we did our best but they were clearly beyond saving.”

In 2010, the coalition government inherited a poorly economy. (Can you see where I am going with this?) They decided that what it needed was less spending. Less spending they claimed, would have the economy back on its feet in no time.

They predicted that with some much needed spending cuts, economic growth in 2011 would be 2.6%. Then a couple of months later with an even more sickly economy they predicted that with some more spending cuts, 2011 would enjoy economic growth of 2.3%.

November 2010 came though and the patient had deteriorated. 2011 economic growth was now predicted at 2.1% – despite economic bloodletting things were looking bleak. What this patient really needed was… bloodletting.

By March 2011 they had downgraded the annual growth from 2.1% to 1.7% but maintained that the patient’s only hope was spending cuts.

By November, the annual growth prediction was downgraded to 0.9%. We’ll soon see what the real figure was but it is clear that like the quacks of ancient times, the government is unwilling to recognise that there is any link between the treatment and the illness.

Some will disagree that this policy had anything to do with the worsening economy. What is indisputable however, is that the government’s policy of austerity has not led to the economic benefits that they predicted it would.

So let’s think about an alternative policy. Another option is that when the economy is weak we should pursue policies that encourage economic growth and employment. When unemployment rises, there are two immediate consequences. Tax revenues drop and government spending on benefits increases. Then public spending decreases because fewer people have money to spend, and those in employment save more because they are worried about rising unemployment. When public spending decreases, the economy weakens further, the whole thing becomes self-perpetuating and if unchecked we end up where we are today in an economic depression.

The government would say that you can’t spend your way out of recession. They say it all they time. It’s entirely incorrect though – government spending increases economic growth. So a better way of doing things might be to increase spending during a recession and then cut it back once the economy had recovered, employment had gone back up and tax revenues had gone back up. You could also supplement this with some taxes on the wealthy. So we have found a policy that is better than the government’s. Great! Let’s get ‘em!

Oh, hold on. Where’s the opposition gone?

Oh dear.

The Labour party it seems, have decided not to take a stance against the spending cuts. Well, I think they have decided that. If I’m honest I’m not absolutely sure. For the past 18 months they have sort of said that they oppose them but have never really laid out a clear alternative. Now Ed Balls has decided that they would not commit to reversing spending cuts whilst maintaining that the government is cutting “too fast and too hard”.

Well I am confused. If they think we are cutting “too hard” but wouldn’t change the policy of cutting exactly this hard then what exactly are they proposing? Labour seems to have moved from a bit wishy-washy to some bizarre conflict of agreeing with government policies whilst saying they are bad.

If I were Ed Miliband, every time David Cameron said during PM’s Questions, “you can’t spend your way out of recession!” I would stand up and read bits out of a first year Macroeconomics text book to him.

And it doesn’t stop at economic policy. Opposition to the government’s proposed health care reforms have come more from doctors than they have from the Labour party despite the government’s argument being shown to be based on completely false statistics. We have a Secretary of State for Education who thinks we should fire more teachers for poor performance. If I were in opposition I think my criteria for firing secretaries of state would include trying to spend £60m on a boat for the Queen and £400,000 on personally inscribed bibles.

In my frustrated state, I am quickly running out of parties to vote for:

  • The Conservatives –  Implementing poor policies with no end in sight
  • The Labour Party – Unable to convey an alternative
  • The Lib Dems – Presumably I don’t need to explain
  • UKIP – Xenophobic
  • BNP – Racist
  • Green Party – In no way prepared for government but might have to look at them now

Ed Miliband’s time is running out to provide coherent opposition to what is going on. He was a good politician in government but for whatever reason he has been positively ineffective in opposition. A recent poll said that the UK public trusted the coalition more on economic policy than they did the Labour Party. I am in no way surprised by this. While I think the coalition policy is bad, it is at least coherent and clearly communicated. Rather than think of a better one, Labour seems to have given up and said, “That’s popular, let’s say that too!”

And say it they did. In a completely incoherent way.

The Conservatives might be poor when it comes to forming policies to gain economic growth, put people into jobs, or improve education and the NHS but never underestimate their brilliance when it comes to making a crap policy sound like common sense.

It is a fragile brilliance though and as their dumb marketing machine rolls forward we can see quite a few gaping holes at which to aim our wrath. I really do believe that a few carefully placed, well-argued policies could derail the whole thing but sadly I see no sign of them on the horizon.

And so, I am making one last, desperate, heartfelt plea:

Could the real opposition please stand up?

RedEaredRabbit

Filed under 10 Posts You Should Read, Economics, Politics Tagged with , , , , ,

Creationist Economics

13/10/2011 13 Comments

Evolution is truly amazing.

The are two reasons I think this. Firstly, just look at the wonderfully diverse range of organisms to which it has lead. Elephants, dolphins, giant redwoods, kangaroos, scorpions, sharks, squid, salmonella, venus fly traps, honeybees and naked mole-rats. They are all stunning examples of what evolution has caused.

The second reason I find it amazing is that it is so simple:

  • An individual’s offspring will share similar traits with that individual
  • An individual with beneficial traits is more likely to have offspring
  • Therefore more beneficial traits are more likely to be passed on from one generation to the next than less beneficial ones

That is pretty much it and all you need to add is a bit of time.

A friend of mine disputed evolution recently, on the basis that the species we see today are just too complex to have come out about through such a process. This is how I thought about it. (This is probably why I don’t have many friends.)

Suppose that a particular species has a one year lifecycle and on average each new generation is about 0.001% better than the previous generation. It’s a very small amount – one one-thousandth of one percent better.

Over a period of 1000 years you would notice little difference – the current generation would be about 1% better than they were 1000 years ago. It’s very similar to compound interest – invest £1 for 1000 years at a rate of 0.001% and you will get £1.01 back at the end. Look at this though:

After 10,000 years it will be worth about £1.11
After 100,000 years it will be worth about £2.70
After 1,000,000 years it will be worth about £22,000
After 2,000,000 years it will be worth about £485 million
After 3,000,000 years it will be worth about £10.7 trillion
After 4,000,000 years it will be worth about £235 quadrillion

Back in terms of our evolutionary example, our species that improved at a thousandth of a percent per generation is 235 quadrillion times better than its ancestor of 4 million years ago whilst being virtually indistinguishable from its ancestor of a few thousand years ago. Pretty cool.

Of course, like my friend, not everyone believes in evolution. Some favour Creationism. In Creationism you assume that there is a supremely intelligent being who made a supremely brilliant strategy for the development of species at the start of things and everything worked out from that brilliant strategy.

Now, I can hear you all saying, “That rabbit has really lost it this time, what the hell is he talking about now? I was expecting some sexy economics shit not a biology lesson.”

