Economics and similar, for the sleep-deprived

Does anyone have any idea what might be done about the pointless blob of white space above this paragraph? It seems to be resistant to all my efforts. Update haha, it succumbed.


Thursday, November 07, 2002

 
Why Formula One this year is going to suck, and other philosophical topics

Or, subtitled, "Descent Into Self-Parody". Apologies in advance, readers; this is a long one. Basically, I spent five years of my life, eighteen and a half thousand pounds of my own money, and probably the same again of the British taxpayers and more from my parents, on being educated by the British university system. And by God are you lot going to suffer for it. The current post is intended to discuss sports psychology, ergodicity, broadcasting rights, the von Neumann/Morgenstern axioms in economics, Turing Machine incomputability, the Rand Corporation, medieval alchemists and option pricing. Although it may end up digressing ....

I have slightly unusual taste in sports, because I basically like boring sports (I find them interesting) and dislike interesting sports (I find them boring). Football, basketball, etc: forget it. I really can't be bothered watching any competition of pure athleticism which lasts longer than the 100 metres final. Sure, there's a lot of physical skill and grace involved, but you can get that at the ballet, and I don't like ballet either. There's always action going on, thrills of excitement and disappointment and all that, but it just doesn't do anything for me.

Give me a good darts match on the TV, on the other hand, and I'm as happy as a pig in a nice clean sty (the preferred environment for pigs). Snooker is good too, as is crown green bowling. When the Scots started doing well in the Olympics and we had curling on the tele every night, I was enthralled. I even enjoy watching golf when I'm drunk enough to forget how much I hate the game (for social and political reasons, natch).

It took me a while to work out why my taste in sports runs this way ... in fact, it's pretty hard to see why anyone bothers with these sports at all. Fair enough, there is quite a lot of skill involved in being able to play snooker or darts -- I'm complete shit at both -- but the actual physical skill involved is an utterly derisory one. Being able to poke a ball with a stick really accurately? Rolling a counterbalanced ball in a reasonably straight line? Sliding things on ice and sweeping the ice with a fcking broom? I think it's pretty safe to say that these sports are products of an advanced society; one wouldn't want to categorically say that Steven Pinker couldn't come up with a story about how taking iron shots over water hazards is a skill developed from instincts that were vital to our survival on the African veld, but it would surely take him at least a couple of coffee breaks. These skills suffer to a great extent from the "juggler paradox"; the principle that juggling is such a stupid fcking skill that the better someone is at it, the stupider they are, because they've wasted more time on that pointless, stupid skill. (NB to any jugglers reading: D-Squared Digest does not propose to enter into any correspondence on this point. Having offended hobbyists in the past with some pointed remarks about Linux, I know how passionate they can be. But the fact remains; Catherine Zeta Jones is an international megastar, whereas the greatest juggler in the world is a geek act. Deal with it.)

But the point is, precisely because the physical skill is so risible, that the sport itself has to take place on a higher level. At the top levels of snooker, darts, bowling etc, all the people present have the physical skills to win, as long as they maintain their concentration and focus. Or in other words, the winner is the guy whose nerve cracks second.

And, human psychology being what it is, beginning to lose a bit is a self-reinforcing process; a player's performance in sequential vists to the table or the oche will tend to have positive, destabilising feedback. Regular readers will recall my discussion a few weeks ago of nonergodic processes; well, darts scores would be a great example of a real world nonergodic process. In principle, both players in an evenly matched game of darts will have about the same expected points score from every visit to the oche, so you would expect that both players scores would follow a random walk, with the winner beg the player whose random walk drifts across the winning line first. In amateur and low-level games, based on my casual empiricism of watching pub teams, this is close to being the case. At the professional level, however, you will tend to find that as a long match goes on, the player who started off losing will get worse, while the player who started off winning will hit his 180s more often. The statistical properties of darts scores at the professional level give a decent picture of nonergodicity; the average scores taken from the first 50 sets of arrows will most likely be completely misleading as to the result of the match.

So anyway, basically, the thing which makes boring sports more interesting is that you watch, over the course of a couple of hours, the complete psychological destruction of a human being. Which, in all honesty, probably means that Pinker the Thinker might have had a point in coming up with an evolutionary pop-psychology explanation of the putting green. This also fits as a psychological explanation of what I like about boring sports, because it fits an out-of-sample data point; the only exciting and physical sport I like is boxing, a sport which is also entirely about the destruction of one human being by another for the entertainment of third parties. This would rather tend to have the conclusion that I'm not a very nice person, but that information has always been free for the asking.

Cricket and Formula One have always been rather marginal sports for me. Clearly, both of them have this psychological edge to them, but it isn't quite as pure; it's tainted by elements other than pure mental attrition. I love cricket, but if I were being honest, the main reason I watch it is that you can have a drink and a chat during the boring bits. It doesn't have that gripping quality that the boring sports have; often, it's just boring.

With Formula One, however, it's a bit different. The psychological game is utterly swamped by the fact that, up to a first approximation, the championship is won by the guy who signs the biggest cheque for engine development and chassis testing. If things were rushed, or cars became illegal or something, you could continue to simulate the Formula One season by just persuading ten motor manufacturers to burn a suitcase full of $100 bills and smash a crate of champagne. There are a lot of people who prefer going to motor shows to sports competitions, but I'm not one of them, and in general, they're not a monetisable audience to advertisers.

Which is why the Formula One boys have a whole load of tricks up their sleeve for changing the face of motor racing this year. They want to break into the North American market, which is currently dominated by NASCAR. And, to their way of thinking, that means that they've got to have MORE ACTION! More overtaking, more uncertainty about the outcome of a race, more personalities and so on. They're basically pondering a whole set of rule changes relating to design restrictions, all of which are more or less explicitly designed to a) stop Ferrari and Michael Schumacher from winning and b) make the sport look a bit more like NASCAR.

