Stumbling and Mumbling

Mandelson, P2P & public reason

Tom Watson says the “Sunday Times published a thoughtful contribution to the filesharing debate from Peter Mandelson.” He’s wrong on two counts. First, the piece appeared in Saturday’s Times. Second, it is not “thoughtful.”
I have three problems with it. First is this:

Taking something for nothing, without permission, and with no compensation for the person who created and owns it, is wrong. Simple as that.

Whether you think this assertion is right or wrong is beside the point. The problem is that it is just that - an assertion, It (literally) begs the questions; do creators’ ownership rights extend so far as to rule out file-sharing? On what basis do such rights rest?  A thoughtful writer would tell us. Mandelson doesn’t.
Second, there’s this:

Our creative businesses drive much of our economy. They provide not only tax revenues and jobs but also ensure that Britain punches above its weight on the global cultural stage.

What’s this "our"? What's he saying here - that file-sharing is all right if we only do it to dirty furriners? 
There is a good argument that (some sorts of) property rights generate economic success. Mandelson seems to be reversing this, and claiming that economic success should generate property rights.
Third, and most objectionable, is the line cited by Watson:

To those who have raised their voices about the proposed changes this week, let me say that I hear their concerns. I have read their blogs and can live with the abuse.

Note here the blithe refusal to actually engage with their concerns. Nowhere in his article does Mandelson cite a precise blogger’s argument in order to dispute it.
What’s going on here is a form of legitimation ritual. This takes two forms.
1. Smear one‘s opponents. They do mere abuse. By implication, rational “thoughtful” argument is the monopoly of the great and good such as him.
2. In not engaging properly with bloggers, Mandelson is reinforcing the sense of distance between the (hereditary) ruling class such as himself and the ordinary public. The thing about proper debate is that it takes place between equals. But Mandelson does not - cannot - countenance even such a chimerical equality. The mystique of the ruling class must be preserved.
You might have an obvious objection here: the government is in fact consulting about its policy  upon its policy of “addressing the problem of illicit use of Peer-to-Peer (P2P) file-sharing technology to exchange unlawful copies of copyright material” (my italicized words are all, I think, examples of question-begging.)
We must, however, distinguish between two forms of consultation, indeed of democracy: preference aggregation on the one hand, and - to use Sen's term - public reason on the other.
The two are not just distinct, but in some senses opposed. Preference aggregation gives weight to irrational preferences, or to those with loud voices and an inflated sense of their own entitlements. It heeds what Tom calls the “spasms of the cretinocracy.”
Public reason, however, involves an effort to slough off our own interests and biases, and ask: What is right? What is just?
I’m not at all sure which of these forms the consultation will take. Here, though, is a test. If the consultation involves public reason, it will give little weight to either the stated vested interests of the music industry or to those of downloaders. It will instead heed careful thinking and proper research as to the relative weight of these interests. And some of this research - such as this new paper (pdf) - calculates that downloading has generated an “immense gain in total welfare.”

What property right?

Many of those who have criticised my post on music downloading seem to be asserting what has to be proven - that there should be large-scale intellectual property rights. But what is the origin of this right?
It’s doesn’t lie in nature. Property rights, as David Hume said, are “an artifice and contrivance of man” - they are social constructs.  So, why should we construct intellectual property rights?
The Spectator editorial says:

Intellectual and artistic property rights are every bit as important as the rights of ownership to physical property. It is no less wrong to steal a film recording than it is to steal a teenager’s laptop.

But this analogy won’t do. Stealing a laptop is a zero-sum activity; you gain its use, but the teenager loses it. Taking intellectual property, though, is positive-sum. As Thomas Jefferson said:

He who receives ideas from me, receives instruction himself without lessening mine; as he who lights his taper at mine receives light without darkening me.