I am coming to that. I am a big fan of something that has come to be known as evolutionary economics. It works like this:

Suppose you want to achieve a certain outcome over a period of time in an environment with many unknowns. One way of doing it would be to work out the perfect strategy at the start and then run with it. Evolutionary economics would suggest that a better way of doing it would be to continually monitor and adapt your strategy, keeping the things that are working well, and replacing the things that are working badly with new things. Some of the new things will work and they’ll be kept. Some of the new things won’t work and they’ll be binned and replaced. Perhaps some of the things that worked well a while ago will stop being beneficial later. That’s fine, they’ll be adapted too. By doing this, the strategy continually evolves, adapting to the successes and failures along the way in order to ultimately succeed.

I strongly believe that in a complex environment the very best way to achieve success is by continually reviewing and adapting strategy. I do not believe that the very best way to achieve success is to come up with a strategy at the start and never adapt it in spite of how well it does.

Some people do though and they’re called politicians. When the Conservatives won the last election they did so partly based on the promise that they could cut spending and also achieve economic growth. The economic growth though, for one reason or another, has not materialised.

Some people will say, “You big muppet, George Osborne! You said we’d have economic growth and we didn’t! Your strategy was all wrong!”

I don’t agree with this way of looking at things. Sure, he’s a muppet but we are talking about the deployment of a strategy in a complex environment. The behaviour of the UK economy is not easily predictable – a huge number of unpredictable factors influence it. It is complex. His failure is not in his initial strategy, it is in being unable to adapt his strategy based on how well it is actually doing.

Imagine you are watching a horse race and horse number 3 is in the lead. You might say, “I think horse number 3 will win this race.” It would be a fair prediction. Horse number 3 might then take a fence badly and be overtaken by horse number 5. You might then say, “I think horse number 5 will win this race.”

You give your best judgment at a particular point in time and if the situation changes, you adapt your judgment. A politician does not do that though. When horse number 3 was overtaken, a politician would still back horse number 3 because that was what they said first. Horse racing is a brutal industry – when horse number 3 fell at the next fence, broke its foot and was shot by a vet, the politician would still back it to win.

In contrast to evolutionary economics, I have developed my own term for this kind of thinking – Creationist Economics. It’s impossible to get everything perfect first time around but politicians it seems, believe their strategies represent some kind of intelligent design.

At last week’s Conservative Party conference the general economic theme seemed to be, “We must keep doing what we’re doing because you can’t borrow your way out of recession.” (That’s actually not really true. You can borrow your way out of recession you are just left with more debt afterwards. What you can’t do is cut your way out of recession.) Either way, I am moving away from my point. George Osborne, favouring Creationist Economics, refuses to accept that his strategy has not realised the growth that he forecasted and instead stands by his policies through what I can only interpet as a matter of faith.

Of course, George isn’t the only disciple of the church of Creationist Economics. The Health Secretary, Andrew Lansley has an idea to reform the Health Service. Because the communicated benefits of his policy turned out to lack any basis in fact he had to work hard on a campaign of misinformation. (This is always preferred by creationist economists over accepting their strategy was wrong which is considered blasphemy.) Lansley found a couple of facts that if taken out of context he could use to make his strategy look like a good one. He didn’t exactly lie but he did intentionally mislead people, which I think is every bit as bad.

Let’s have a look now at Theresa May. Theresa’s new policy is scrapping the Human Rights Act. Unsurprisingly, this has come in for a huge amount of criticism from all sides. Like Lansley before her, Teresa was forced into telling a fib in order to maintain her creationist ideals. See if you can spot the fib:

What Theresa said:

We all know the stories about the Human Rights Act… about the illegal immigrant who cannot be deported because, and I am not making this up, he had a pet cat.

What Theresa said minus fib:

“We all know the stories about the Human Rights Act… about the illegal immigrant who cannot be deported because, and I am making this up, he had a pet cat.”

Let me summarise my thoughts:

  • It is not possible within a complex environment to devise a perfect initial strategy.
  • It is therefore necessary to monitor and adapt a strategy in order for it to be ultimately successful.
  • Politicians deny these things as they are creationist economists

You may not have realised this but most likely you are an evolutionary economist. Suppose you are making your first ever Sunday roast and when making the gravy you decide how much corn flour to add and it all goes thick and lumpy. Next time you do it you learn from your failed strategy and add less corn flour. Congratulations, you are an evolutionary economist. Would you ignore the evidence and continue to put the same amount of corn flour in your gravy forever? If so then you are a creationist economist.

To me it seems clear that our politicians are not governing our country in a particularly efficient way. It’s not just the current government – the opposition parties would and do embrace their own creationist themes. My complaint is with no particular political party it is with our system. If a politician tried evolutionary economics the media would crucify them for “flip-flopping”. It is much more beneficial for a politician to just get it wrong to start with, never waver from being wrong and spend their time and effort on misleading people into thinking they are right.

And while this is the case, we will all have to endure poor political strategies and politicians will have lumpy gravy every Sunday.

RedEaredRabbit

Filed under 10 Posts You Should Read, Economics, Politics Tagged with , , , , ,

The Tax Delusion

09/09/2011 5 Comments

Have you ever met a climate change denier? I wonder why they don’t believe in global warming. Using some fairly basic maths you can calculate the Earth’s surface temperature assuming no greenhouse effect exists – it’s about minus 18°C. The reason we’re not in a permanent ice age is because of the greenhouse effect.

“Rubbish!”  you say, “the greenhouse effect is something new, we didn’t have it before and it wasn’t that cold!”

The greenhouse effect is actually nothing new – it’s been around as long as carbon dioxide, water vapour and other greenhouse gases have existed in our atmosphere. The problem now is that our activities are increasing the concentration of these gases. Basic physics states that this should increase the Earth’s surface temperature and lo and behold that’s exactly what we observe. Of course there are many factors that affect our climate at any one time and while we cannot be 100% sure how much the greenhouse effect will affect the surface temperature in any one given year, we can be sure of these two facts, which are absolutely indisputable:

a) We are increasing the concentration of greenhouse gases in the atmosphere

b) Greenhouse gases increase the surface temperature of the planet

When the temperature starts going up in line with this it is surprising that lots of people choose to put their heads in the sand and deny what theory and evidence shows is very clearly happening. The reason I think, that this denial-phenonmenon exists, is simply that it is much more convenient for people to live in denial than it is for them to accept reality.

Accepting the true scale of the problem means significantly changing our lifestyles and a lot of people don’t want to do that. Pretending that climate-change skepticism has any basis outside cloud-cuckoo land allows people to continue doing what they’re doing and avoiding this massive inconvenience.

This blog isn’t about climate change though.

Have you ever met a supply-sider? Supply-siders have a lot in common with climate change deniers. I should explain what I mean by a supply-sider. It’s about tax though, so grab a coffee before you continue.

Cutting income tax has a positive effect on economic growth because people have more incentive to work and have more disposable income to spend. The problem though is that tax cuts need to be financed by cutting public spending and that has a negative effect on economic growth and a negative effect on people’s quality of life. As an alternative to cutting spending, we could borrow to cover short-term tax cuts but we can’t make permanent tax cuts and still have a functioning NHS, education system, armed forces etc. etc.

