Stumbling and Mumbling

Orwell's law

If George Orwell were alive today, he'd be spinning in his grave. One of his rules for good writing was: "never use a metaphor which you are used to seeing in print." The dead tree industry seems to think Orwell was a twat.
The FT tells us that: "Mr Brown rode to Mr Blair's rescue"
What, you mean he saddled up his hoss, threw the PM over it, shouted "hi-ho silver" and rode off onto the prairie?
The Evening Standard reckons the PM is "battle-scarred."
What exactly were his injuries? How long's he spent in hospital? Will he make a full recovery? Will he be fit enough to be PM? At a time when people really are battle-scarred as a result of the PM's own actions, this is surely a tasteless metaphor.
The Times tells us: "Blair anoints Brown as the next Premier"
The OED gives the following definitions of "anoint": "to smear with an unguent"; "to apply or pour on oil"; to moisten or rub a surface"; "to beat soundly, to baste."
I'd pay good money to see Mr Blair do any of these to Mr Brown. (Another definition is "to besmear with flattery, to butter", but this is not the conventional meaning.)
The Times also offers:  "Labour finds itself under siege after Iraq war advice U-turn."
Changing direction to drive into a siege sounds like a silly thing to do.
Now, I know I risk coming across as a grumpy old man - alright, a grumpy bald old man - to complain about this, but I think it's revealing. Why do journalists not simply report the facts? Why the resort to high-falutin, often military, metaphor? Could it be that their reports, and the events they describe, would be unutterably bland without a hefty  dollop of spice?
And another thing. The Groan's economic illiteracy  surfaces again. This report on Ed Balls' election campaigning revives "neoclassical endogenous growth theory."
Look, cretins. Ed Balls words were "post-neoclassical endogenous growth theory". In orthodox neoclassical growth theory - as described in Robert Solow's classic book - growth is exogenous. It happens because technical progress, which happens for reasons the theory doesn't describe, is strong enough to offset the endogenous force of diminishing returns. Endogenous growth theory tries to improve on this, by explaining technical progress as a function of economic factors. Mr Balls' reference to "post-neoclassical" was intended to make the contrast clear.

Some oil numbers

George Bush wants to reduce US dependence upon foreign sources of energy. He says:

To reduce our dependence on foreign sources of energy, we must take four key steps.
First, we must better use technology to become better conservers of energy.
And secondly, we must find innovative and environmentally sensitive ways to make the most of our existing energy resources, including oil, natural gas, coal and safe, clean nuclear power.
Third, we must develop promising new sources of energy, such as hydrogen, ethanol or bio-diesel.
Fourth, we must help growing energy consumers overseas, like China and India, apply new technologies to use energy more efficiently and reduce global demand of fossil fuels.

Two things are missing here. First, there's no mention of Americans changing their consumption habits; no shift away from smokestack manufacturing or any cut in commuting. Second, oil prices are set in global markets. Whilst American oil demand accounts for a quarter of world consumption, it is exposed to foreign energy.
Indeed, it's insufficiently appreciated just how much oil Americans use. Here are some figures on oil demand, population (pdf) and GDP (pdf). Put them together, and we  get these figures for 2003.
Oil consumption per person (barrels a year):
US=25.12
Japan=15.96
Germany= 11.86
UK=10.54
Canada=25.27
OECD=15.47.
What are you Americans doing, drinking the stuff? (Though given what passes for beer in your country, this might not be a bad idea.)
And here are figures on GDP (in dollars at 2000 prices and exchange rates) per barrel of oil consumed:
US=$1413
Japan=$2392
Germany=$1927
UK=$2439
Canada=$962
OECD=$1504.
By European standards, then, Americans are terribly wasteful users of oil. As American demand raises prices for the rest of us, this matters to us all.
Put it this way. If the US could cut its per capita oil consumption down to Germany's levels - yes, land of the autobahn, Porsche and Mercedes - it would cut its consumption by 10.8 million barrels a day. That's equivalent to more than Saudi Arabia's entire output, and is twice the output of Libya and Iran put together.

Value for money?

Does the state give value for money? My payslip, showing that I pay £800 a month in income tax and national insurance, prompts me to ask. And the answer seems shocking – government might not be such a terrible deal.