It sounds horrendous because it is. In principle, reducing the element of technological differentiation could (although probably won't) make it more of a psychological battle, appealing to people like me. It could (although probably won't) make it more of a contest of driving skill, appealing to people not like me. In actual fact, the rule changes are much more likely to make Formula One into a complete lottery, appealing to absolutely nobody, since you can't even bet on it at any decent odds. But even if they were per impossibile to design the absolute perfect set of restrictions on the design specs, balanced perfectly to give the most even and fair chance to every team, this would still be a bad idea.

The reason it would be a bad idea is that the appeal of Formula One is qualitatively different from that of any of the other kinds of sports we've discussed so far. The reason that people care passionately about Formula One is that when you are watching it, even though the actual racing is usually dull as sht, you can be absolutely, totally, one hundred per cent sure, that the cars you are watching are the fastest possible cars that could be racing on that circuit. This is a qualitative difference between F1 and most other sports because what the spectators care about is the actual *facts* of what is going on in front of them, not the experience that they're having themselves. If F1 are going to try to make the experience better, at the expence of making it no longer the case that the cars are as fast as they can be, then we might as well fuck off and watch NASCAR. After all, NASCAR's much more exciting, it's more dangerous and quite visually spectacular. The only reason why NASCAR is not as good as Formula One is as follows; NASCAR cars aren't as fast as Formula One cars, therefore NASCAR is sht. End of argument. Anyone who tries to pretend that, when the topic is car racing, any criteria are relevant other than the fastness of the cars on offer, is kidding themselves and on some level or other knows it. As you can tell, I started to go off F1 when they banned turbochargers.

With sickening inevitability, like the one-issue bore I am, this whole discussion set off in my mind a train of thought relating to (go on, close your eyes and guess) some serious problems with the logical underpinnings of neoclassical economics (yup, well done). Fundamentally, preferences of the kind which I was describing in relation to Formula One motor racing, can't be described at all well in the terms of utility theory, and you get into some pretty bad logical tangles if you try to force them to fit.

The problem is the one I hinted at above; what's valuable about the experience of watching Formula One is not something intrinsic to that experience, but a fact about the cars; something about the relationship between that experience and the rest of the world. For example, let's assume that someone starts up, on the other side of the world, a new auto racing league in which turbos aren't banned, electronic braking systems are allowed, and various other design items ruled "unfair" by the F1 committees are let back in. Such a league would be pretty similar to Formula One, but the cars would be faster.

Although this would not alter the intrinsic qualities of watching a Grand Prix in the slightest, it would utterly devalue the experience. Rather than watching the pinnacle of man and machine operating together in harmony, you'd be watching the best that engineers could do under some rather arbitrary constraints put together by a committee of jobsworths led by a man in silly glasses. Rather than watching the fastest cars in the world, you'd be watching a bunch of random autos that were pretty damn fast, but not the fastest in the world. In other words, you might as well be watching NASCAR.

This seems like a pretty trivial and dull philosophical point, the sort of discussion of "intrinsic" and "nonintrinsic" properties of things that excites people writing dissertations on the subject of "Locke's Theory of Primary and Secondary Qaulities", but nobody else. Actually, it's incredibly important, and the reason it's important lies in the innocent-looking phrase "you might as well be watching NASCAR".

I hate NASCAR and think it's completely pointless. But I have to admit it's quite a spectacle. The reason I don't like it is that I don't like motor racing per se all that much, and therefore if I'm going to watch motor racing, I want it to be the top end of motor racing; Formula One. But the only good thing about Formula One is that the cars are the fastest that there are. If someone were to launch the hypothetical Formula Minus One superleague I was talking about, then there would be absolutely no point in F1 as she currently is. In fact, if the option of F Minus-1 were to be offered, I'd prefer NASCAR to F1.

This still seems pretty trifling, but actually, it's deadly to utility theory. One of the mathematical conditions that have to hold if my preferences are going to give the right kind of ordering necessary to get a consistent utility map, is that it must be the case that my preferences are "independent of irrelevant alternatives". In other words, that my choice between A and B is not affected by anything other than A and B. If this isn't satisfied, we can't prove that there is a definable optimum outcome for me; there might be points in my utility map in which consumption bundle X is not preferred to Y, Y is not preferred to X and I am not indifferent between X and Y. That sounds like a psychologically implausible situation, and it is, but remember that we're not talking about my actual preferences here, we're talking about mathematical representations of my preferences. Specifically, we're talking about whether certain kinds of mathematical representations of my preferences are possible, and the conclusion is that if preferences of the kind outlined by my NASCAR/F1 example above are possible, the kinds of representations usually assumed by economists, aren't possible.

This is a general problem with the current state of mathematical economics; that the mathematical conditions needed to prove any of its theorems are too strong, and it's insoluble. Not insoluble in the sense of being very difficult, but insoluble in the sense that the pair of equations 5x=4 and 2x=3 are insoluble. J. Barkley Rosser has a load of great papers on this subject on his website; I'm not going to link directly because you'll enjoy (no really) browsing around, but there is one called "All That I Have To Say Has Already Crossed Your Mind" (based on a Sherlock Holmes quotation) which proves that, so long as there are at least two individuals in an economy, there will be some situations in which equilibrium is not achievable. This is basically because, at the highest level of abstraction, the decision-making processes of economic agents as modelled by economists, can be represented as Turing Machines. And, for common economic situations, the problem of constrained optimisation by one individual conditional on the other's response (which in turn has to be conditional on the other's expectation of one's own action -- it is here that we get the sort of "I think you think I think" sentences which give this branch of mathematics its Alice In Wonderland quality) can be shown to be analogous to the Halting problem for those Turing machines.

(As with all Goedelian arguments, the easiest way to understand this is to just do what I did and spend six months being taught formal logic, but think about it this way; if you're deciding what to do, and you're interacting strategically with another player, then your decision is going to depend on what he thinks you're going to do. Unless you're going to attribute systematic error to him, what he thinks you're going to do ought to be the same as what you're actually going to do. But if one of the inputs to your calculation of what you ought to do, is what you're going to do, then it's quite clear that you've got a problem on your hands. This is hopelessly unrigorous and hand-waving, but gives you a flavour of the argument).