That much is, again, basic maths and uncontroversial. Unless you are a supply-sider. Supply-siders believe that the effects of tax cuts is so ridiculously large that they more than pay for themselves – that cutting taxes actually increases government revenue and everyone becomes better off because of it.

Nowhere are supply-siders more prominent and militant than in America. When Bill Clinton took office he took over a large budget deficit. He responded to this by introducing tax rises on the middle-classes and wealthy. Supply-siders went mad – claiming that this would starve the economy and usher in financial disaster! In fact what happened was that the economy grew, unemployment went down and the deficit turned into a surplus.

Enter George W. Bush. As a supply-sider, Bush brought in an era of tax cuts and the richer you were, the more you benefitted. This, he assured everyone would make a massive boost to the economy. The surplus quickly turned back into a massive deficit.

Of course these are just two examples (albeit good ones) and there were many other things going on which would have contributed to these two outcomes. Importantly though, supply-siders said that Clinton’s policy to raise taxes on rich people to pay off the deficit would spectacularly backfire and they said Bush’s policy to cut taxes on rich people would boost the economy. In both cases they were 100% wrong.

Like, climate-change deniers, supply-siders ignore logic and evidence simply because the reality is inconvenient. Supply-siders organise huge campaigns to tell voters that their taxes are harming the economy.  They tell people that if they just paid less tax to the government and kept more money for themselves, we’d all be better off. This is voodoo economics. This is one of the ultimate examples of bad marketing. This is to economics what homeopathy is to medicine.

So we can see that while cutting taxes stimulates economic growth, it does not pay for itself. Cutting taxes will cost money and if it is the rich receiving the benefit, it is everyone else who is receiving the cost of it.

It was therefore, with sadness that I read this week’s story about 20 economists writing to the FT to campaign for a lowering of the top tax rate, stating that it was harming the economy.

I do agree we need something to stimulate the economy. As I’ve discussed before on here – we won’t get rid of the deficit without economic growth and there is precious little of it at the moment. I do though have a big problem with attempting to do this through a tax cut on the 320,000 richest people in the country. Don’t misunderstand me – I am not so much of a liberal that I want to advocate the punishment of rich people, I simply think that if you are in the top 320,000 richest people in the country you should not be at the front of the queue when it comes to government handouts.

The supply-siders’ excuse is that by giving rich people even more money we will boost the economy and it will filter down to the poor people.

So which of these boosts the economy more?

a) Giving 10 rich people £1,000,000 each

b) Giving a million poor people £10 each

The letter to the FT offered nothing more than vague anecdote to say why we should go for a). 24% of income tax, it said, is paid by the richest 1%. This could be because taxes are grossly unfair. It isn’t though.

The income gap between rich and poor has been rising for a long time and is now bigger than it has ever been. When a small number of people earn lots of the income, a small number of people pay lots of the income tax. On its own, that figure of 24% paid by 1% tells us nothing useful at all. (I wrote more about this here.)

I reread the letter a few times and couldn’t really understand how 20 economists (a few of them with senior academic positions) could so strongly advocate such a tax cut and only provide a weak argument of vague anecdote to back it up.

To say the least it was a wish-washy argument: “Some rich people might all move somewhere else with a lower tax rate.” Well they might indeed – we all understand incentives. I would have thought though – no I would absolutely have expected that 20 economists arguing for tax cuts for rich people, between them could have come up with something concrete to show why, in the circumstances, this is a good policy. The US has (and has had for a long time) a far lower top income tax rate compared with the large economies in Europe and they’re doing worse than we are. I haven’t see a huge number of UK companies abandoning ship and moving to the US.

Supply-siders argue that when taxes on top-earners are raised that top-earners find ways to avoid and evade the taxes. That’s also true, but it isn’t necessarily a reason to sort it out through a policy of:

“Damn those rich people, they’re so wiley! We’ll have to recoup that money from the less-wiley poor people!”

If our tax rules are this easily side-stepped by rich people then we should look at the tax rules and make them tighter. We should not be saying that poor people should be picking up the bill because we have loop-holes in our tax law.

A very important point that the letter ignored though is what people do with the extra money they receive through tax cuts. If we go with option a) and give 10 rich people £1,000,000 they might spend a bit of it but most likely a lot will go into their savings – they already have plenty of money to finance their lifestyles.

If we go with option b) and give 1,000,000 poor people £10 each they will spend it. When people are really struggling to get by on what they earn they don’t open a savings account.

This is very important because the key reason that tax cuts help to stimulate an economy is because people have more money to spend and in spending that money they stimulate the economy. If we make a tax cut where the extra money goes straight into people’s bank accounts then no economic growth is realised. These are two very basic and indisputable economic rules:

  • Rich people save a greater proportion of their income than poor people
  • Spending money stimulates the economy
It is therefore absolutely the case that option b) would lead to more of the realised tax benefits being pumped back into the economy. Wouldn’t it be a good idea to have at least mentioned this in the letter? Maybe shown how they could be so sure that the effect of the disappearing, tax avoiding rich people outweighed this effect?

Anyway, as it transpired, the 20 economists’ letter to the FT had been organised by a PR company. I’ve no idea why a PR company decided to set out to find 20 economists to sign their letter but something fishy is definitely going on.

Labour’s alternative is to make a temporary cut in VAT. This might work quite well as an economic boost – everything is cheaper for a year, buy it now! It isn’t a perfect way of targeting the poorest – VAT has a reasonably equal effect on everyone. The Lib Dems (remember them?) are said to favour raising the threshold below which no income tax is paid to £10,000. I like that one the best.

Let’s be clear, though – none of these ideas is going to suddenly pay for itself. Despite the claims of the supply-siders, all tax reduction policies would increase the deficit (or mean additional, unplanned spending cuts.) While increasing the already massive deficit is not ideal, I would be in favour of doing so if it kick-started some growth and simultaneously helped out the poorest people who are struggling the most.

If, when you started off reading this blog post you were an advocate of tax cuts for the rich and are now considering your position then this post has done its job.

If, when you started off reading this blog post you were an advocate of tax cuts for the rich and are not now considering your position then don’t worry, you’re not on your own – George W. Bush is on your side too.

RedEaredRabbit

Filed under 10 Posts You Should Read, Economics Tagged with , , ,

Politicians & Petitions

31/08/2011 4 Comments

Where I live in London it is free for someone to park a car on the street. My local council however, has recently been debating whether or not they should start charging people for this privilege. A couple of months ago a man knocked on my door. He was asking people to sign his petition to say “No” to paid parking. I didn’t sign it. I will explain why but not immediately. I never explain myself immediately. First I want to philosophise.

Democracy is the worst form of government. Except for all the others that have been tried.

