From the BBC web site:
Home Secretary Theresa May has asked the Metropolitan Police to check whether banning theft and arson is an effective strategy for preventing crime. Some criminologists have claimed that widespread looting and arson mean the laws are not having the desired effect. Speaking on BBC Radio 4’s Today programme, Mrs May hinted that the riot laws remained under review. She added: “There’s not much point in having laws that are inefficient.” She suggested that the funds currently spent on policing might be better spent on reconstruction.
No, sorry, I got that wrong. It wasn’t the Home Secretary, it was the Chancellor of the Exchequer. The correct quote is:
Chancellor George Osborne has asked the Inland Revenue to check whether the 50p top rate of income tax is actually making money for the government. Some economists have claimed that tax avoidance and evasion mean the rate is raising less income than expected. Speaking on BBC Radio 4’s Today programme, Mr Osborne hinted that the 50p rate remained under review. He added: “There’s not much point in having taxes that are very economically inefficient.”
I was just listening to Deutschlandfunk, and there was a weird report in which a typically serious-sounding and besorgt German banky sort of person prophecied doom, now that the US Fed is promoting cheap money with promises of long-term low interest, “und wie hoch die Inflation dann steigt, das fragt keiner.”
And then, a breathless reporter telling us that the one question on everyone’s mind in Frankfurt is: “Ob der Dachs sich erholt.” And this while the British are killing badgers because they spread disease to cattle.
But there’s a serious question here: The metaphors that are used for describing market trends are bizarrely elaborate, compelling, and contradictory. On the one hand, a stock index is like a climber subject to gravity: It “slips” or “falls”, it “climbs” and “slips back” or “sinks”, it “claws back” its losses, or is subject to “corrections”, it “soars” unless it is “weighed down” by bad news, in which case it might “dip” or “plunge”. (I’m sure there are lots more colourful words that I’m not thinking of now. In German I’ve seen reference to a “Börsentalfahrt”. And at least the stock market is springy — after it crashes, it tends to “bounce”.) So, the gravity metaphor suggests that the natural tendency of markets is to go down, even”crash”.
On the other hand, the stock (or other) market is also a sick person, who may be “infected” from someone else (usually “the economy“, but it could be “caution” — well, I guess caution is the disease), but whose natural tendency is to “recover”.
Further reflections on non-transitive folk probability
Continuing my thoughts about zero-one probability from here, I come to the recent decision of Standard & Poor’s to lower their rating of US treasury debt. There are plenty of reasons to doubt their judgement, both because they’ve been absurdly wrong in the past (subprime mortgage backed securities were AAA, but treasury bills are risky?), because they can’t read budget estimates or can’t do basic arithmetic, because they are trying to project political trends, which they surely know even less about than about arithmetic, or because the people who work there are generally known to be pretty dim. But from a probabilist’s point of view what’s strange is the timing. Whatever you may think of the recent deal to avoid the US defaulting on its debt, it did avoid defaulting on its debt. Surely the likelihood of a default went down after the deal was passed. So why is the credit rating lower this week than it was last week?Now, this is all perfectly consistent with the view that S&P is not actually making a prediction of future default probability, but simply seeking the best opportunity to promote its wares. Certainly, the way they operate is not the like someone trying to give what will be perceived as neutral advice; they act more like central bankers, timing their announcements to try to move markets and (above all) seem relevant. They’re reminiscent of the folktale of the rooster who threatens to withhold his crowing, which inevitably will forestall the sun rise. The other animals plead with him to relent, but it’s a threat that only works as long as the rooster is modest enough to recognise that he can’t hold out forever. In the case of the US treasury bonds, S&P held out, and still the sun rose.
But there is something about their approach that seems to make sense to intelligent people, and not purely idiosyncratic. I’m reminded of Tversky’s famous conjunction fallacy, with studies seeming to show that people’s everyday probability intuitions don’t necessary satisfy the apparently inevitable law of conjunction: The probability of A or B must be bigger than the probability of A and the probability of B. Here we see intuitions of probability that don’t seem to satisfy the law of total expectation: If are possible future states of the world, and is the probability of event A conditional on happening, then the probability of event A now must be some kind of average of these conditional probabilities.
The well-known history of enclosure riots in 16th and 17th century England fascinates above all for their orderliness. Describing one riot in early Jacobean Bedfordshire, V. Magagna writes “The assembly that plotted the riot met in the church[…] The leader of the riot was the village constable.”
I thought of this when I read the following on the BBC web site, on the third day of riots and looting throughout London:
“Full scale looting going on at Clarence convenience store right by the burning car on clarence road. “One by one” shouts one man as people crowd round to get into the shop, whose entrance has been smashed in. Women calling: can you get me a magazine? Other people asking for alcohol.”
One by one. That’s British looting for you. They’ll pillage, and they’ll rampage, and they’ll kill, but they’ll queue up in an orderly fashion to do it… particularly if they have hopes of being rewarded with alcohol.
“Petitioning implies a belief in a natural order of society protecting the interests of rich and poor alike, which the authorities can be expected to enforce once the misdeeds of individuals are brought to their notice. Even riot can be seen in this light, for the intention was usually to compell authority to maintain a traditional order, rather than to overturn it.” Underdown, 1985, p. 118