Stumbling and Mumbling

Cognitive biases in culture wars

I've one reaction to the culture clash between the west and Islam - include me out. This is big think. And big thinking is bad thinking.
The first problem is that glib generalization leads us to think that there are clearly defined and demarcated cultures.
Put it this way. Both my dad and grandad had convictions for handling stolen goods. Does this mean fencing is part of my culture? If not, why not?  What proportion of people must believe or do something (and how strongly and how closely to me) before it becomes part of my culture? And over what group of people do we define a culture? Why does it make sense to say that I am part "western culture" rather than "economists' culture" or "Leicester culture"?
These vaguenesses mean we take a pick-n-mix approach to defining culture. For most of you reading this (and me), I guess, "western culture" means liberalism more than it does imperialism and slavery.  But is this just a self-serving bias?
Another bias in the clash of cultures is the group attribution error. Anong "us", bad people are exceptions. Among "them", wrong 'uns are representative of the general group.
So, to westerners, the soldiers who beat up Iraqis are exceptions. To Muslims, they are typical. To "us", suicide bombers are representative, whereas to Muslims, they are exceptions*. Few bother to ask: is the percentage of UK and US soldiers who beat up Iraqis statistically significantly different from the proportion of Muslims who are suicide bombers?
This bias is reinforced by another - the salience heuristic. We over-react to salient, available, information, and under-react to obscure information. To westerners, the everyday  civilities of friends and neighbours are salient , whilst the brutalities of far-away soldiers are less so. And suicide bombings are salient, whilst the civilities of ordinary Muslims are less so. To Muslims,  it's the other way round.
There's a third bias - outgroup homogeneity bias. "We" are diverse; "they" are homogenous. This reinforces our ability to regard brutal soldiers or imperialism as outliers within the rich variety of western culture, but to see all/most Muslims as fanatics. And, again, vice versa for Muslims.
Now, I'm not saying here that there is "cultural equivalence" between westernism and Islam; I don't know what that means.
Still less am I denying that some values are worth defending. I think liberty should be extended, even though many westerners - including our rulers - seem to think otherwise.
All I'm saying is that it's very hard to think clearly about big issues - especially when you don't even try. Which is why I prefer to think about smaller, provincial things.   
* Yes, these are woeful generalizations.I express them thus for illustrative effect of likely differential dispositions, not 100% accuracy. 

Hayek and the left

Hilary Wainwright raises an interesting question: can Hayek's attack upon centralized knowledge provide a basis for left-wing politics? She characterizes Hayek, reasonably I think, thus:

When Hayek launched his famous attack on socialism and laid the resilient foundations for free-market ideology, he attacked the "all-knowing state", stressing the importance of "knowledge of particular circumstances of time and place" and "things we know but cannot tell". This led him to insist that all attempts at socially purposeful intervention in the economy were doomed to be damaging at best, dictatorship at worst. The only mechanism that could coordinate all the haphazard decisions taken on the basis of this individual knowledge was the price mechanism of the market.

But, she says:

[1960s students and womens] movements showed in their horizontal, networked and cosmopolitan ways of organising how practical, tacit knowledge could, contrary to Hayek's individualism, be a shared basis of purposeful action.

Much as I'd like to agree with this, I'm sceptical. The advantage the market has as a way of organizing dispersed knowledge is that it provides  great negative feedback. Humble street markets and fancy financial markets both tell participants when they're wrong, because they lose money.
However, the non-hierarchic networks  eulogized by Hilary don't do this. Quite the opposite. Whether due to information cascades, groupthink or the heuristic of social proof, even loose networks can be prone to having their members' mad ideas strengthened, rather than corrected. This, I guess, is a lesson of BBC4's Lefties series.
This isn't to dismiss Hilary's idea. I think Hayek's strictures against centralized planning apply - up to a point - against corporate hierarchies as well as the state. And maybe we could think of some forms of non-hierarchical forms of social organization that do pool wisdom rather than stupidity.
For now, though, there's a lot more promise than substance to left-wing Hayekianism.