I don’t know who said that but it’s quite good and I hope they gave themselves a big pat on the back afterwards.

I haven’t bothered looking up the definition of democracy but I suspect that if I did it would say something about everyone’s opinions being equal. If that’s the case then no country should really consider themselves a true democracy. The United States, for example, markets itself as the greatest democracy in the world. It isn’t though. It is sort of a democracy in that everyone is allowed to vote but are their opinions really equal? No. They’re not even close.

We can see a good example of this by looking at the US sugar subsidy. The US government guarantees American sugar producers a minimum price for sugar. This guaranteed price is way above prices on the world market. Why can’t people just buy sugar from overseas producers? The US slaps a big import tariff on imported sugar to ensure it can’t be cheaper than the home grown alternative. This means that US citizens pay much more for sugar than they should. A 2006 Department of Commerce study estimated the cost to US consumers was about $2bn per year. This is great if you own a sugar manufacturer in the US but bad if you live in the US and don’t own a sugar manufacturer (that’s most people who live in the US).

This subsidy gives benefits to a few at a cost to many. So why is it in place? The reason is fairly simple – the people who stand to gain from this are a well-organised group who will gain a lot each. The people who stand to lose (the American public) are a much bigger but less well-organised group who will lose a small amount each.

The well-organised people lobby the government, fund political campaigns and offer block-votes from their unions. A presidential candidate would be a bit silly to say they were going to repeal the subsidies if it meant that their opponent got lots of extra funding to their campaign plus some block votes from a few thousand union members in a swing state like Florida.

A democratic approach would be to ask Americans if they wanted to pay twice as much for sugar as everyone else does. I suspect the outcome would be different.

We can therefore see that even in the world’s largest economy, a true superpower which prides itself on the democratic basis of its constitution, people do not get an equal say in things. Their voting system is completely manipulated by organisations. I use the word “organisations” here because the real problem is that an organised group of people wield far more power than a disorganised group of people. It’s essentially how trade unions unfairly skew things in their own favour at the cost of everyone else.

Dave “Web” Cameron’s new policy of e-petitions is very susceptible to this problem. Get 100,000 signatures on a petition and it will automatically be considered for debate in the House of Commons. Does this make it the will of the people?

100,000 is equal to 0.16% of the UK population. That’s right – get 0.16% of the UK population behind you and suddenly your cause is being debated in Westmister’s highest echelons. A petition is often considered to be a reflection of public opinion but it is nothing of the sort. Petitioners have already decided the opinion they want their petition to reflect and therefore they:

  • Only reflect one side of the argument when asking people to sign it
  • Discard opinions of people who disagree with them

There are in fact very few proposals for which you could not get 100,000 signatures if you are organised. You just need to ask enough people and you’ll get there. If you want to save time by asking fewer people you can certainly help yourself along the way.

Do you remember when I proved a correlation between people who like jazz and people who like sushi? As I subsequently admitted, I had in fact proved nothing at all. Although my data appeared to show a statistically significant correlation, I had in fact achieved this brilliant result by violating some simple survey rules:

  • I did not have a random sample
  • I influenced the results of voters by telling them what I hoped to achieve.

I achieved a statistically significant correlation from a couple of hundred responses, just by violating these rules. I didn’t discard votes that went against my favoured result though so it was still better than a petition.

The government though, by promoting e-petitions, think that they are somehow opening a channel to hear the voice of the people. Petitions don’t do that though. A successful petition has little to do with the will of the people and a lot to do with the strength of the organisation behind the campaign. To get 100,000 votes (0.16% of the UK population) on your petition you could have a good argument but you could very easily obtain this with a bad argument as long as you knocked on enough doors.

So, why didn’t I sign the petition for free parking that the nice man brought to my door? He didn’t provide enough information. I asked how much the council would raise through this proposed initiative. He didn’t know. If the council raises money through the scheme then it might mean a lower council tax or better services for me. How could I possibly sign such a petition? I would have no idea whether it was good or bad for me.

It didn’t matter though. In his survey, people who wanted parking charges, people who didn’t know whether they wanted parking charges and people who were not at home on the day they called were all treated in the same way – ignored.

Please don’t misunderstand me. There are many very worthwhile campaigns which petitions help to promote. My argument is simply that I have a lot of trouble taking a petition’s argument into account because, when relying on petitions, I have no way to distinguish a worthwhile campaign from a non-worthwhile campaign. Petitions simply don’t provide enough information for me to tell if it is the will of the people or not.

If, as the government would like, we all decide to put our faith into e-petitions then all we are doing is putting our faith into the best organised purveyors of public campaigns. You already know who they are – the tabloids. And when do they ever give you a balanced argument? If The Sun did a ‘Death to Peados’ petition it would get 100,000 signatures. If the Daily Mail did a ‘No Jobs for Foreigners’ petition it would get 100,000 signatures. If the Daily Express made a ‘Clone Diana from her DNA’ petition, it would get 100,000 signatures.

The promotion of e-petitions as the voice of the people is not a vote for democracy; it is quite the opposite – a transfer of power from the people to small organised groups with an agenda. All this is doing is putting our faith into The Sun, The Express and the Daily Mail to make our arguments for us.

If you think that’s a good idea then please – don’t sign here.

RedEaredRabbit

Filed under 10 Posts You Should Read, Politics Tagged with ,

Debt, Deficit, Default and Bugatti Veyrons

15/08/2011 2 Comments

The other day @WH1SKS tried to bully me into writing a blog post. Normally I don’t give
in to cyber-terrorism but he has big muscles and he could snap me like a twig so I’ve broken the rules a bit.

I have forgotten exactly what the brief said but I think it was something like, “what would happen if the US and Europe didn’t repay their debt?” I couldn’t write it at the time as I had a hangover (because I am cool.)

I don’t have a hangover at the moment (I am still cool though) so I’ve briefly written down my thoughts. I should state that I don’t really know much about this and wouldn’t even have attempted it if @WH1SKS hadn’t made me, so it might be nonsense – these are really just my uneducated thoughts. I do think the US and Europe are very different though so I will look at each in turn….

The United States

The USA has about $14.6 trillion of debt. A number like that is impossible for the brain to comprehend so I’ll tell you what it looks like. The world’s most expensive road car is the Bugatti Veyron Super Sport (BVSS), which costs $2.4m and is 1.19m tall (that’s about $2,000 per millimetre). If you bought $14.6 trillion of BVSSs and stacked them on top of each other they would form a tower 818 times the height of Mount Everest.

(If you then drove them all forwards at the same time the one on top would probably achieve 30 or 40 million miles per hour which would be pretty cool. Still, it would almost certainly end in a nasty accident, so please don’t try this.)

I’ve forgotten my point. Oh, yes. The amount of money they owe is very big. So what would happen if they decided not to pay it back?