It seems to me that there are two possible foundations for a right to intellectual property - in justice and efficiency.
The argument from efficiency is simply that, as the Speccie says, “Without enforceable artistic property rights, there is no incentive to produce.”
But this fails - for now at least - on empirical grounds. There’s simply very little evidence that the production of music has declined as file-sharing has risen. Quite why this should be is interesting. Partly, it’s because the technical progress that’s caused file-sharing has also reduced the costs of making music; the greatest album ever made was mostly recorded in a bedroom. Also, artists can make money in other ways - for example by touring. And also, the motives for making music are non-financial - satisfying the muse, gratifying the ego, whatever.
The argument from justice is that creating something generates rights over it; Mandelson hints at this when he says:

Taking something for nothing, without permission, and with no compensation for the person who created and owns it, is wrong.

But creating things doesn’t generate complete ownership rights. When I create articles for the Investors Chronicle, I automatically hand over copyright to my employers. Nor do I get the maximum income possible from my creations: some of the income is creamed off by shareholders, and more by taxes. I’m not aware of Lord Mandelson’s opposition to such arrangements.
What’s more, a right of ownership of an asset does not necessarily entail a right to maximize one’s income from that asset.
My legitimate ownership of a knife doesn’t entail the right to maximize income from it by using it in muggings. The force of my cabbie analogy lies in the fact that a cabbie is not allowed to maximize his income by stopping people giving each other lifts. Nor are decorators allowed to maximize their income by stopping us from helping friends paint their spare rooms.
There are a vast number of ways in which property rights are severely limited. To take an example from the music industry, the Licensing Act, in effect, limits the ability of new acts to perform in small venues, thus limiting their opportunities to earn money from their talent. It’s rather odd that a government that supports this restriction upon musicians should be so keen to defend their “rights” in other ways*.
Now, these considerations don’t suffice to refute the claim that musicians’ rights over their music are so extensive as to debar file-sharing. What they do, show, though, is defending such rights requires one to either argue for many changes in the law, or to show that there’s something special about those rights.
None of this is to defend large-scale file-sharing. In a free society, many things are morally or aesthetically deplorable but not illegal. One could argue that file-sharing falls into this category. We could say to the file downloader: “don’t you think you should instead give the artist some money for creating that song?” without asserting that the artist should have a full legal right to the money.
* Actually, it’s not odd at all. The principle is that government does what big business wants, but not what smaller businesses want.

Cabbies & record companies

If I give a friend a lift in my car, should BP refuse to sell me petrol to punish me for depriving cab companies of revenue?
No-one is proposing this. So why is the government proposing that ISPs cut off services to people who swap music files?
The analogy holds because the cab firm and music company both lose potential business to people giving stuff away for free; the stress here is on “potential”  - there’s no out-of-pocket loss, so the Daily Mash is, unusually, wrong.
If anything, my analogy breaks down because it’s too friendly towards the music business. For example:
1. It is not the case that music industry revenues fall one-for-one with each file download. The alternative to downloading a CD is often not purchasing the CD legitimately, but rather going without it entirely.  One paper (pdf) estimates that the music industry loses only one CD sale for each five downloads. Another study estimates that those who download music heavily spend more on CDs than others (though correlation isn't causality). However, Stan Liebowitz has gathered more pessimistic evidence; see also this paper of his.
2. There’s no evidence that file-sharing is choking off creativity. As Chris Anderson says in Free, there are more bands making more music than ever before. The fundamental justification for copyright laws - that they are necessary to incentivize creativity - doesn’t seem to be relevant, at least yet.
3. File-sharing can act as a form of free publicity, which allows artists to make money from tours. Alan Krueger points (pdf) out that it has led to a surge in prices for concert tickets.  And artists can monetise the publicity in other ways, such as by selling merchandise. It’s not just rappers such as 50 cent (or 31p as he’s known in England) who do this: at her gigs you can buy a Kate Rusby frisby (or frusby).
In a longer historical context, what is unusual is that musicians have ever made money from recorded music. Until around the 1930s, their money came from performing or selling sheet music - and, as Tom Watson points out, some musicians feared that recording would ruin music. So what if we return to that sort of business model? Thanks to the same internet that’s depriving them of CD sales, artists also have far more ways of getting themselves known now than their predecessors.
4. Record companies could protect themselves from downloading by increasing the superiority of the CD over the file - for example, by including better liner notes; Hal Varian suggests ways of doing this (pdf).
5. Record companies in themselves are of no value. They are mere middle-men, connecting musicians and audience. If there’s a way of cutting them out, what exactly is lost, as long as musicians can still make music?
On balance, then, isn’t there a stronger argument for protecting cab firms from people giving lifts to their friends than there is for protecting record companies from file-sharers? Could it be that we don’t protect cabbies from thieves who give other lifts simply because cabbies don’t have dinner with Peter Mandelson? Or could it be that our intuition is wrong, and we should protect cabbies?
(I write this as a dinosaur who still buys CDs.)