Here are the sums. Add in council tax and VAT, and I pay the state around £1000 a month; I don’t drive or smoke. Let’s assume for simplicity, that I pay this amount in real terms for 30 years, from the age of 25 to 55; I’m midway through this now. What am I getting for this?

Trade and compensation

I'm risking stepping on Biased BBC's toes here, but the BBC's report on the Archbishop of Canterbury's sermon about world poverty is rather woeful. It tries to drag Dr Williams into a crude anti-globalization camp: "Dr Rowan Williams said a naive faith in free trade is stripping some countries of their economic power and hampering efforts to overcome poverty."
In fact, his sermon was - aside from some twaddle about trust - more economically literate. He said:

Universal trade liberalisation may offer fresh markets and promise overall increases in wealth. It also forces choices on vulnerable countries, whose effects may be – in the short to medium term – very costly indeed to a whole generation of workers, to the environment, to political stability...in the long term ‘free trade’ promises greater benefits, but in the middle term its costs are immense unless there are clear mechanisms for compensation – unless the benefits are put to work for all.

This is surely right. No serious economist pretends that every single person gains from free trade immediately. If an autarkic country opens up to trade, its more inefficient producers wil go out of business. That's a cost. Economists don't say free trade is an actual Pareto improvement, in the sense that everyone gains immediately - that's absurd. They merely say it is a potential Pareto improvement: everyone would benefit from it if the winners could compensate the losers.
And this is exactly what Dr Williams is saying - although he emphasizes the costs whilst economists usually emphasize the benefits. Sure, he goes on to say that "the answer is unlikely to be a simple recommendation for a universal and instant end to protection or preference." But if we read "simple" to mean "unaccompanied by compensation," few economists would argue with him.
As for how such compensation could be paid, this sort of thing is far too radical to attract the attention of the statist conservative BBC.
A better headline - although it might err towards being over-generous to Dr Williams - would be: "Archbishop calls for free trade accompanied by compensation."
But of course, the BBC can't recognize opinions like this. The debate about globalization is between compassionate opponents of free trade and callous advocates of it. Intelligent and humane positions aren't allowed, are they?

Contrafibularities

My incremental post-industrial decontextualized multiparadigmed pedagogical exercise in post-textual neo-semioticist non-narrative discourse has encountered   contumelious reprobation from  a pseudo-objectivist  deconstruction.
That is, my blog is crap. According to this, it's got a Gunning-Fog index of just 10.25. That makes it more readable than the Wall Street Journal or the Guardian.
This is a failure. It's meant to be more inteligent than those - but not more accessible. I don't want to be read by just anyone, you know. This isn't for the riff-raff.
Worse still, I use only 1.56 syllables per word. Surely a record low for an economist, albeit one who hasn't yet blogged on generalized autoregessive conditional heteroscedasticity. I'm anaspeptic, frasmotic, even compunctuous to have been caused such pericumbobulation.

Low pay: no problem?

Here's a surprise - low paid workers have higher job satisfaction than better-paid ones, at least in the UK. That's the finding of this recent paper (pdf).
This surely has some interesting implications. It means Adam Smith might have been right; jobs do have compensating advantages.
And if you're a utilitarian, it has three other implications:
1. Rises in the minimum wage are even less defensible than previously thought, In destroying low-paid jobs, such rises would replace a source of satisfaction (work) with a source of misery (unemployment).
2. Should we worry about low social mobility, if the low-paid are (in one dimension at least) happier than the higher paid? Maybe the low paid are trading off income for job satisfaction.
3. Does wage inequality matter?  Here's a queer thing. It's only in the UK that the low-paid have significantly higher job satisfaction; in Europe the better-paid have more job satisfaction. And yet wage inequality is generally thought to be higher in the UK than in Europe. To a utilitarian, then, wage inequality should matter more in those countries where it is smaller.

A power for good?