Firstly, the US would find it pretty tricky to borrow any money ever again because no one would trust them. You might wonder why this is a problem – they just became better off by $14.6 trillion so who cares? It’s a problem because even with the debt cleared off they would still have the deficit. The deficit is the amount by which their spending exceeds their income and last year the US added 95 Mount Everests worth of BVSSs onto their pile of debt. This means that if no one would lend them any money any more they couldn’t finance their deficit and would therefore need to take immediate action to make the books balance. You are all aware of Labour’s “too much too soon” argument against Conservative spending cuts. Labour’s position is that we are trying to reduce our deficit too quickly and by doing so harming economic growth thus costing us more overall.

When considering the size of the cuts being implemented by the Conservatives this point is debatable. But the Conservatives are not proposing to eradicate the deficit overnight or anything even close.

In our fictional scenario, the US would need to reduce it by 100% with immediate effect. They could do this by massively reducing spending or massively increasing taxes. Either way this would send their economy into a devastating recession, 100 times worse than the last one and they wouldn’t come out of it for a long time. Because the US is so important in the global economy we’d all be back in recession too and again it would be much worse than the last one.

So although paying back 818 Mount Everests of BVSSs it not pleasant it is actually much better than the alternative, so we could therefore say that if a country can pay off their debt then they will do. And in reality the US can afford its debt at the moment without any major risks. It’s a lot of debt but it is a very large economy and the markets are happy to lend it a lot more before they start to worry about its solvency. What the markets were concerned about (and what led to the S&P downgrade) was more a plausible situation in which the US made some interest payments late because its politicians were too incompetent to govern the country properly. The effects of this would have been far less severe than the situation described above where the US outright could not repay any of its debt.

That said it would still cause a major problem. Lenders would be much more nervous about lending going forward, so would require a higher interest rate to compensate for this. More expensive borrowing would slow down the US’s recovery further that alone might not actually be much a disaster were it not for the fact that markets always over-react to everything. The markets would see late payment as bad news and when bad news happens, people in the financial sector all turn into Beaker from the muppets and panic and make everything a thousand times worse.

A banker dealing with bad news
A banker dealing with bad news

So yes, it would be bad for the US to miss a payment but maybe the biggest problems would be caused indirectly by the market’s reaction, rather than from the direct problems of the person who didn’t receive the cash.

That’s America. Let’s move on….

Europe

Everyone has been talking about Greece. Greece’s situation is, I think, a lot worse than what’s going on in the US. Greece’s debt is only (!?) 19 Mount Everests of BVSSs but its economy is tiny in comparison with that of the US and there is a very real possibility of Greece not being able to make its debt repayments. The market realises this and unlike the US no one really wants to lend Greece any more money. This is why they are continually asking for bailouts to keep things going.

If Greece defaults on its debt then it will have serious implications for the rest of Europe. The Greek banks would all fail overnight but it’s worse than that. Most of the major European financial institutions have also lent a lot of money to Greece and some of them will most likely be in trouble. As we saw in 2008 when Lehman’s went bust, a major default causes the banks to completely lose trust in each other. As soon as they lose trust in each other, interbank lending stops and then they get into even more trouble:

  • Bank#1 needs to borrow some money from Bank#2 to pay back a loan to Bank#3.
  • Bank#2 has the cash available but doesn’t know if Bank#1 is ok or not so won’t lend it any money.
  • Bank#1 therefore can’t pay #Bank3
  • Bank#1 goes bust
  • Bank#3 didn’t receive their cash! Are they in trouble now too?
  • No one lends to Bank#3
  • etc etc etc

The other very shaky economies, Portugal, Spain, Ireland and Italy would be hit quickly afterwards because no one is going to risk pumping further money in there.

The European Central Bank would effectively be left holding the bomb when the ticking stopped and would only be able to stop those countries collapsing by printing lots of money (thus screwing the Euro) or by taking significant funding from the more healthy economies (Germany and France) which would screw them up quite a lot too.

The UK would probably be happy that it didn’t join the Euro but its banks would be severely hit and additionally, the EU is the UK’s biggest trading partner, so the UK economy would take a big hit too. I have no idea by how much but it wouldn’t be good.

Markets would react by everyone turning into Beaker from the muppets again.

So, in summary, I think the US is actually ok financially and its problems are caused more by its crazy politicians than by its debt. I am much more worried by Greece, Portugal, Ireland, Spain and Italy, a situation where there I think there is a significant risk of a second global financial crisis.

And if that happens we are not all going to be driving Bugatti Veyron Super Sports any time soon.

RedEaredRabbit

Filed under 10 Posts You Should Read, Economics Tagged with , , , , ,

How the Yes was Lost

12/05/2011 5 Comments

Why do X-Factor winners sell so many records? Why does JK Rowling sell so many Harry Potter books? Why do people drink Actimel or Stella Artois? Why do people wash their hair in Pro-Vitamin-A-Anticomplex-Regenerise-Maxi-Revitaliftium-4?

Ladies and Gentlemen – I give you Marketing.

Concentrate, here comes the science bit. There are two types of marketing:

Good Marketing

Good marketing is when a marketing message supremely shows off particular aspects of a product such that lots of people want to buy it. Importantly, good marketing must not omit any weaknesses in the product that the consumer would not reasonably expect.

It would not, for example, be good marketing to tell people that a new drug solved high blood pressure while at the same time omitting to tell them it would make them incontinent. It would not however, be a violation of good marketing if they didn’t mention that the drug tasted nasty. A consumer would not reasonably assume their potentially life-saving medicine would taste yummy but they might not expect to be continually pooing their pants.

Bad Marketing

Bad marketing is far worse than simply failing to mention that a drug might make you incontinent. Bad marketing is when the message gets so far ahead of the actual benefits of the product that is being marketed that is misleads people into thinking it has benefits that it does not.

Got it? Good because it’s quiz time.

Do people buy Harry Potter books because of good marketing or bad marketing?

I’ve never read a Harry Potter book. I’m sure they’re fine. I doubt though that they are hugely superior to every other book written in the last 1000 years, as their revenue would suggest. This phenomenon however, is because of good marketing.  Nothing was misleading; they simply did a much better job of getting the message out about their books than anyone else did about their equally good or better books.

Do people buy X-Factor records because of good marketing or bad marketing?

Hopefully most of you answered bad marketing. The music is always terrible but people buy it because millions of pounds are spent on making people believe it is good when it isn’t. If my mum sang Agadoo on primetime TV every Saturday night to applause from Simon Cowell she would sell records. It wouldn’t make it good.

I don’t want to sound like I’m superior and immune to marketing. I’m not. After all, I have an iPhone. When I bought it I never even looked at any other phones for comparison. There are much more affordable phones which are very similar. An iPhone costs something like £35 a month for 18 months plus £100 up front. £730! A logical thing to do would have been to compare it with a similar smartphone that cost £25 a month and nothing up front (a saving of £280). I didn’t though. Why? Marketing.