Keynes & irrationality

You can’t open a newspaper these days without seeing some article about how people behave irrationally. What much of this writing misses, however, is that - for many practical purposes - it’s just impossible to behave rationally. The distinction between actually-existing irrational people and the desiccated calculating machine of economic theory is a false one - because the latter cannot exist.
This is the point Keynes made. His argument was not that people could behave rationally if only they tried harder. It was that they behaved irrationally because there was no alternative.  He wrote:

Most, probably, of our decisions to do something positive, the full consequences of which will be drawn out over many days to come, can only be taken as a result of animal spirits.

The emphasis here should be on the word “only.” This is because rational calculation is impossible as we usually have no relevant information  about the future:

The outstanding fact is the extreme precariousness of the basis of knowledge on which our estimates of prospective yield have to be made. Our knowledge of the factors which will govern the yield of an investment some years hence is usually very slight and often negligible….
Human decisions affecting the future, whether personal or political or economic, cannot depend on strict mathematical expectation, since the basis for making such calculations does not exist.

With rationality unavailable to us, animal spirits, rules of thumb and sentiment are all we have:

In abnormal times in particular…the market will be subject to waves of optimistic and pessimistic sentiment, which are unreasoning and yet in a sense legitimate where no solid basis exists for a reasonable calculation.

Again, we should emphasize that phrase “in a sense legitimate.” Keynes did not argue that men were always stupid:

We should not conclude from this that everything depends on waves of irrational psychology. On the contrary, the state of long-term expectation is often steady, and, even when it is not, the other factors exert their compensating effects.

What Keynes seems to be edging towards here is a point made by Gerd Gigerenzer - that sub-rational thinking, such as folklore and rules of thumb often serves us well (pdf), especially when we lack the resources to use full rationality.
Two examples should suffice; both are in part analogous to stock market investing.
1. How do you catch a cricket ball? In theory, we could calculate its velocity and trajectory and position ourselves accordingly. But of course we have neither the knowledge nor time to make such a calculation. Full rationality is irrelevant. So we use rules of thumb such as “keep your eye on the ball” and “soft hands”.  And these often work well, unless one is Australian.
2. In a strange town, how do you decide what’s a good restaurant? You might not have the time to consult all the (possibly unreliable) restaurant guides.  The rule of thumb “choose a busy place - the locals might know something” will often do well; sometimes at least, there is wisdom in crowds. In this sense, Madeleine Bunting’s claim that we are lazy and imitative misses the point - being lazy and imitative needn’t be a bad thing. 
Saying that “people are irrational” is rather like saying “John Prescott is fat and ugly”. It’s true but unoriginal and uninteresting: I’m astounded that Maddy thinks otherwise. The questions are: can we identify in advance when irrationality will harm us? And in such cases, is it possible to do better?

Religion is good for you

Religion is good for your health. That’s the finding of this new paper (pdf) by Angus Deaton. He says:

On average, over all countries, and over countries sorted into income groups, religious people do better on a number of health and health-related indicators. These protective effects appear to be stronger the poorer is the country.