Three of today's news stories: social mobility is falling because of rising inequality in education;  the NHS is buying Aids drugs intended for Africa; and tens of thousands of nurses are leaving the NHS each year partly because of bad management.
The message? Government is incompetent, and perhaps a force for bad.
But Geoff Mulgan, former director of the Prime Minister's strategy unit thinks otherwise. In this article he says: "Government retains an enormous power for good."
So, which should we believe - him or the  evidence?
Maybe both. What Mr Mulgan seems to be saying is that government works best when it acts not like government but like companies faced with market pressures. He says:

Government's greatest successes have generally been in areas in which the knowledge base is strongest and where independent validators of knowledge, like the audit commission, are most powerful.

He contrasts the success of Bank of England independence with the failure of the intelligence agencies before the Iraqi war. One institution is subject to easy and close public scrutiny and feedback. the other isn't. Of course, successful companies are always subject to such scrutiny, because customers are always assessing their quality and prices.
Also, says Mulgan:

It is so important for governments to remain porous—open to the views and ideas of business and NGOs, public servants and the public—and why it is sometimes necessary for even the most powerful politicians to take time out to listen and learn.

This is what successful companies do. Terry Leahy, chief executive of Britain's most successful retailer has said:

I visit hundreds of stores a year, and I would say 40% of my time is spent in stores. I talk to staff a lot and I talk to customers a lot. I attend customer panels as a way of life. We've developed many ways of giving customers a voice in the business, from Clubcard database management to market research, focus groups, panels, surveys - and so it is with staff. I used to work in marketing - and developed a number of these tools - but for me the most powerful thing is still listening to customers. The life they lead, the problems they have, and their experience in your stores. All this information could just gather dust. But it doesn't, it's hard wired into the key decision-making committees of the company. The customer gives the leadership of the business the plain and simple truth about the business - it's the most honest feedback you ever get.

Mr Mulgan's message, then, seems to be that governments succeeed when they act as if they were companies faced with market pressures.
This raises the question: how should government be organized so as to maximize this analogy? Here, Mr Mulgan gets vague.
He tells us that: "one of the optical illusions of government is that those inside it think of themselves as the drivers of change." But he later tells us that: "All of the more radical recent reforms were driven forward by tightly-knit networks, rarely more than half a dozen people."
So, does top-down decision-making work or not? If we can't answer this question, we'll never reform government for the better.

Immigration and markets

Imbecility is infectious. The Lib Dems have caught it off the Stupid Party. The BBC reports that “The Lib Dems would create an independent commission to set quotas for economic migrants based on the needs of different sectors of the economy.”

In an interview with the Washington Times, Menzies Campbell said:

We would establish an independent mechanism, consulting with trade unions and employers, as to what was thought to be a reasonable number [of economic migrants] in any given year…We would not set an arbitrary quota. We would say, what is necessary for that science laboratory, what is necessary for the food processing industry, what is necessary for the hospitality industry. We would arrive at a figure and then put that to Parliament, Parliament could discuss it and then decide if that was appropriate.

What utter drivel. What these clowns don’t realize is that there already is an independent mechanism which decides what a reasonable number of immigrant workers would be for different sectors of the economy. It’s one of the most brilliant inventions of mankind – one to which we owe the existence of the human race. And it employs thousands of experts at no cost to the tax-payers. 

It’s called the market. The very existence of a job vacancy which is not filled at a wage an employer is willing to pay a native worker is a signal of a requirement for a migrant worker. That’s all we need to know.

This, sadly, is not an isolated cretinism. It reveals that the managerialist mindset has not just infected New Labour, but the three main parties.

They seem oblivious to the basic fact about markets – that they are ways of aggregating information. Markets, far more than “experts”, can collect thousands of pieces of dispersed knowledge and summarize it all in a simple message – the price. This then tells people what to do.

To politicians, this notion that there can be decentralized control and knowledge is wholly alien. They think expertise and control can only exist in centralized hierarchies.

A footnote. Legend has it that, at a shadow cabinet meeting in the late 70s, Mrs Thatcher slammed a copy of Hayek’s The Constitution of Liberty onto the table and said: “This, gentlemen, is what we believe.” It’s a damning indictment of today’s Stupid Party that it is less intellectual and humane than even Thatcher.

Who's to blame for low savings?