At some stage I have been subliminally convinced that iPhones are a billion times better than all other phones so I didn’t bother looking at the alternatives. The reality is that they are a little bit better but are they really £280 better than the second best phone?

In moments of clarity, I can grudgingly admit this to myself but if I had to get another phone tomorrow I would again go straight to the phone shop and buy an iPhone without looking at the alternatives. This is the power of marketing. It can make people who are otherwise rational completely irrational and if marketing were motor racing, Apple vs other phones would be Ayrton Senna racing against my mum.

(Yes, that’s the second time I’ve mentioned my mum. She gives me £1 every time she gets a mention in my blog.)

iPhones represent  good marketing though. Apple don’t make anything up but they tell the truth in such a clever way that people really, really want to have their products.

Actimel? Hmm. I don’t want to get sued. In my personal opinion, Actimel is an example of bad marketing. This is because I believe it (and Danone etc.) makes carefully worded claims from which people infer health benefits that I don’t believe are really what they will receive. This article goes into it in a bit more detail.

Stella Artois – good marketing. It doesn’t taste better than other lagers, in fact it’s not really particularly nice but it outsells everything. It doesn’t even claim to taste better; it claims to be more expensive, which it is. It’s “Reassuringly expensive.”

Now that’s clever. It might not taste great but be reassured that you paid more for it than the nicer tasting alternative. Rationality completely out of the window. I sincerely hope that the Head of Brewing at Stella Artois is stinking poor and the Head of Marketing is stinking rich. It is pretty clear who does the better job.

Onwards and downwards. Bullshit shampoos? Scientists in lab coats talking about imaginary scientific breakthroughs while computer simulations of imaginary molecules start miraculously rebuilding damaged hair, almost as if the imaginary recipient had stood on their head in an imaginary bath of imaginary stem cells for a month. Bad marketing.

So, we have seen examples of good marketing and we have seen examples of bad marketing. The above examples of bad marketing though, are the work of mere amateurs. When you become really good, no – when you become exceptionally good at bad marketing, you are given a job as a politician.

When I first wrote about AV in February my final conclusion was:

There will be a massive campaign of misinformation that will significantly influence the choice of voters.

There was too – on both sides. The politicians campaigning for Yes to AV made very little attempt to accurately reflect its benefits in comparison with FPTP. They resorted to bad marketing.

Unfortunately for them they were far worse at bad marketing than the No to AV campaign. The bad marketing on that side was truly something to admire. Honestly, if they put that much effort into sorting out the economy and the environment we’d all be laughing.

We were told that AV was so complicated that none of us would understand it. Amazingly lots of people took this at face value. There’s a bloke I work with who thought this and he’s really very intelligent. Are we all so challenged that we cannot put a few choices in order of preference? I would hope not.

In fact, I would go as far as to say that a person who can’t understand AV probably can’t understand the relative merits of the policies of the candidates between which they are choosing.

For example, I am told by David Cameron that I am too stupid to understand AV but, at the same time, it should be blindingly obvious to me that spending cuts, VAT rises and restructuring of the NHS are no-brainers. They aren’t though – they are really much more complicated. If I am too stupid to understand how to rank candidates in order of preference how could I possibly be clever enough to understand the overall impact on the economy of raising VAT to 20% vs keeping it at 17.5%?

We were told plenty of other things that were all a result of a brilliant use of bad marketing. I was impressed when looking at each one individually but if I take a step back and look at the whole thing together it truly is a work of art. It is abundantly clear that a huge number of people spent a huge amount of time working on one of the most intricate examples of bad marketing that our nation has ever seen.

Many people voted No to AV because bad marketing told them that AV would mean Nick Clegg in government. How brilliant is that?

You should all vote in favour of the current voting system (which put Nick Clegg in government) because otherwise it might mean Nick Clegg in government!

But people bought it. It didn’t make any sense but it didn’t matter – rationality is absolutely no competition against bad marketing.

Let me take a moment to make something clear. If you felt you had a good understanding of the good points and bad points of both electoral systems and voted No to AV then I have absolutely no problem with your decision. My gripe is not with you. My real gripe is that the majority of the public was not given enough information on the good points and the bad points of each system to make an informed decision.

The politicians agreed to allow the country to choose their voting system and then spent all of their time and effort concocting nonsense to confuse and mislead everyone.

It was truly shameful but it was nothing more than we have come to expect – just have a look at my previous blog on NHS reforms. Like it or not, we live in a society where a politician’s job title is firstly, Director of Bad Marketing and a distant second is Secretary of State for Something or Other.

I wrote this blog post simply to highlight this problem and I don’t have a solution. The politicians have no incentive to give us the real facts so solving the problem would mean everyone ignoring what politicians told us about their policies and forming our opinions independently. “I already do this!” you shout and perhaps you do but your vote is much trickier for them to spend time winning than that of a person who doesn’t.

And as long as a significant proportion of the electorate has their vote decided by bad marketing over rationality, a politician has no reason to change their behaviour. Unless, of course, we decided to change to a fairer electoral system.

Oh. Damn.

RedEaredRabbit

Filed under 10 Posts You Should Read, Politics Tagged with , , ,

Pizza and Electoral Reform

17/02/2011 27 Comments

Politicians have recently been spouting a lot about the inefficiencies of the public sector. Well if it’s true, no better example could surely be found than the politicians themselves. After literally months of hundreds of them pissing around at our expense they finally decided yesterday that there would be a referendum on electoral reform. In the referendum we will be given two choices and asked to vote for the one which we think is the fairer system of electing future governments. The choices will be:

  • First Past The Post (FPTP) – our current system
  • Alternative Vote (AV)

I will be honest – I don’t know which system is fairer and that is a bit of a problem. I don’t consider myself badly informed with what is going on in the world. I am reasonably good at maths yet still I don’t know off the top of my head which system is fairer.

This is a problem not because of my personal dilemma but because I strongly suspect that I am not alone in not knowing which system is fairer. I am fairly sure there are a large number of people in the country who, like me are going to be asked to decide something they don’t have the information to properly decide.

Yesterday, I asked my Twitter followers which system they preferred. It looked like this:

Wow – almost 1 in 3 of us don’t know. If you are one of those people then look no further. I am going to work it out here on this blog and then we’ll all know. Hoorah! So let’s do it with an example.

15 friends are ordering a pizza to share from The Very Big Pizza Company. There are three options:

  • Meat Feast
  • Pepperoni
  • Margherita

Between them they need to decide on which pizza to get and so they take a vote. Their preferences look like this:

The voters

Summarised, their preferences look like this:

Voters

If they use a FPTP system then only their 1st choice preferences are taken into account so, with six votes, they will get a Meat Feast.

If they use AV however then it works like this:

Round 1

  • Meat Feast – 6 votes
  • Pepperoni – 4 votes
  • Margherita – 5 votes

In AV, Pepperoni with the fewest first choice votes at the end of round 1 gets eliminated and the Pepperoni lovers’ second choice votes are added in for round 2…..