Now most economists tend to think that this problem (in its game-theoretic incarnation, anyway) was solved by John Nash, and that for this reason he deserved his Nobel Prize and that godawful Russell Crowe film. Not so and not so. As Philip Mirowski's excellent (by which I mean, I literally can't recommendit highly enough) book "Machine Dreams: Economics Becomes A Cyborg Science" shows, Nash's equilibrium concept won over because of internal politics in the American military's "operations-research" community which provided the foundations of the modern economics profession after the Second World War. Nash's equilibrium concept is actually not all that great; Nash equilibria don't always exist, and there is no centripetal force which draws you toward one, so even if one does exist, there's no guarantee that anyone will find it, particularly if calculating the Nash equilibrium of a particular game is actually formally impossible. This should be contrasted with that other great achievement of postwar economics; the development by Fischer Black and Robert Merton (Myron Scholes helped) of "arbitrage-free" models.

Rather than making unwarranted assumptions about fixed points in undecidable calculations, or by assuming putative auctioneers that don't exist, the Black & Merton approach builds up solutions by taking cases where, at every point, if the economic agents don't follow the equilibrium path, one of them can make theoretically unlimited amounts of money at the expense of the other. This approach, combined with the old gambler's principle of the "martingale" (basically the principle that if you double your bets every time you lose, you can guarantee to at least break even ... so long as your bankroll holds out), allows one to recast a surprisngly large portion of economics in its own terms, as anyone masochistic enough to struggle through Merton's "Continuous Time Finance" will have repressed memories of. Merton et al. don't get as much respect as they used to ever since the Long Term Capital Management shenanigan, but I think that's unfair; when it comes to the application of economic theory to the real world, we should take a leaf out of Dr Johson's book and wonder not that it was done badly, but that it was done at all.

The von Neumann/Morgenstern equilibrium concept, which takes coalition-forming and co-operative behaviour as a fact of nature rather than a subject of analysis, would have made a better foundation for game theory in my view; less susceptible to wholly rigorous proof through topological fixed-point theorems, but for this reason more dependent on specific application to real-world institutions and all the better for that. A succint way of putting across the point I am trying to make here might be that the well-known question of the "Prisoners' Dilemma" is a question that needs to be unasked; it's a red herring. Nash's proof that the optimal solution to a one-period noncommunicative Prisoner's Dilemma is the strategy pair (default, default) is only persuasive if we accept Nash's solution-concept as being a good definition of an equilibrium and we shouldn't. It's much better for our thinking if we just accept that Prisoner's Dilemma as being an intrinsically insoluble problem, and deal with real-life situations which resemble the Prisoner's Dilemma (nuclear deterrence, overfishing, etc) by looking more closely at the actual dynamics of the situation -- the power relationships and the decision making processes -- and modelling those, rather than pretending that we can flatten everything down into a one-period model with a "well-defined" solution.

You won't learn any of this on an undergraduate economics course, of course, which in my humble opinion is why economics is in such a bloody awful state these days as a discipline. The trouble with current economic theory is partly that we don't have the right mathematical tools (we don't have tractable ways to model dynamic systems), partly that we can't have the right mathematical tools (some important things about choice and social interaction are formally undecidable), and partly that we aren't even asking the right questions. I don't pretend to have a solution to this problem by the way; I'd just suggest that the current state of economics looks to me to be much more like medieval alchemy than any real science. Which is not to say too much of a bad thing about modern economics; the alchemists did real, good work, and most of them were very clever men (about 20% of Charles MacKay's "Extraordinary Popular Delusions and the Madness of Crowds" is about the alchemists if you get the proper version and not the crap expensive abridged one with a foreword by Warren Buffet, and it's surprisng how few genuine charlatans there were). I personally think that the Black/Merton/Scholes approach is the right way forward, and that it is at its heart a quite philosophically radical way of thinking about the discipline of economics -- not as the science of what people choose to do, but of what they can be forced to do, through fear of loss. But I think it is time to end here, as I have an appointment to play snooker at four 'o'clock.
posted by the management 11/07/2002 07:46:00 AM 1 comments

Tuesday, November 05, 2002

 
Si no vera ...

This one probably falls into the "moral truth" category; it seems a little bit too convenient to be literally true, but it damn well ought to be true, because it expresses a much more important wider truth. Two lefty academics blagged their way into an "American Enterprise Institute" seminar on "The New European Anti-Semitism" and heard Larry Summers "anti-Semitic in effect if not intent" construction brought to its logical conclusion ...

[....] a questioner in the audience asked Wisse about Billy Graham's 1972 conversation with Richard Nixon, memorialized on the White House tapes, and made public earlier this year by the National Archives.

In the conversation, Graham says to Nixon that "a lot of Jews are great friends of mine."

"They swarm around me and are friendly to me," Graham says. "Because they know I am friendly to Israel and so forth. They don't know how I really feel about what they're doing to this country."

And how does he feel?

Graham tells Nixon that the Jews have a "stranglehold" on the country, and "this stranglehold has got to be broken or the country's going down the drain."

"You believe that?" Nixon says.

"Yes, sir," Graham replies.

"Oh boy," Nixon says. "So do I. I can't ever say that but I believe it."

So, the questioner wanted to know whether Professor Wisse considered these sentiments, as expressed by Graham, and widely publicized earlier this year, to be anti-semitic.

No, they are not anti-semitic, Professor Wisse says.

Not anti-semitic?