Another day, another report claiming that Britons aren't saving enough. This has prompted the usual bleating from the financial "services" industry. Foreign & Colonial say:

The poor health of the nation's personal savings is simply not getting the attention it deserves...The 'savings time bomb' is a long-recognised problem but things appear to be getting worse rather than better. With access to final pension salary schemes rapidly disappearing, the British public are going to have to become even more reliant on making their own provisions whether through pensions, ISAs or other means. Yet alarmingly the household savings ratio has fallen dramatically since 1997 from over 9% to under 6% now. A combination of factors are behind this fall, not least the state of investment markets, but the problem has also been exacerbated by public policy moves such as the abolition of dividend tax credits on equity ISAs. Furthermore, one of the Chancellor's first acts was to reduce the tax advantages of pension funds which will undermine the long-term return on these schemes.

What F&C don't say - and nor does any other  fund management company - is that fund managers are themselves partly to blame for low savings.
These figures show that retail investors bought £4.7bn of unit trusts last year. That's 0.6 per cent of disposable income. That's the same proportion as in 1972, and  barely half the proportion of 1985.
Decades of rising incomes, and an ageing population, have therefore had no obvious effect in raising the demand for unit trusts.
Why? One reason is that there has been almost no technical progress in the unit trust industry. The typical unit trust is the same thing it was back in 1972; a middle-aged man with a second-class degree from a second-rate university uses accounting information to try to spot good shares.
If cars or computers were the same today as in 1972, demand for them would be tiny. Why, then, does the fund management industry expect decent demand for its products?
In truth, though, even this question is too kind. Even in 1972 cars were at least designed according to sound engineering principles. Conventional fund management has no such intellectual foundation. The notion that you can use accounting information to spot good stocks is just absurd. One group of economists who stopped laughing long enough to test the theory concluded that:

There is no persistence in long-term earnings growth beyond chance, and there is low predictability even with a wide variety of predictor variables. (full pdf here)

It needn't be like this. Behavioural finance emerged 20 years ago, but it's only in the last couple of years that fund managers have been thinking about it. And in my day job (subs req, I'm afraid), I've shown that portfolios based on simple Markowitz mean-variance optimization techniques - which are over 50 years' old - have out-performed the All-share by 90 percentage points in the last five years, beating all but 3 unit trusts. 
If fund managers want more customers, they should abandon failed managerialism and start thinking about proper economics. Until they do this, their call for the "savings time bomb" (which is of course no such thing) to be an election issue has as much credibility as my belief that the real issue should be society's appalling under-valuation of tall balding Leicester-born Oxford-educated economists.

A better politics

Most of this article by Johann Hari is so good I can forgive his twaddle about the minimum wage. He says:

If we wanted to take democracy seriously - if we wanted general elections to be more than a quadrennial plebiscite approving whatever the political class has already decided - what would we do differently? In an iPod age where we all expect to be able to access 10,000 songs in a second, it is bizarre that our political choices are restricted to two homogenous parties (or, at best, three). In every area of our lives we expect personalisation and nuance - but when it comes to politics, we are expected to be blunt and bovine.

Very true and very important - I've said something similar myself.

But I disagree on two points. First, he gives the impression – no doubt inadvertently - that alienation from party politics is confined to real people on housing estates. It isn’t. I’m an ex-Oxford PPE-ist living in Hampstead having had careers jobs in the City and meeja. And I’m as alienated as they are.

Second, he displays a lack of imagination when he says:

Only a multi-party proportional electoral system can make politics compatible with complex consumer preferences, giving us a political menu that stretches from the Greens to the BNP.

No. For one thing, this range of opinions isn’t wide enough. No party represents an economically literate left libertarianism, for example.

Also, any party politics retains one of the most unpleasant features of our current system – that it asks us to trust politicians. It therefore fails to promote Spinoza’s ideal:

What makes for excellence in the state is not that it should be governed by good men, but that it should be so constituted that it does not matter whether it be governed by good men or bad. (cited by Roger Scruton in The West and the Rest.)

Above all, there’s no “only” about this. There are other ways of making politics “compatible with complex consumer preferences.” We could and should unbundle policy-making as far as possible and use demand-revealing referenda. To get an idea of the vast range of possible public choice mechanisms, try this superb book by Dennis Mueller. The alternatives to our current system, Johann, are more plentiful than we can imagine.