Round 2

  • Meat Feast – 7 votes
  • Margherita – 8 votes

Margherita is the winner.

Two different systems – two different results. While we’re here though, let’s look at another system called the Borda Count. In this system 3 points are awarded for a first choice, 2 for a second and 1 for a third. Points are all added up to determine the winner. It’s a bit like what happens in the Eurovision Song Contest.

In this system we find the following:

Borda Count Results

Pepperoni, with 34 points has won.

Three different systems – three different results. So what does all this tell us? It tells us that the voting system we employ can make a big difference to the outcome of the election. With three different systems and the same set of preferences we observe 3 different outcomes.

You might think I intentionally set the group’s preferences such that this would happen. Yup, I did. But it may not be too far from reality. Imagine that it’s May 2010 and Meat Feast is the Conservatives, Pepperoni is the Lib Dems and Margherita is the Labour Party. The different outcomes here have essentially occurred because:

  • More people preferred the Conservatives as a first choice than preferred either of the other two (but importantly not an overall majority)
  • The Lib Dems are most often the second choice of both Conservative and Labour voters
  • Lib Dem voters are more likely to prefer Labour than Conservatives*

* I’m not sure whether this is actually the case but it doesn’t make it an implausible set of preferences.

So I have looked at three different voting systems and they produced three different winners but which is the fairest? Nope, I still don’t know. Let’s keep going.

First, let’s go back to the FPTP system where the group have decided to vote for Meat Feast.

They phone up The Very Big Pizza Company. Before they can place their order, they are informed that unfortunately there are no more Pepperoni pizzas left. Doesn’t matter, right? In the vote Meat Feast came first, Margherita second and Pepperoni came last. The fact that Pepperoni isn’t on the menu doesn’t cause a problem. Or does it?
Anna, on the phone relays this message to the group and they do the FPTP vote again based on Meat Feast or Margherita. Now Margherita wins on the FPTP method!

To me this seems like a big problem. In a fair electoral system, if people prefer Meat Feast to Margherita then the outcome should always reflect this, irrespective of whether or not Pepperoni is available.

FPTP says that if Pepperoni is on the menu then Meat Feast is better than Margherita and if Pepperoni is not on the menu then Margherita is better than Meat Feast!

So FPTP is cack then. Let’s look at the AV in comparison. After the AV vote they phone up The Very Big Pizza company to order their Margherita and find that Meat Feast is off the menu. Now Pepperoni wins. Bollocks.

If AV is a fair system then if it prefers Margherita to Pepperoni when Meat Feast is on offer, it should prefer Margherita to Pepperoni when Meat Feast is not on offer.

Aaargghh. All I have done so far is to find that neither is fair.

When you look at the summarised table of votes above, AV does have a clear problem. Pepperoni had loads of second place votes but these all got ignored because it was eliminated before they could be taken into account. 11 people liked Pepperoni second best but the system treated it the same as if no one had liked it second best.

When you look at FPTP though – it doesn’t just ignore all the second and third place votes for Pepperoni. It ignores, by definition, everything that wasn’t a first choice vote.

My view is that when you need to make a decision about something, you should take as much of the available information into account as possible. AV, while not perfect takes more information into account than FPTP and it is on that basis I think, a fairer system.

Let’s not though, forget about our third option – the Borda Count which we sadly will not get the option to vote for. That system takes every preference into account and I therefore think it is a fairer system than either of the two from which we can choose.

Formula 1 uses something not too far from the Borda Count to decide the world champion. Would Formula 1 be fairer if driver’s second places, third places etc were not taken into account when deciding the World Championship? Bernie Ecclestone thinks so but I don’t. I think a driver with 5 wins, 8 second places and 2 third places has more claim to be World Champion than a driver with 6 wins and 9 races that they didn’t finish.
The Borda Count system is by no means perfect but it allows us to take a lot more information into account than a simple FPTP.

This is not the whole picture though. Even if everyone agreed on the fairest system they would not all necessarily vote in the same way. For a start, some systems are more likely to benefit certain political parties. The Conservatives don’t really think FPTP is the fairest possible electoral system, they just think they will have a better chance of winning a majority than they would with the others. If the party you like the best is going to do better out of a particular system why would you want to vote for an alternative in which they would do worse?

Also, the best system may not be the fairest system. FPTP is the simplest system by far – one cross in one box and you’re done. The more complex the system becomes the harder it is for people to understand and cast their vote. A clever mathematician could come up with a brilliantly fair voting system but if a significant proportion of the electorate didn’t understand it or couldn’t work out how to fill in their ballot papers, it would be worthless.

Some people also praise FPTP for its strength in delivering a majority government with a minority of votes. That doesn’t necessarily sound like a good thing to me but if people really think it is a good thing then why should they not vote for a less fair system in order to achieve it?

Irrespective of these there is something much worse which will undoubtedly have a strong influence on the result of the referendum – the campaign of misinformation which I can see on the horizon, heading for our shores like a giant wave of bullshit. Political parties, unions and other groups will no doubt know which of the two systems benefits them the most and they will undoubtedly be feverishly preparing their campaigns to scare the public into believing that one system means 100 years of darkness to the UK.

On the Today Programme the other day, James Frayne who ran the successful campaign for the Conservative Party to vote No to a North East regional assembly said that because Nick Clegg is so unpopular, the best tactic for the No2AV campaign (yes, they’ve already made a name like a fucking X-Factor band) would be to say if you vote AV you will get Nick Clegg in government again.

It’s shameful that on one hand we will be given a chance to vote to change the electoral system and on the other hand we will be drowned in this kind of crap designed solely to mislead us. Will any political party in the next few months spend time and effort really trying to explain the underlying good points and bad points of each system in a bid to assist the voters into making an informed choice? I hope so but I don’t think so.

So – what have I concluded?

  • AV has big problems and probably isn’t a great system but it is fairer than FPTP
  • The Borda Count is fairer than either of them but isn’t available
  • A fair system is not necessarily the best if it is overly complex to understand
  • Even if people agree on what the fairest system is they will still not necessarily vote for it
  • There will be a massive campaign of misinformation which will significantly influence the choice of voters

Well, to be honest, I’m disillusioned by the whole thing now. Bollocks to this. Anyone for Pizza?

RedEaredRabbit

Filed under 10 Posts You Should Read, Politics, Surveys Tagged with , , , ,

Facts Evasion

02/02/2011 22 Comments

When I’m not tweeting or blogging, I sometimes have to do some real work. Last year, I was asked to put together a report to analyse the performance of a particular strategy my company was pursuing and then present it to my CEO and the board.