No, anti-semitism exists today in the form of "political organization" against Israel.



posted by the management 11/05/2002 07:44:00 AM 1 comments
 
Bring in the vote

On this sacred day of democracy, a few points to ponder for my American friends:

  • Unless your local race is utterly atypical, the chance that your vote will make any difference at all is microscopic.
  • The two main parties are virtually indistinguishable from each other, and the third party stands no chance of election
  • Despite what other websites tell you, you can complain if you don't vote; the American constitution and the European Declaration on Human rights both protect your right to do so. The editorial staff of D-Squared Digest has not cast a vote for the last eight years, and we complain all the time.
  • The polling station is most likely inconveniently located, poorly appointed, and doesn't serve drinks. At any time today which might be convenient for you, the queues will be long.
  • By casting a vote in this election, you are implicitly endorsing its outcome, which is likely to include several policies which were repugnant to you.
  • Clinton was not any better.
  • Gore would not have handled this any better.
  • Abortion rights are safe, the economy is most likely outside the control of any politician and American foreign policy will always be stupid and cruel until another Empire takes over.
  • Voting's for saps
  • If you don't vote, you don't feel so bad when your side loses.


Thank you, we now return you to scheduled programming. God Bless Armenia.

edit: Let me never be accused of consistency.
posted by the management 11/05/2002 05:41:00 AM 0 comments

Monday, November 04, 2002

 
Not "bad" meaning "bad" but "bad" meaning "crap"

Still on reduced service at the moment, I'm afraid ... but one for my American friends who got terribly wound up by the whole flap over Anne Coulter's book suggesting that if you didn't give suitable front-cover honours to the death of Dale Earnhardt (for my core Brit readers; sort of the poor man's Michael Schumacher), you were an elitist liberal who hates America.

Just thought it might be fun to have a look around some of the publications which Ms. Coulter inhabits, see whether in your opinion they were suitably fawning in their eulogies to Jam Master Jay, and if not, to ask them why they hate black people so much ... in my experience, nothing annoys a racist more than being called a racist.
posted by the management 11/04/2002 06:32:00 AM 1 comments

Thursday, October 31, 2002

 
Hypocrisy!

Sorry and all that, but it's been a hell of a busy week. I'd just like to make this point however. Whatever you think about this weblog, remember that there are dozens of far worse morons on the Internet than me. If you single me out for condemnation without first pointing out that I am by no means as ignorant or ill-informed as these other bloggers, you are clearly guilty of the worst kind of hypocrisy. Or something.
posted by the management 10/31/2002 06:59:00 AM 1 comments

Tuesday, October 29, 2002

 
Free, as a bird

I'm a profound believer in free speech. I believe that everyone should be able to speak their mind, unencumbered by fear of persecution, the intimidation of social ostracism or the slow poison of indoctrination. I think it's fundamental to the progress of humanity that ideas should be tested out through public debate, with each person giving his own views. And I think it's vital to human flourishing that we should be able to express our being without regard to constraints or social norms.

I'm also a profound beliver in human flight. I believe that everyone should be able to fly like Superman, unencumbered by the surly bonds of gravity, swooping and wheeling in the updrafts and downdrafts, soaring through the air at the greatest of speeds, causing no pollution, each in a cubic mile of free space, breathing the high free air and exulting in weightless splendour.

Of the two, I think that human flight is somewhat more likely to be a reality during my lifetime.

This is a real belief; I happen to think that "free speech", in the sense in which most people use the term, is about as possible for people living in any social group larger than two people (which is to say, "people"; I have no idea what great apes of the species homo sapiens might be like if living a non-social existence, but I'm pretty sure they wouldn't be very much like human beings), as Superman's flight. The version of free speech which I'm exulting in the first paragraph above is a condensed and most likely parodic version of what John Stuart Mill attempts to advocate in On Liberty. It's certainly, and pretty near provably through direct lineage, the ideal to which the First Amendment of the United States Constitution is appealing. And it's a much, much stronger concept than the vast majority of people who invoke it believe. Mill understood, as vast numbers of people don't (mainly because they are interested in pushing tendentious and legalistic theories of political morality), that laws passed by governments are about the ninetieth most important restriction on our freedom of speech. He also understood that the most savage restriction on people's freedom to say what they want is the simple social urge to conformity; people don't like to say things which they know people will disagree with. I get but scant pleasure from doing so myself.
posted by the management 10/29/2002 08:57:00 AM 0 comments

Thursday, October 24, 2002

 
Dial 419 for fun

Along with shrill accusations of anti-Semitism and fan mail, the major component of my email inbox these days is Nigerian "419" advance fee fraud letters. I get about one every couple of days; some day I may be bored enough to add up all the ill-gotten gains I've been offered a share of over the last year and compare it to Nigerian GDP. But for the time, being, let's note that according to the 419 coalition, over $5 billion had been extracted from hapless mugs by 1996, and according to Howard Jeter, by 2000, Americans alone were losing $2 billion a year to "white collar crime syndicates based in Nigeria". Pretty big business.

Let's also note, however, that I think that both of those estimates are bullshit. Unless industrial economics works completely differently in the criminal world from the way in which I learned it by reading Tirole (and Steven Levitt seems pretty convinced that it doesn't), the observed facts of the 419 fraud industry are not consistent with its being hugely profitable, or for that matter profitable at all.

What am I talking about? Well, let's look at it this way. If 419 really were taking in $2bn (from Americans alone!), it would be an incredibly profitable criminal industry. Two billion dollars a year roughly two-thirds of the size of the UK heroin market measured by turnover, and one would have imagined that white-collar fraud was a higher-margin and less capital-intensive industry than heroin smuggling. It's not true that sending spam emails is "basically costless"; the logistics costs of more usual spam are quite a significant component of the spammer's cost base, particularly as one needs to invest in a continual software development expense to keep pace with developments in anti-spam technology. But even so, I don't see how sending 419 emails can be more costly than manufacturing and smuggling heroin.

So what do we know about profitable criminal industries? Well, we know that they tend toward monopoly, or at least oligopoly. But, we can be absolutely sure that the 419 email scam industry is not dominated by a monopolist. How?