Teaching science

What should we teach children about science? The American Association for the Advancement of Science raises this question, by opposing bills requiring schools to teach intelligent design.
I fear this misses the point. The most important thing to teach children is not so much the substance of science, but the nature of scientific inquiry. How do we test theories? What counts as good or decisive evidence for or against a theory? How do we draw inferences from data? How do think clearly and avoid cognitive biases? These are, of course, lessons that have far wider applications than the natural sciences alone.
I'm not saying children should be taught directly about the philosophy of science - that would be too arid. Rather, a good science teacher should impart not merely a substantive body of knowledge, but should also teach people how to think critically and clearly - to evaluate evidence.
In this sense, supporters of the "theory" of evolution should welcome (good) teaching about the "controversy" surrounding the idea. If children were taught critical thinking, they would - I suppose - come to learn that evolution is the better theory, as it, unlike, ID, yields testable hypotheses that are confirmed by data.
Science teachers, then, should follow the great Arsene Wenger's approach to young players, as described by Robin van Persie:

He said, ‘If you want to go to the top level, you have to change something’. I said, ‘Okay, what?’ He said, ‘I’m not telling you, find out for yourself’. So I went away and asked myself what I wanted from football. The manager was very clever. He thought if he told me what I needed I might forget it in one week, but if I figured it out myself, maybe it would take longer, but it would stay in my mind.

But then, does any ruling class really want to encourage young people to think for themselves? After all, the essence of scientific method is that one believes the evidence, rather than people in authority.

Intelligible but unimportant

Peter Oborne says tax and macroeconomic policy are subjects "which most people regard as important but unintelligible” (reg req). This is odd. I’ve long regarded them as intelligible but unimportant.

Take the three big aims of economic policy:

1. Faster economic growth. This paper (pdf) argues that national governments cannot increase log-run real GDP growth. That renders superfluous the open question of whether faster growth is a good thing or not.

2. Macroeconomic stability. Robert E Lucas has argued that the welfare gains from stable growth – for a given trend – are tiny (pdf). Revealed preferences suggest he’s right – if people really were concerned about macroeconomic instability, they would have developed macro markets, markets in GDP-related securities, to insure against such fluctuations. 

3. Equality. The Gini coefficient for post-tax incomes has not changed since 1996-97 (table 26 of this pdf). However, the 90-10^th ratio of incomes has fallen a little, and there has been some reduction in relative poverty (pdf).

On the big issues, then, the Chancellor’s work has been unimportant, at least relative to the attention it’s got.

You might reply that it has, though, been unintelligible, as the tax system is incomprehensible.

It is, but the incomprehensibility is perfectly intelligible. First, it’s best not to try to understand the tax system. As a classic episode of Colditz taught us, it’s dangerous to get to close to mental illness.

Second, the incomprehensibility serves a useful function. It creates work for tax lawyers and accountants, and gives the rich ways to escape tax. In this way, two constituencies which might oppose big government are appeased.

Luckily, though, if we keep our affairs simple – and don’t get any damnfool ideas about starting a business - it’s easy to avoid having to think too much about what the Chancellor does.

And this is a wholly good thing. It’s the mark of a civilized society that politicians don’t much matter; compare A.J.P Taylor’s description of pre-1914 England to parts of sub-Saharan Africa today or Soviet Russia.

The gravest indictment of Gordon Brown is not that his work has been unimportant, but that he and the rest of New Labour are trying to make it important.

Markets in kidneys

In this paper, Eli and Amy Friedman advocate legalizing trade in kidneys. Katie at Inkycircus says the idea's  "insane." 
I think Katie's wrong.
She says the idea "will surely lead to the poorer members of society selling body parts." But what's wrong with that? Why should we deprive the poor of a source of money? Based on this paper (pdf), the Friedman's reckon a fair price for kidneys would be $40,000 (£23,000).
Nor am I as squeamish as her about letting people risks with their health for money. People do this all the time. Why should we allow people to (say) work in coal mines but not sell body parts?
Indeed, we allow people to do all sorts of things that endanger their health - drinking, smoking, ski-ing, driving fast. Why not allow them to take useful risks - ones that save others' lives?
For me, the clinching argument in the Friedman's paper is their description of the alternative to a legalized, regulated trade. It's a black market, in which only the rich buy kidneys from only the desperate, whilst others die for want of kidneys; 17 a day in the US alone, say the Friedmans.
Surely, a legal market in which poorer people with kidney disease can buy (via Medicare or the NHS) kidneys from people who have been carefully assessed and advised by doctors is superior to this.
I'll grant that there's a big "yuk factor" in kidney trades. And there might be practical problems - there'll be fewer voluntary donors -  but I reckon the idea's  got a lot of merit. After all, trade is mutually beneficial.

Was Ricardo right?