Using Gallup’s world poll, of over 350,000 people in 144 countries, he estimates that - controlling for things such as age and education - religious men are 1.7 percentage points less likely to have experienced physical pain the previous day; 4.2 percentage points more likely to say they feel energetic, and 3.2 percentage points more likely to say they are satisfied with their health.
Deaton’s paper, though, is by no means the only one to have found a positive correlation between religion and health. This paper (pdf) says:

In healthy participants, there is a strong, consistent, prospective, and often graded reduction in risk of mortality in church/service attenders.

And Mike McCullough of the University of Miami has gathered other evidence.
This is unlikely to be because God looks after his own. Instead, it’s because being religious is associated with things that are good for you. For example, in Deaton’s sample, religious men are less likely to smoke, more likely to feel they are respected by others, and more likely to be married - and these things are good for one’s health. Because these correlations are weaker for women, he found no evidence that religion improves women’s health - although the other research does find this.
It’s also the case that religious people are more likely to be extraverted and agreeable than others, and more likely to be generally happier (pdf). These things also help (pdf) us live longer.
Belief in God doesn't give us eternal life in the next world, but does seem to offer a longer life in this one.
Contrary to the impression given by Richard Dawkins, religion does seem to have some beneficial effects.

Democracy, character and preferences

My call for workers to exercise greater control over bosses has been criticised by Liam Murray and Kardinal Birkutski on the grounds that workers are often unable to judge the quality of bosses.
This raises a point which was perhaps better grasped by Tocqueville and Montesquieu than by more recent thinkers - that the causality between character and institutions runs both ways, with the result that it’s possible to be trapped in a sub-optimal equilibrium.
I concede that many workers today have little interest or judgment in how their company is run. But this might well be a form of rational ignorance. If you know you can‘t change how your firm is organized, you save yourself the trouble of worrying about it, and just keep your head down. And a mix of the endowment effect and status quo bias causes you to not demand a change.
It looks, then, as if there is neither the demand for workers’ control nor the technical conditions for it. But this two-fold lack is endogenous - it arises from the fact that workers’ control doesn’t exist.
It’s quite possible that, if workers control were to be instituted, then eventually the conditions for it to succeed would emerge. As Tocqueville pointed out, democracy can energize people into taking more interest in affairs. And the endowment effect would change from being a source of contentment with hierarchy to being a source of contentment with democracy.
There is, perhaps, a parallel here with Afghanistan. Sceptics, such as the FT’s David Pilling, say we can’t build democracy in that country because the necessary conditions for it, such as a belief in the peaceful resolution of conflicts, don’t exist. But it’s quite possible that their experience of an albeit imperfect democracy might create a taste for it, so the conditions for democracy to thrive might come later.
In this sense, we Marxists and those who are optimistic about the prospects for democracy in Afghanistan have something in common; we recognize that institutions can shape character and preferences, and that - because of this - the claim that the conditions for democracy are absent is not persuasive. Sometimes, stated preferences are not relevant, so change must be instituted against the apparent will of the people. As Henry Ford is reputed to have said: “if I’d asked people what they wanted, they’d have said a faster horse.”