Basically, think about the number of Nigerian fraud emails you receive in a year. Does their credibility grow with repetition? I insinuated something along these lines when I suggested comparing the total amounts in a year's worth of 419 email to Nigerian GDP. The fact that these scam letters are so common makes it much more likely that any individual one will be ignored.

This is an "externality". Each spammer is considering the potential guesstimated return to himself from his own 419 operation, but ignoring the cost he imposes on other spammers by marginally decreasing the credibility of 419 spam in general. If 419 were the work of a monopoly, or of a small number of gangs, this cost would be internalised; the monopolist would prefer to have fewer, more effective scam letters. The proliferation of advance fee fraud letters from Nigeria looks much more to me like the output of a competitive industry characterised by small producers.

But even if we accept that 419 fraud is a cottage industry rather than the work of organised gangs, it might still be profitable. The French wine trade is made up of lots of small producers, and that's pretty profitable (though nowhere near as profitable as the Californian industry, dominated by fewer but larger producers). I don't even accept that this is the case.

Why not? Well, basically, the language. There are plenty of Nigerians who can write coherent, elegant English prose. Apparently, the 419 industry isn't profitable enough for them to get involved. Not only that, but it isn't worth anyone's while to invest the capital in producing a convincing-sounding form letter for use by the spammers. This doesn't fit the profile of a profitable industry to me. People make capital investments in profitable industries.

So what's going on here? Well, my guess is that the figure of "$6bn by 1996" is a lot more likely than the figure of "$2bn/year by 2000". In the early 1990s, before email, the vehicle of distribution for 419 scams was the fax machine. Sending faxes is a lot more expensive than sending emails. Since retail use of fax machines is less widespread than retail use of email, most of the targets were businesses rather than individuals. Businesses tend to have larger sums of money in their bank accounts to be emptied than private individuals (people who didn't read the first link about "419s"; this is what happens after you give the guy your account details). So we're looking here at a business with large unit sums and significant overheads; that looks a lot more like the kind of business in which you might get organised gangs operating.

But then email hit the market, and with it, 419 scammery fell within the price range of the common man (or at least, the common man who could write some semblance of English). At about the same time, the Nigerian economy suffered the entirely predictable consequences of its IMF programme, and a large number of middle-class people, with diploma-level English literacy, became unemployed, with some fraction of them entering the criminal class. They started adapting the 419 scam for their own ends; because there were so many of them, the old fax-using gangs couldn't keep a lid on them, and now the profitability of the 419 industry is gutted.

In all honesty, my guess is that the real "419 scam" is these days perpretrated on gullible Nigerians. I'm pretty sure that there are people selling lists of email addresses (and perhaps even poorly written form letters) to greedy but none-too-bright Nigerian chancers, presumably using the fantastic claims of wealth generation implied by the 419 coalition and Jeter by way of bait. As far as one can tell, most 419 scammers aren't very bright, and many of them don't even seem to know what to do with responses when they get them (don't appear to have follow up letters written, don't have bank accounts in which to deposit the stolen cash etc). To me, this just looks like a kind of pop culture multilevel marketing scheme, which may explain why it doesn't seem to have caught on anywhere else in the world. Maybe one in a thousand gets lucky and finds a mug, but I don't think so.
posted by the management 10/24/2002 08:40:00 AM 0 comments
 
Bad tree with bad roots, never bore no good fruits

James Lileks, whose "Gallery of Regrettable Food" has amused us all at one time or another, apparently has a line in unthinking political commentary. Fair enough; I certainly wouldn't want to risk the blowback from saying that people should be castigated for that. But today, he's thrown down a challenge, and that's something I can never resist.

If it is Islamic terrorism, it will be delightful to watch the root-causers explain this one

As far as I can tell, "root-causers" refers to people whose reaction to the news that someone is trying to kill them does not include immediately shutting off all thought about why that might be the case. Since I'm not stupid, or even usually suicidal, I suppose that means that I'm a root-causer, and James Lileks will be delighted to watch me explain it. Which is good, because I was delighted with his collection of recipes for cooking with 7-Up from the 1950s, so it's sort of an opportunity to do something in return.

Here goes, the "root cause" explanation of the Washington sniper shootings, if they turn out to be Islamic terrorism, and if they turn out to be the work of the guy mentioned in the news reports. If not, I calculate that I am approximately 603rd in line among webloggers to make an apology.

The US Army, like the British Army and most other armies, does a reprehensibly bad job of looking after its people. It recruits them, largely from broken homes, keeps them on low wages for a short while, all the while making it unconscionably difficult for them to get or stay married, and then dumps them back on the labour market with surprisingly few marketable skills to show for several years of their life. It has various programs to deal with this problem, but, judging by the results, those programs are badly administered. As Norman Dixon pointed out in his classic "On the Psychology of Military Incompetence", western armies systematically attract people with psychological problems with respect to violence, provide them with a means of coping with these problems while they are in service and often reinforce personality traits through training which can prove to be disastrous when these people are put under stress.

The American economy is very bad at providing steady jobs for black men with low educational qualifications. The American economy has many strengths, but this is not one of them.

American culture strongly stigmatises young male unemployment, and makes young unemployed people feel ashamed of themselves. People who feel shame often develop a psychological self-defence mechanism which involves blaming others for their predicament.

The Muslim religion has almost exclusively nonwhite figureheads, and as a result has a magnetic effect on black Americans who have developed a grudge against what they see as a white-dominated synstem which has pushed them to the bottom of the heap.

Because of this, particularly at a time when the national mood is more than slightly conducive to paranoia, a black man with psychological problems and a military background decided to follow the figurehead of Osama Bin Laden and murder people in order to support the cause of Islamic terrorism.

There are the root causes. Delighted?

You may note that the vast majority of these root causes have nothing to do with anything outside America.

posted by the management 10/24/2002 05:59:00 AM 1 comments

Monday, October 21, 2002

 
Foreign Policy

Updates to the official foreign policy of D-squared Digest coming in ...