“That sounds well important,” I thought. So I did this:

  • I clearly set out what I was going to measure and why
  • I gathered as much information as possible and analysed it
  • I accounted for any uncertainties in my measurements
  • I accounted for any external factors which could have influenced the results
  • I summarised how the strategy was performing based on these factors and tied it back to the things I said originally that I would measure
  • I made recommendations as to how we should proceed based on the gathered evidence and uncertainties

While I would like to think I was the first to think of this nice structured way of doing things, in fact I wasn’t. This is just, at a high level, the way you approach changing anything important, even if you’re doing it subconsciously.

If for example you were buying a house, you would not do it this way:

  • Buy a house
  • Gather as much information about houses as possible
  • Selectively discard any evidence which suggested you’d bought the wrong house
  • Selectively include any evidence which suggested you’d bought the right house
  • Set out what your house buying criteria were based on the bits of evidence you had not discarded

Well, you wouldn’t do it this way unless of course, you were a politician. Politicians, you see, work in the opposite way to everyone else. Let me explain with an example.

At the moment, the government is proposing a reform of the NHS. This is the evidence they are putting forward for why such radical changes are necessary:

Health Secretary, Andrew Lansley, speaking on PM:

You are twice as likely to die of a heart attack in the UK as you are in France.

Prime Minister, David Cameron, on the same day:

We’ve fallen behind the rest of Europe. We spend similar amounts of money but we’re more likely to die of cancer or heart disease. I don’t think we should put up with a second rate… errrr… with coming second best.

Note he actually almost called the NHS a second rate health service but thought better of it.

Well it all sounds extremely scary. But is it?

John Appleby, Chief Economist at the Kings Fund, London thinks things aren’t quite as bleak as the government is making out and writing in the British Medical Journal he explained why.

Although statistics from the Organisation for Economic Cooperation and Development (OECD) confirm that in 2006 the age standardised death rate for acute myocardial infarction was around 19/100 000 in France and 41/100 000 in the United Kingdom, comparing just one year—and with a country with the lowest death rate for myocardial infarction in Europe—reveals only part of the story. Not only has the UK had the largest fall in death rates from myocardial infarction between 1980 and 2006 of any European country, if trends over the past 30 years continue, it will have a lower death rate than France as soon as 2012.

You see, the government selectively chose one data point on the graph and discarded the rest of the data. This is what the data looks like if you don’t discard the rest of it:

Heart Disease MortalityThis doesn’t look quite so scary, does it? You see, when you look at all the available data, you get a very different picture. The UK’s death rates from heart disease have been plummeting and if the trends shown in the graph continue, argues Appleby, then we will have a lower rate than France by 2012.

This looks to me, (and John Appleby) like things are going in the right direction with our current system. Also, as Appleby points out, Lansley and Cameron chose quite a tough comparison. France has the lowest death rate from heart disease in all of Europe. A lucky choice, or cherry-picking a number to support an argument?

Either way – good for France, right? Well, not yet. Something Lansley and Cameron didn’t take into account which is absolutely massively important is this:

Are France and the UK using the same criteria to determine their causes of death?

As it turns out, possibly not. Speaking on More or Less on Radio 4 on 21st January*, Dr. Pete Scarborough, a Senior Researcher at the British Heart Foundation Health Promotion Research Group at Oxford University (get a shorter job title) noted that in the UK, if a person with a record of high cholesterol or high blood pressure dies, the coroners are much more likely to record the cause of death as a heart attack in comparison to France where the cause of such a death unless a heart attack is clearly shown to have happened, is generally recorded as “unknown”.

An additional point which Lansley and Cameron failed to mention is death from heart disease has a lot to do with lifestyle. The best way of avoiding death from heart disease is to avoid getting heart disease in the first place. Diet, smoking rates and exercise were all omitted from their conclusion.

Appleby in his article stated:

The trajectory for many causes of death swoops up and down over decades—often linked to changes in lifestyle behaviours rather than spending on healthcare.

Which makes perfect sense. Perhaps due to lifestyle, a higher proportion of people in the UK turn up for treatment for heart disease than they do in France. If that’s the case we should hardly be blaming the NHS.

You’ll recall, David Cameron also brought cancer death rates into the equation. On that, Appleby noted this:

As Cancer Research UK has pointed out, although the Eurocare data often feed headlines that the UK is the “sick man of Europe” for many cancers, trends from Eurocare actually show improvements in survival rates for the UK. These are confirmed by the Office for National Statistics, which last year reported improvements in five year survival rates between 2001-6 and 2003-7 for nearly all cancers. But Eurocare is problematic; the latest study includes diagnoses only up to 2002, and coverage is patchy (French data cover around 10-15% of people with cancer, the UK, 100%). Furthermore, differences in survival rates may reflect variations in how early diagnoses are made, not the state of healthcare in different countries.

Overall, I think again, this doesn’t seem quite as clear cut as we were led to believe but there is yet another important statistic they failed to mention. If our substandard healthcare is really causing a significantly higher death rate then shouldn’t our life expectancy be significantly lower than France’s? I went to the World Health Organisation’s website to check this out and found this:

The most recent figures for average life expectancy they have are for 2008. In France it was 83 for women and 81 for men. In the UK it was 82 for women and 80 for men. Irrespective of what people are finally dying of, the average life expectancy between the two countries is extremely close.

The WHO also conveniently shows average life expectancy by global region and here we can see whether we are lagging behind the rest of Europe, as claimed by David Cameron:

Oh. As you can see, the average for Europe for 2008 was 79 for women and 71 for men.

So much for us lagging behind the rest of Europe but, anyway, if we truly are experiencing significantly higher death rates from heart disease and cancer than the rest of Europe it is a bit puzzling. If they aren’t dying of that but have lower life expectancy then what exactly is it that they are all dying of? Rabies?

My conclusion based on this data (which was by no means all of it but a lot more than Lansley or Cameron used) would be that we are doing well and heading in the right direction. So where is the big problem? Where is the big need for a radical NHS reform?

Let me move back to my initial example of the report I had to do at work. If I had made a conclusion in advance, backed it up with one or two pieces of cherry-picked data and gone in front of the board with it, my audience would have torn me to shreds.
My report was important to me but compared with the importance of the NHS to the UK it was really nothing at all. This is the NHS we’re talking about – people’s lives.

My audience wouldn’t have accepted such a poor analysis of the data for my crappy report – so don’t you dare do it either. You are the audience now and this is really important. Don’t accept these arguments as the complete story – understand them for what they are. A couple of cherry-picked, airbrushed, bullshit numbers selected to back up a plan that the government wanted to do anyway, regardless of the what the actual evidence suggested.

If I couldn’t get away with such behaviour in front of my board then why should the government get away with it in front of the British public?

Pulling basic information from the British Medical Journal and the World Health Organisation is not hard to do – I did it with no trouble at all. The government’s position is nothing more than pure deception and when we look at the real evidence – their position fucking stinks.

RedEaredRabbit

*More or Less’s excellent piece on this same subject helped a lot with putting this post together. It’s available as a free Podcast so have a look for it.

Filed under 10 Posts You Should Read, Politics Tagged with , , ,

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