David Ricardo was right - rising raw materials prices will kill off economic growth. That seems to be the opinion of companies, consumers and financial markets.
To see what I mean, remember Ricardo's theory of rent, set out in his Essay on Profits. Economic growth, he said, would raise the prices of "raw produce" which would squeeze profits and eventually remove the motive for inventment and hence growth:

By bringing successively land of a worse quality, or less favourably situated into cultivation, rent would rise on the land previously cultivated, and precisely in the same degree would profits fall; and if the smallness of profits do not check accumulation, there are hardly any limits to the rise of rent, and the fall of profit....
The sole effect of the process of wealth on prices, independently of all improvements, either in agriculture or manufactures, appears to be to raise the price of raw produce and of labour, leaving all other commodities at their original prices, and to lower general profits...
in every society advancing in wealth and population, independently of the effect produced by liberal or scanty wages, general profits must fall.

Of course, he spoke about how rising food prices - and hence higher wages - would lower profits. This is not happening now. But something very similar is. Rising commodity prices - other "raw produce" - could squeeze general profits and hence economic growth.
No less than five groups of people are behaving as if this vaguer version of Ricardo' theory is about to be vindicated - at least in the UK - and are betting on slower future growth.
1. Commodities markets. Despite recent dips, both the CRB and Goldman Sachs' commodity price indices show that prices of raw produce are near record highs.
2. The gilt market. Real interest rates - those on longer-dated index-linked gilts - are under 1%. A long-standing rule of thumb is that, in equilibrium, real interest rates should equal trend growth.
3. The equity market. The yield on the All-share is now 1.9 percentage points above that on 10-year index-linked gilts - a near-record high. Maybe investors need a relatively high yield on shares to compensate for the fact that future dividends will grow so slowly.
4. Companies. They're not  investing. In the last 4 quarters, their retained profits exceeded their capex by £24.1bn - 2% of GDP, a near record (table I of this pdf). And they have also cut R&D spending (pdf) in the last two years, despite low interest rates and high profits. Both facts betoken a pessimism about long-term future growth.
5. Consumers. Retail sales fell 1.3 per cent in January (pdf). The permanent income hypothesis tells us that this could be because consumers have cut their expectations for future incomes - perhaps, taking their cur from companies, gilt and equity markets.
Four different groups are , then, telling us that future growth will be low. With commodity prices at near-record highs, this is consistent with a belief in some version of Ricardo's theory of rent.
Of course, there are other explanations for all five facts.  But none are as consistent with Occam's razor and the presumption of individual rationality.   

Cognitive biases against freedom

Why is New Labour so desperate to destroy freedom? In just one week we’ve had ID cards, a ban on smoking, the prohibition of “glorifying” terrorism and the idea of a retail regulator.

In the face of all this, we should follow Sir Peter Strawson, and regard politics the same way he regarded academic administration:

His silent yet manifest amusement at the many committee meetings he was required to attend as a professor perhaps betrayed a sense that such gatherings provided better opportunities for the observation of human folly than for the dispensation of philosophic wisdom.

I reckon New Labour’s attack on freedom is due in part to this folly, to a set of cognitive biases.

To see them, forget any nonsense about MPs being our representatives. The very fact that someone is an MP makes him unrepresentative. MPs are selected to have cognitive biases that dispose them to want to destroy freedom.

Here’s what I mean.

1. The belief that speech matters. Most of us think language merely describes reality. MPs however are more likely to believe language changes reality; they become MPs because they think rhetoric matters. This means they think talk that glorifies terrorism is more than mere words, and that laws should send “signals” – because to them, more than us, signals matter.

2. Over-confidence. Politics is a risky career in which success does not necessarily go to the meritorious; William Hague is smarter than David Cameron, Ruth Kelly more than John Prescott. The sort of people who would want to pursue such a chancy life are those with more confidence in their probabilities of success than the data would warrant. This same over-confidence makes MPs over-confident about the benefits of the laws they pass.

3. Groupthink. Politicians, more so perhaps than the rest of us, mix with like-minded people – other MPs of the same party. This further boosts their over-confidence, because their ideas, far from being challenged, are corroborated by their associates.

Sure, their beliefs are (occasionally) challenged by the media or opposition parties. But a feature of groupthink is to believe that the views of one’s enemies are less intelligent than those of one’s friends.

4. The illusion of knowledge. Having listened to days of evidence from lobbyists experts, MPs on select committees can easily commit the error of believing that the facts they have are all the facts they need. This leads them to under-weight the importance of the law of unintended consequences, or simply to ignore inherent statistical uncertainties; when did you last hear an MP talking about confidence intervals or R-squareds?