First, a clarification on the issue of the State of Israel. Since giving Thomas Friedman that award for saying something silly about divestment (which got me a lot of criticism on weblogs I don't read), I've been worrying that people might see me as an anti-Semite of some sort. If people were disposed in that direction, I get the uneasy feeling that they might take my description of Michael Hardt's hair as an "Isro" in something other than the spirit of fun in which it was intended. I don't think there are any other racial slurs on this weblog at the moment, unless you count my reference to Ann Coulter as "Bog Irish rather than Mick Irish", but even so, some clarification of my Middle East policy would appear to be in order.

Basically, I regard the Palestinian Authority, or whatever it's called, as the moral equivalent of the IRA. In other words:

  • I think they have a genuine grievance and a genuine right to have their claims taken seriously
  • I think that their grievance, and their case, is by no means as strong as their more vocal supporters think it is
  • I think that the population that they claim to represent is being made the victim of unacceptable governmental repression and are the chief victims of an unconscionable political situation
  • I think that their chosen method of warfare is cowardly and disgusting, and not to be tolerated or apologised for
  • I deeply doubt that they really represent the people they claim to represent
  • They are, on balance, the villains of the piece, but the cause that they support in their villainous manner is at bottom, just.

You will have to take my word for this since it predates my appearance on the Internet, but I was never, unlike a lot of the British Left (Paul McCartney, I'm looking at you. And John Lennon too), an apologist for the IRA. I always thought that it was possible to believe in the case for a united Ireland without simultaneously thinking that the Protestant Ulstermen should be driven into the sea, or that it was ever acceptable to put bombs in shopping centres. However, the time comes when one realises that if what you care about is stopping the senseless killing, you have to hold your nose and negotiate with people who you regard as slightly worse than serial killers, and accept that they quite likely think the same about you. Like the Israelis, the Protestant Irish have a sincerely held belief, which is not at all unreasonable to hold given the evidence, that the people they were until recently forced to deal with at Stormont fundamentally want to eradicate them from the face of their homeland. But still they negotiated. I think that what this brings home to me is that a) what a bloody shame it is that there does not appear to be any Palestinian equivalent of John Hume and b) that when you extend this analogy to judge the Israeli forces by the standards of the RUC and the B-Specials during the worst periods of the Troubles, they still appear to have behaved bloody badly. Actually, in all honesty, I do understand why sensible English people supported the IRA despite knowing about the carnage; most of the people lined up against them were so transparently arguing in bad faith, which is also the case these days ...

Now, on to war ...

A further development in my Iraq policy as well. I am now, after comments from Brad DeLong and others, revising my opinion of the murderousness of the sanctions policy and concluding that it might not be as terrible as a number of quite possibly interested parties have portrayed it. On the other hand, I am also convinced by Max Sawicky's argument that Iraq is likely to be the first excursion of an American policy of empire-building in the Middle East, which is likely to be disastrous under any possible performance metric.

But, I retain my original belief that improvement in Iraq is politically impossible unless there is some sort of shooting war in the area culminating in the removal of Saddam Hussein. I don't set much score by "national-building", and don't really believe that what the Gulf needs is more US client states, and I never believed any of the scare stories related to the "WMD" acronym which is currently doing such sterling duty in picking out weblog authors who don't have a fucking clue what they're talking about. I just think that Saddam needs to go, because it's just one of those Damned Things which Has To Happen. I'm a fatalist, not a moralist.

So, how can we square these beliefs a) that something has to be done and b) that if something is done, it will be a disastrous imperial adventure by George Bush. Here's how, and it's so simple it's beautiful:

The official policy of D-Squared Digest with respect to Iraq is now that we support a policy of containment until after the 2004 Presidential elections, and after that, we will support immediate war with Iraq if and only if someone other than George W Bush is elected

I could dress that up by going "WHEREAS" a lot and turning it into a manifesto, but I've never really had any problems with thinking of new ways to call anyone who disagrees with me an idiot, so it seems a bit pointless to bother. Basically, the idea is that I'll support a war just so long as that idiot currently in charge has nothing whatever to do with it. Thinking about it, I don't want to sign up to a different figurehead for the Perle/Wolfowitz Axis of Idiocy, so maybe I should just tell the truth and shame the devil; I'll only support a war if it's the Democrats fighting it. I would like to find some warblogger with a decent argument against this view; strikes me that I can accept all the arguments about containment, inspection, risk, etc, etc and still hold the statement in bold italics just above. Nobody believes that Saddam will have nukes by 2004 ....

posted by the management 10/21/2002 10:28:00 AM 0 comments

Friday, October 18, 2002

 
Friday random links

The latest issue of the Post-Autistic Economics Review is out, including at long last an article which at least attempts to get to grips with the movement's rather distasteful name. Always worth checking out the PAE crowd, even if some of them are about a yard too far up their own arses.

Some monkey in the increasingly godawful Slate is of the opinion that America has the highest productivity growth in the world because it's more innovative in technology than Japan, and chooses to illustrate this with examples from the fields of personal electronics and the auto industry ... Good God, this nutter is apparently an "undersecretary of commerce in the Clinton administration" and a "fellow of the Brookings Institution". Is there another Brookings Institution in the town of Brookings, South Dakota or somewhere, selling "fellowships" for $10 in the back pages of The Economist?

And good luck to the Irish, who vote on the Nice Treaty this weekend, and who shouldn't be blindsided by the likes of Polly Toynbee, who is here pushing the line that Nice is all about being friendly to the Poles, Romanians, etc, and has nothing to do with making the EU even more profoundly antidemocratic than it already is. I have a horse in this race; since Antinomianism is much less prevalent in the UK than in Europe, I face the risk of actually living under stupid laws passed by Europeans who sensibly never intended to enforce them.