Against a High Pay Commission

Compass wants the government to set up a High Pay Commission to limit top incomes. This is a bad idea. It’s an example of what Boffy, in another context, rightly calls the Left’s “debilitating reliance on statism.”
The thing is, high salaries lie along a spectrum. At one end, there are genuinely talented people who might be lost to the country if their wages are capped. Some of these might not be  obviously overpaid: Cesc Fabregas (pbuh), for example, earns a third less than Frank Lampard. At the other extreme are pure rent-seekers, who owe their riches to the ability to climb corporate ladders or to the fact that they are in positions to rip off workers or shareholders.  And there are many between these two poles - people who are good but not £1m a year good.
However, a blanket cap on salaries cannot distinguish between all these different individuals. Which gives us a problem.
If the cap is set low enough to hit rent-seekers, oppressors and exploiters, it risks driving away genuinely productive people. And if it’s set high enough to retain the latter, it’ll leave the power-grabber untouched.
There is, though, an alternative to a government commission - workers’ control. Workers, far more than any ragbag of state-appointed “experts”, have an idea whether their high-paid bosses are clueless gobshites or genuinely good managers. And they have an incentive to distinguish between them. Rational workers would want to retain a talented manager, as he is best able to secure their jobs and improve their wages. And they have every need to get rid of the bad boss, as it’s their jobs that are threatened by his greedy incompetence.
So, high pay should be curbed (or not) not by the state but by workers themselves.
In this sense, I agree entirely with Paul - collective action is better than state intervention. As long, that is, as we recognize that what’s needed is not workers’ pressure upon companies, but worker’s control: workers should hire bosses, not (just) bosses hire workers.
Another thing: other opponents of Compass’s idea, such as Tom Harris or David Aaronovitch, argue that taking money away from high earners would have “minimal” or “negligible” effects on the macroeconomy. This is true, in terms of the cash sums involved. But it misses the point, that it is the unrestrained power of bosses that does economic damage. Constrain their power, and the money will take care of itself. Of course, we wouldn't expect a New Labour lackey or an ex-Communist to appreciate the dangers of inequalities of power.

Hannan: a partial defence

Daniel Hannan is copping some stick for his criticism of the NHS. But there’s one thing he said which seems defensible. It’s this:

If the Americans came to me and said, ‘Would you recommend us taking up a system just like the British NHS?’, I think I would have to say ‘No.

The thing is, it’s perfectly possible to believe this whilst believing that the NHS works well in the UK. I say so for two reasons.
1. The NHS works as well as it does because it is underpinned by a system of gift exchange. Patients accept waiting a few weeks for operations; do not demand expensive treatments of dubious value; and do not often sue doctors. And doctors and nurses, in exchange, often do more than they are contractually obliged to.
In a society in which this culture of non-market exchange is weaker, an NHS system would not work as well. So it’s quite possible to believe that the NHS is OK for the UK, but would fail in the US.
2. In moving from one system to another, there are adjustment costs. These aren’t just the administrative costs of setting up new systems or the PR costs of educating suppliers and users about it. They also include the costs of frustrating some expectations, as people who had expected expensive treatments on demand find them refused or delayed.
Even if the UK system is somehow better overall than the US system, it’s quite possible that - given the endowment effect and status quo bias - these costs are large enough to rule out sifting from the latter to the former.
I say this not to support Hannan, who went further than the quote I’ve used. I only want to say that the question: is the British healthcare system better than the US? is very different from the question: should the Americans adopt a British-style system? I fear, though, that this is not an issue in which subtle distinctions are relevant.

Health spending & life expectancy

Does it matter how much a country spends on healthcare? My chart, taken from OECD data for 2005, raises this question. It plots total health spending (public and private) as a share of GDP against life expectancy, for 32 OECD nations.
What leaps out here is that the US is a huge outlier. If we ignore it, there seems to be a strong correlation (0.67, R-squared = 45.3%) between health spending and life expectancy, with each percentage point of GDP spent on health associated with 14 months longer life.
Taking life expectancy as the measure of a healthcare system suggests*, then, that the US’s system is hugely wasteful. The experience of other OECD nations suggests it could achieve its life expectancy, of 77.8 years, with health spending of 8% of GDP - a saving of 7.2% of GDP, or roughly $1 trillion a year.
By contrast, the UK, with health spending of 8.2% of GDP and life expectancy of 79.1, is in the middle of the pack. You’d not guess from our chart that there’s anything grievously wrong with the NHS as a system.
However, the strong correlation between health spending and life expectancy exists largely because there are a handful of poor countries (such as Turkey, Poland and Mexico) which spend little on health and have low life expectancy. If we exclude the seven countries in our non-US sample with health spending below 7.5% of GDP, the correlation between spending and life expectancy falls to a statistically insignificant 0.16.
This doesn’t necessarily mean that there ceases to be a causal link from health spending to life expectancy once we exceed a certain  level of spending. It might instead be that the link is confounded by another factor. For example, if a nation lives healthily, it would have long life expectancy and low health spending; this is true for Japan. 
This raises the question. Could it be that if we want a healthy citizenry we should think less about the level of health spending, or even how it is organized, and more about lifestyle factors that could promote better health?
* Of course, life expectancy isn’t the only metric. But is there an observable measure by which Americans are so much healthier than others as to justify the US’s exceptional spending?

