Occasional reflections on Life, the World, and Mathematics

Posts tagged ‘economics’

The president’s dilemma

In the classic prisoners’ dilemma, two members of a criminal gang have been caught by police. There is enough evidence to convict them of minor crimes, but without testimony from one of them they will receive only a light sentence, say one year in prison. If one of them agrees to cooperate with the investigation, prosecutors will let him out for time served, and be able to send the other to prison for ten years. But if they both cooperate with the investigation, both will go to prison for five years (perhaps because the prosecutors will have their information, but not their testimony). Key to the game is that the players are unable to coordinate their strategy. Clearly the best for both of them would be to keep quiet, but the strategy of cooperating with the investigation is superior, from their private perspective, regardless of what the other player does. So they both talk, and both get heavy sentences.

One weird thing about the story here is that the symmetry really doesn’t make sense. It’s not impossible, but it’s peculiar to imagine prosecutors being so interested in pinning the major crime on someone that they’re willing to let a confederate walk free, but indifferent to who flips on whom. That suggests we consider a less-known hierarchical version of this game, where one player is the powerful boss of a crime syndicate — let’s call him “The President” — and the other one is “The Attorney”, who knows all the details of his crimes, and is sufficiently involved to be criminally liable himself. Let’s call this game “The President’s Dilemma”. (more…)

The magical zero marginal

There’s no knowledge like secret knowledge… Prominent in today’s news is Labour’s contention that

leaked Home Office documents suggesting government cuts are linked to the rise in violent crime, and demanded the home secretary explain herself to parliament.

It’s a bizarre accusation, not because it is implausible, but because it could not be otherwise, and the suggestion that this has been “revealed” by a secret report is part of implicitly accepting an inane pattern of government — and not just government — obfuscation that I am choosing to call the magical zero marginal. The way it works is, the government (let us say) feels an urge to reduce expenditures on (let us say) policing. It’s a problem, because the voters rather like police, by and large, and feel that they derive benefit. Not to worry, says the government press release (possibly produced by a dedicated key on the Whitehall keyboard), there will be no reduction in service. The costs will be made up with efficiency gains. The claim is that there is a significant portion of the current budget that is bringing zero marginal benefit, and whose elimination will therefore cause no harm. Perhaps this portion doesn’t exist as a budget line item now, but will after a “reorganisation” — but then the implicit claim is that the costs of the reorganisation as well will be covered by the savings. (more…)

The eat-your-marshmallows party

When did the Conservatives become the party of immediate gratification? This follows a development across the Atlantic that I first noticed thirty years ago when Democratic presidential candidate Michael Dukakis was described as the “eat your peas” candidate.

I was shocked to hear from my daughter that her high school class had been given a talk encouraging them to consider leaving school and switching to an apprenticeship programme, because they could immediately be earning £3 an hour, or whatever it was. I thought this was just some weird individual thing, but then I saw an official government advertisement on a bus shelter making exactly this argument. I’m all in favour of apprenticeship programmes, but I think the choice of who should continue on to further education should not be best on the goal of getting paid £3 an hour right now. It is so obviously targeted at getting underprivileged children into menial jobs, to prevent them from rising above their station, that it astonishes me that the government was not too embarrassed to create this campaign.

Similar thinking seems to underly the recent proposal by the education secretary to reduce university fees for courses of study that tend to lead to lower salaries, which has been taken to be suggesting lower fees for arts and social science degrees, while maintaining current fees for science and technology degrees. This is a proposal to incentivise poorer students to prioritise short-term costs over long-term benefits. The most charitable interpretation one can have is that they read chapter 1 of the economics textbook, about prices being set by an equilibrium of supply and demand, and never made it to chapter 2, on the effect of incentives.

It’s purely coincidental that this would tend to brighten the career prospects of dimmer children of affluent familes. It’s almost like the Tories read about Mischel’s marshmallow test, and their response was that it’s unfair that poor children can get ahead just because they might happen to be constitutionally better inclined to delay gratification. I remember John Kerry being mocked in 2004 for having limited his children’s television viewing when they were young, showing them as out of touch with the habits of ordinary Americans, and thinking, self-indulgent habits work out different for aristocrats like the Bushes than for children of middle-class and working-class families. Which is perhaps exactly the point.

Golfing VCs

Economist David Blanchflower wrote an article for The Guardian inviting us to pity the poor underpaid university vice chancellors with their paltry sub-million-pound salaries. In discussing what an awful job it is, and why you

A vice-chancellor’s schedule is set for them. The job has a huge effect on family life. There are few places to hide and find privacy. You are always on show, even on the golf course.

Even on the golf course! Have these vice-chancellor-oglers no shame?

Oddly enough, the analysis by this economist, which included the striking phrase “If you pay peanuts, you get monkeys” — the monkey here being everyone who is not a vice chancellor — omitted any evidence that universities do indeed prosper from having non-monkeys doing the job. I mean, there are all kinds of jobs that are hard and important, but there’s a limit to how much you’re willing to pay to get just a tiny bit of extra talent (assuming that you can even reliable recognise those distinctions in the course of the hiring process). The suggestion is that you need to pay huge sums just to get one of the exceptional rare individuals who is even minimally qualified not to run the university into the ground. “In the end, there are few qualified and willing applicants.” I’d like to see some working-out on that problem.

Why people hate statisticians

Andrew Dilnot, former head of the UK Statistics Authority and current warden (no really!) of Nuffield College, gave a talk here last week, at our annual event honouring Florence Nightingale qua statistician. The ostensible title was “Numbers and Public policy: Why statistics really matter”, but the title should have been “Why people hate statisticians”. This was one of the most extreme versions I’ve ever seen of a speaker shopping trite (mostly right-wing) political talking points by dressing them up in statistics to make the dubious assertions seem irrefutable, and to make the trivially obvious look ingenious.