This is about right in my experience, and should be good for a chuckle for Americans who don't like Europe.
posted by the management 10/18/2002 09:09:00 AM 0 comments
 
God doesn't work for the Yankee dollar; God doesn't plant bombs for Hezbollah

OK, time for a few more book reviews. First up, "Butterfly Economics" by Paul Ormerod. This is all about Ormerod presenting his alternative version of how economic modelling should be done, and how to correct some of the more egregious errors of conventional neoclassical theory by relaxing the key assumption that agents are independent of each other. Ormerod illustrates most of his arguments by reference to a simple model of the behaviour of ants making their decisions over which of two food sources to visit. So why isn't it called "ant economics"? Presumably because either Ormerod or his editor wanted to sell the book to the James Gleick pop chaos theory crowd, and wanted to use the "butterfly flaps its wings in Venezuela and causes a storm in Stockholm" metaphor as a shorthand, despite the fact that butterflies aren't discussed in the book as being relevant to economic modelling; ants are. Which gives you some idea of how much care and attention has been lavished on this book; pretty close to bugger-all.

I have to confess that I don't know what Ormerod's overarching prescription for the reform of economics is, because on page 157 he refers to Piero Sraffa as "an old Stalinist", and sad to say, the book did not survive the outburst of rage this occasioned in me1. Which is certainly a weakness of this review, but I daresay I wouldn't have been so impassioned if I wasn't already in a bad mood because of the horrendously annoying tone of the previous 156 pages. Ormerod is of the school of writers which believes that you can leaven a dull passage by shoe-horning in a semi-related joke, after the manner of some Church of England vicars. And his jokes tend to be pretty weak; saying that someone's book is so boring it might make you go to sleep is about the level. It reads like it's been collected together from a really annoying column in the FT, but since Ormerod doesn't actually have an annoying column, I can only assume he was kind of auditioning for one. The "ants model" is quite appealing, but you can pick that up by reading the first 15 pages in a bookshop (D-Squared Digest! Reviews You Can Use!).

Also ... an oldie but a goodie. Some people in the comments section have been pleasant enough to say some nice things about the style of writing used on this weblog. Or at least, I say that they have, and the comments aren't working so you can't prove they haven't. Anyway, if you like this prose style, you will like "The King's English" by Kingsley Amis. The pop-didactive tone used on D-Squared Digest, and a fair proportion of the actual jokes, have been copied more or less completely from Amis' workbook, except that I take much less care over my sentences, resulting in horrendous elongated run-on sentences like this one, and I use words like "basically" far too much because I'm typing this as an unrevised first draft and this is how I talk. It's not a proper style guide a la Fowler or Strunk & White; it's basically an alphabetised collection of Kingsley's personal prejudices relating to linguistic matters, many of which tend to degenerate into cheap shots at unrelated hobby-horses and targets of opportunity. Check it out, although don't blame me if your written output for the rest of your life starts to resemble a pale imitation of a studiedly facetious and overeducated patrician.

I listen to music! On the D-Squared Digest stereo at the moment are some of the finest moments of English Funk. This strange musical subgenre should be carefully distinguished from "Britfunk" which was funk and soul music produced by Black Britons in the 1970s and 80s (probably the most famous example being Cameo's "Word Up" or, at a stretch, "You Sexy Thing" by Hot Chocolate; "Hot Chocolate" is probably the winner in anyone's contest for Band Names You Simply Couldn't Get Away With These Days).

Nope, by "English Funk", I'm referring to a strange musical subgenre which stands in the same relation to funk as the Finnish Tango does to the tango. (For those unfamiliar with the Finnish tango, here's the official history; basically, the Finns, for reasons best known to themselves, are still overcome by the worldwide tango craze of the 1920s, and are not put off in their enthusiasm by the fact that as a nation they are a) known for emotional reticence and b) more or less innocent of anything one might call natural rhythm. The resulting sound and dance has a distinctly military feel to its movements; it's extremely precise and sort of jerky. The Finns greatly prefer it to the Argentine version, which is no longer really to their taste). English funk is simularly disconcerting; you're sitting there listening to a piece of music with funk instrumentation and some semblance of a funk production, but it isn't in the least bit funky.

I think it was James Brown who claimed, with good evidence, that white drummers fundamentally couldn't play shuffles; they started off OK, but after about a minute you listen to them and they're playing the rhythm of an oompah band. I also seem to remember this criticism was levelled in particular at Ringo Starr, but it's a reasonably good description of the rhythm section of Ian Dury and the Blockheads. They start off like the Average White Band (oompah oompah), but by the first chorus they've given up any pretence of playing black American music and settled down for a right old knees-up, in which project they're joined by a jaunty keyboard player. The rhythm guitarist and the horn section make a decent attempt at dragging the band back in the direction of Detroit rather than Dagenham, but there's only so much you can do when you're outnumbered. But this sounds like I'm slagging them off and I'm not; I'm a sucker for a good music-hall tune, and Dury himself is a poet. He's got a fantastically dirty exaggerated London accent -- actually, of course, he's Essex, but who's counting? -- and a surprisingly deft lyrical touch which allows him to get away with absolutely outrageously filthy innuendi that, in less sensitive hands (missus) would just turn into rugby songs. "Reasons to be Cheerful", the greatest hits compilation (marketed in the US as "Sex and Drugs and Rock and Roll") is the one I'm listening to at the moment; I think I would be pretty scared of anyone who owned more than three Ian Dury albums, but less than one is probably too few.