When China rules the world: a review

Martin Jacques argues that as China gets rich, it will not become westernized, but it will become a hegemonic power, using its economic might for political, military and cultural purposes.  This, he says, will lead to a “different kind of world”, in which economic and political progress are no longer identified with “western” liberal democracy.
There are, though, several reasons to doubt this. For one thing, Jacques contrast between illiberal China and the liberal west is overdrawn. As Amartya Sen has pointed out, freedom is not a peculiarly western ideal. And Jonathan  Mirsky adds that Jacques’ image of China as a nation with 5000 years of unbroken history is rather simplistic.
There is, though, a bigger problem - China’s economic dominance will, for our lifetimes at least, be merely a function of its size, not its ingenuity.
The World Bank estimates that China’s GDP per head is still under $6000 a year, and that there are 254 million Chinese (equal to the combined populations of the UK, France Germany and Spain) living on less than $1.25 a day.
This means that even if China can grow 8% a year - its average rate since 1981 - it will take almost a decade for the average Chinese to rise above the US’s current (low) poverty line.
And if the relationship between GDP growth and poverty reduction remains the same as it was between 1981 and 2004, then even 20 years of 8% growth will still leave over 50 million living below $1.25 a day, and leave the average Chinese only four-fifths as rich as the average Englishman is today.
China, then, will remain a poor country for a long time. This, will, surely, greatly dampen its hegemony. A nation’s influence arises, in large part, from foreigners’ willingness to learn from it. If a nation or business wanted to succeed in the early 20th century, it had to adopt American innovations, such as mass production, Taylorism and hierarchical companies - hence the US’s hegemony. But it is not the case that success in the 21st century will require us to learn from China.
There’s another reason why China might not become as important as Jacques thinks - its lack of democracy. Jacques is right to say that democracy is not necessary for economic growth; if we count women as people, Britain did not become a democracy until 1928, 150 years after its economic take-off began.
But democracy might be necessary for a nation to become hegemonic. I say this not just because democracy is a source of moral authority (a shining city on a hill) but because of the effects of the democratic spirit. The US’s hegemony for the last century has rested in large part upon its creativity not just in business but in the arts and intellectual activities. For a long time, film, TV, popular music, philosophy and economics have been, for practical purposes, American creations. As a result, non-Americans see their world through American eyes - a fact which, in turn, has enormous economic effects insofar as it helps the US borrow cheaply.
But the creativity which gave rise to this hegemony is a democratic creation. A people with the spirit of democracy look for their betterment not to governments but to themselves. And this inspires them to work, create and innovate. As de Tocqueville wrote:

On passing from a free country into one which is not free the traveler is struck by the change; in the former all is bustle and activity; in the latter everything seems calm and motionless…Democracy does not give the people the most skillful government, but it produces what the ablest governments are frequently unable to create: namely, an all-pervading and restless activity, a superabundant force, and an energy which is inseparable from it and which may, however unfavorable circumstances may be, produce wonders.

The Chinese government is trying to confine this superabundant force only to a narrow economic realm. But if it is to become as hegemonic as Jacques believes, mightn’t this have to change? It is when American high school students aspire to study at Chinese universities, and when the brightest Americans migrate to China that China will become truly hegemonic. How likely is this?