5. The salience heuristic. This illusion of knowledge causes MPs to overweight the importance of obvious, salient, possibilities, and underweight less obvious things. As Hayek pointed out, this creates a bias towards restricting freedom:

Since the value of freedom rests on the opportunities it provides for unforeseeable and unpredictable actions, we will rarely know what we lose through a particular restriction of freedom. Any such restriction, any coercion other than the enforcement of general rules, will aim at the achievement of some foreseeable particular result, but what is prevented by it will usually not be known....And so, when we decide each issue solely on what appear to be its individual merits, we always over-estimate the advantages of central direction. (Law Legislation and Liberty Vol I, p56-57.)

I suspect that MPs – by the very fact of being MPs - are more prone to all these biases than the rest of us. This doesn’t, of course, mean the rest of us are rational. It’s just that MPs are selected to have cognitive biases against freedom.

What pensions crisis?

Is the so-called pensions crisis starting to bite? Table 13 of today's labour market figures (pdf) suggests it might be.
It shows that the number of people in early retirement - men under 64 or women under 59 - has fallen. There were 588,000 of them in Q4, compared to 627,000 in Q2. That reverses the trend increase, of 3.1% a year between 1993 and 2005.
This is just what you'd expect if people were worried about their pensions. Some people who had retired might be taking jobs to cover the  fall in their wealth - the stock market's fall after 2001 would have hit them hard - and others are postponing retirement*.
However, from another perspective, what's impressive is just how inflexible are the numbers of people in early retirement. Even now, there are more people in early retirement than there were in 2000, at the peak of the stock market. That suggests the stock market slump merely slowed the growth in early retirees.
My hunch is that, now that stock market wealth has risen - it's 77% up from its 2003 low, and only 9% off its record high - we'll soon see an increase in early retirees.
These figures don't really shake my Bayesian prior, that the "pensions crisis" is a future problem, and one for only a handful of people at that.
* The numbers can also fall if people reach the age of 65. The figures distinguish between early retirees and the sick; as the latter have fallen, it's not the case that people have shifted from retirement to sickness. They don't measure people retiring overseas.

Banjos, cricket and Wodehouse

Via Tim and Crooked Timber comes the world's best site. First quote up:

You could tell it was classical music, because the banjo players were leaning back and chewing gum; and in New York restaurants only death or a classical speciality can stop banjoists.

Whilst I'm on The Master, this essay reminds us that Jeeves was named after Percy Jeeves, the Warwickshire seam-up bowler, whose career record is here.
Banjos, Wodehouse and cricket - are there three better things in the world?
I endeavour to give satisfaction, sir.

New Labour's fake health egalitarianism

Hewitt's interview with the Today programme suggests New Labour is strongly committed to reducing health inequalities.
She said it was "very important" to ban smoking in all pubs, rather than merely those that serve food, because pubs that didn't serve food are disproportionately in poor areas, so allowing smoking in these would widen health inequalities.
This raises the question: if a desire to reduce health inequality is so important as to justify a blanket ban on smoking, what other policies would such health egalitarianism justify?
Greater social equality, that's what. There's good evidence that social inequalities - not just income inequalities - cause health inequalities.
1. The Whitehall studies (pdf) into health in civil servants:

The more senior you are in the employment  hierarchy, the longer you might expect to live compared to people in lower employment grades...The social gradient was observed for a range of different diseases: heart disease, some cancers, chronic lung disease, gastrointestinal disease, depression, suicide, sickness absence, back pain and general feelings of ill-health...inequalities in health cannot be divorced from inequalities in society.

2. This paper shows that men aged over 50 were 1.54 times more likely to die in 1995-2001 if they were in social class V in 1971 than if they were in social class I in that year.  This inequality applied even to those who escaped their class:

Those who improved their social class between 1971 and 1991 reduced their risk of death somewhat relative to their class of origin but retained a higher risk than others in the class of destination.

3. Actors and actresses who win Oscars live longer than those who are merely nominated (though, oddly, the opposite is true of screenwriters (pdf)).
These three facts all imply that health inequalities arise from status inequality, not merely from the fact that the poor die early: lower-ranking civil servants, Oscar-nominated actors and upwardly mobile people, mostly, have good incomes.
Richard Wilkinson's contribution to this book spells out the link. Lower social status - independently of income - is associated with anxiety, insecurity and stress, all of which contribute to illness and death. Improving health, he says, requires a cut in status inequality - for example, by increasing workplace democracy.
But of course, there's little sign that former management consultant Hewitt wanting to scrap managerialist privileges.
To New Labour, health egalitarianism is a strong enough principle to justify restricting freedom, but not strong enough to justify seriously attacking inequality.