I don’t have the slides from the talk, but video of a similar talk is available here. He spent quite a bit of his talk trying to debunk the Occupy Movement’s slogan that inequality has been increasing. The 90:10 ratio bounced along near 3 for a while, then rose to 4 during the 1980s (the Thatcher years… who knew?!), and hasn’t moved much since. Case closed. Oh, but wait, what about other measures of inequality, you may ask. And since you might ask, he had to set up some straw men to knock down. He showed the same pattern for five other measures of inequality. Case really closed.

Except that these five were all measuring the same thing, more or less. The argument people like Piketty have been making is not that the 90th percentile has been doing so much better than the 10th percentile, but that increases in wealth have been concentrated in ever smaller fractions of the population. None of the measures he looked was designed capture that process. The Gini coefficient, which looks like it measures the whole distribution, because it is a population average is actually extremely insensitive to extreme concentration at the high end. Suppose the top 1% has 20% of the income. Changes of distribution within the top 1% cannot shift the Gini coefficient by more than about 3% of its current value. He also showed the 95:5 ratio, and low-and-behold, that kept rising through the 90s, then stopped. All consistent with the main critique of rising income inequality.

Since he’s obviously not stupid, and obviously understands economics much better than I do, it’s hard to avoid thinking that this was all smoke and mirrors, intended to lull people to sleep about rising inequality, under the cover of technocratic expertise. It’s a well-known trick: Ignore the strongest criticism of your point of view, and give lots of details about weak arguments. Mathematical details are best. “Just do the math” is a nice slogan. Sometimes simple (or complex) calculations can really shed light on a problem that looks to be inextricably bound up with political interests and ideologies. But sometimes not. And sometimes you just have to accept that a political economic argument needs to be melded with statistical reasoning, and you have to be open about the entirety of the argument. (more…)

NHS wants you! (to spread the varicella virus)

I’ve long wondered why children in Britain generally don’t get the chickenpox vaccine. In an article describing a move by drugstores to offer the vaccine for a substantial fee, the BBC quotes the NHS:

The NHS said a chickenpox vaccine is not offered as part of routine immunisations as it would leave unvaccinated children more susceptible to contracting the virus as an adult.

There could also be a significant increase in shingles cases as being exposed to infected children boosts immunity to this.

This is like the cracked-mirror reflection of the usual herd-immunity argument for why, even if you don’t want vaccines for yourself or your children, you have a civic obligation to make yourself immune to avoid transmitting the virus to others. Here they say that children have a duty to suffer with an unpleasant disease, so that they can serve as walking virus reservoirs that will more efficiently infect other children, and boost the immunity of adults.

I suppose there’s a cost-benefit analysis somewhere that shows this is the cheapest approach. And I’d bet that the cost of children’s discomfort is set at zero.

Extra cash

The EU is once again infringing on the British yeoman's ancestral freedom:

Fees for paying with plastic – most commonly a credit card – are routinely levied on everything from low-cost flights and tax bills to cinema tickets and takeaway meals, but the Treasury announced that these would be consigned to history from January 2018.

The government said the move, which builds on an EU directive, would mean “shoppers across the country have that bit of extra cash to spend on the things that matter to them”.

I'm just wondering: If the effect of this regulation is to leave people with more cash to spend, isn't that defeating the purpose? Anyway, I'm sure we can return to credit-card fees (and mobile roaming charges) just as soon as we're out from under the Brussels yoke.

Government intervention

It seems Theresa May has found her strategy for rescuing the British economy from the political damage the Tories are planning to inflict:

The prime minister will publish the strategy at a cabinet meeting in the north-west of England, setting out five sectors that could receive special government support: life sciences, low-carbon-emission vehicles, industrial digitalisation, creative industries and nuclear.

She will say the government would be prepared to deregulate, help with trade deals or create new institutions to boost skills or research if any sector can show this would address specific problems.

Great idea! As one of the people working on developing “skills and research”, I’d like to suggest that it might be a good idea to arrange an agreement to share students, workers, and researchers with our neighbours, who are similarly technologically-developed and share common scientific and educational traditions. We could call it the Anglo-European Union, or something like that.

But no, that would help “old institutions” like my own. The Westminster Pharaoh is only interested in boosting skills or research if it can create “new institutions” as a monument to her greatness.

All-you-can-eat

Ars Technica reports on testimony by Mediacom, a large US cable company, explaining why they should not be required to stop capping data usage:

People thus shouldn’t complain when Internet providers impose data caps and charge more when customers go over them, he wrote. “Even though virtually every other industry prices its products and services in the same way, some people think that ISPs should be the exception and run their businesses like an all-you-can-eat buffet.”

“Virtually every other industry”… Yes, it’s pretty hard to think of any industry that offers all-you-can-eat buffets. Who could possibly afford to offer all-you-can-eat? It’s a fantasy.

Big notes

I remember reading, back in the late 1990s, an article in Spiegel, about the dubious decision of the Euro finance ministers to create a 500 euro banknote. Since the only people who use cash in significant quantities in this millennium tend to be shy people eager not to be singled out for their achievements by prosecutors, the question was raised, why would you want to create a unit of currency that enables law-abiding citizens (and others) to pack five times as much currency into a suitcase as the former favourite $100 bills?* The answer given by Edgar Meister, one of the directors of the Bundesbank, was that Germans had gotten used to having a 1000 Mark banknote, and that if the largest Euro banknote were worth less, people would think this new currency was a weakling.

Eine Währung, die es sich leisten kann, mit so hohen Noten herauszukommen muß wertbeständig sein.

A currency that can afford to produce such large banknotes must be solid.

As everyone knows, that’s why Germany produced this 50 million Mark note in 1923: (more…)

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