With a similarly unfunky funky vibe, but a rather more serious tone and fewer Max Miller references, is the source of the headline quote above, the album "Mind Bomb" by The The, a bunch of earnest 80s types of approximately the same vintage of myself. It's got The Smiths' Johnny Marr on it (as far as I can tell, there was some sort of tax dodge in the 1980s which involved having Johnny Marr on your records), so a fair old number of Smiths completists will be pleased that it's been reissued along with the rest of the The The (note capitalisation) back catalogue. In the UK, that is; I suspect that you Yanks can go whistle. I bought it for the single "The Beat(en) Generation", an absolutely fabulous track about everything and nothing which to my mind demonstrates what a good band the Smiths would have been if they'd been a band rather than a vehicle for Morrissey's ego. Elsewhere on the album it's all pretty leadenfooted English nonfunk stuff, with more an electronic sound than the Dury album, but recognisably coming out of the same place, and always deeply intelligent. Matt Johnson can't sing for toffee, obviously (the 1990s album of Hank Williams songs, "Hanky Panky", which is also top stuff, proved that he didn't learn), but in the right sort of environment (dark) and with a few glasses of whisky in the back of the neck, his half-spoken croon is really quite affecting. If you're not ashamed to be British (which, arguably, you probably should be), you'll enjoy it.

All the above provided without the usual whoring Amazon links, because I'm keeping it real and thinking about the kids.



1The facts of the matter are; in his youth, Sraffa was a fan (and a friend) of Antonio Gramsci, and Gramsci was a Stalinist by most peoples' lights. But Sraffa fell out with the Gramsci crowd quite early on in his career at Cambridge, and it was very hard to work out what his politics were by the time "Production of Commodities By Means Of Commodities" was published. He was certainly never active in supporting Stalin, because he almost never said anything in public at all.

In semi-related news, Sraffa was one of the few people who Ludwig Wittgenstein considered an intellectual equal, and there's decent evidence that a lot of the ideas of later Wittgenstein are heavily influenced by him.
posted by the management 10/18/2002 03:42:00 AM 1 comments

Wednesday, October 16, 2002

 
Two Cheers for This Year's Nobel Prize

Well three cheers for Daniel Kahneman, for he has won the Nobel prize, and he is by all accounts a very fine bloke. Vernon Smith shared the prize; about him I know nothing. But Kahneman's paper with Tversky pretty much kick-started the behavioral finance revolution, bringing the experimental psychology literature into the economics of expectations formation. But only two cheers for the contribution he's made to economics, for reasons that I will endeavour to explain.

For those people who read this blog without the benefit of an economics degree, fuck off and don't come back until you've got one. In fact get a PhD. I'm certainly not going to waste my time talking to people who only have an undergraduate degree ... sorry, I appear to be channeling the Monetary Analysis department of the Bank of England there. Anyway, for the benefit of people who aren't up to speed on why Kahneman's work matters, here's a potted history of expectations in economics.

Expectations in economics matter because the whole point of an economic model is that people change their behaviour based on the interaction between their own preferences and the environment that they find themselves in. Lots of economics models are "static", in that they basically abstract away from the fact that actions happen over time; these are "one-period" models and are popular because their mathematical simplicity means that they can be taught to even the stupidest undergraduate students and thus serve as a means by which one can get across the basic economic insights. The problem arises, of course, when the undergraduate students get elected to be President of the United States. But anyway, one-period, static models (like, say, the supply and demand curves) are the mainstay of economics.

But you can't do much in the way of real-world applications with a one-period model. You have to find some way of taking into account the fact that people base their actions not just on what's happening now, but also what they expect to happen in the near future. To take a concrete example, consider the price of a share of Amalgamated Widgets, an imaginary company which fortunately happens to have just filed its accounts for the last twelve months and to have earnings per share of exactly one dollar. How much would you pay for a share of AW?

Obviously, that's going to depend on your expectation of what it's going to do in the future. In fact, Paul Samuelson demonstrated that, under innocent-looking assumptions, your valuation of AW is equal to your expectation of its cash earnings for every period from now to the end of time, with each future period discounted at the appropriate rate of interest. This ought to be true whether you're planning to hold onto the stock forever or to flip it in the next five minutes, because the price you can sell it for in five minutes' time depends on what someone *else* think's it's worth, and so on and so on. Since *someone*'s going to be holding the stock forever, *everyone* involved with its price, even the shortest-term trader, has to be concerned with long term earnings. Samuelson referred to this as the "Law of Iterated Expectations"; my expectation of your expectation of what AW is worth, is the same as my expectation of what AW is worth, which is the same as the properly discounted value of what I expect AW to earn. No matter how many times we "iterate" the expectations by adding more and more middlemen, it all comes down to this.

So what would my expectations be, then? Well, the simplest way to model them is to assume that I have myopic expectations; I assume that all future periods will be exactly the same as this one. Then, next period, when I turn out to be wrong, I update my assumption that everything will be the same as the new period.

The myopic expectations model (known in forecasting circles as "the naive forecast") is such a traqnsparent and stupid way of thinking about the future that it's embarrassing how difficult it is to come up with a method that works better in practice. Lots and lots of professional models, the kind of services that you pay thousands of dollars for, underperform either the pure myopic model, or the myopic model with respect to growth rates. Which is a comfort of sorts to academic economists, who would otherwise probably be moved to tears and suicide by the differential between professorial salaries and the kind of sums that a charmer with a bow tie can pull down in the prediction industry.

Somewhat more sophisticated, we have the "adaptive expectations" model, whereby I have some idea of what would be a normal earnings number for AW, and I update that in a sort of Bayesian fashion with every earnings announcement. Adaptive expectations never really took off in finance theory, but they were very big as the engine of a lot of Keynesian macro models in the early 1970s, shortly before the "revolution" which brought us ...

Rational expectations! Beloved of a million and one young and ambitious graduate students with spots, straggly beards and a head for calculus, and loudly derided by a million and two youngish journalists with tweed jackets, hazy left wing politics and a two hundred word screed to write before lunchtime. The rational expectations model and its close cousin, the "efficient markets theory" are actually based on a perfectly sensible intuition; that the mistakes people make are likely to cancel each other out, so when you're talking about a large population, you should assume that they do cancel each other out. The trouble comes when actually existing rational expectations guys forget the derivation of the theory and start applying "efficient markets" concepts to real life problems as if it was a conclusive argument that the market is always right.

Of course, the big problem with rational expectations models is that when the rubber met the road, in empirical testing, they performed disastrously (by which I mean, really really disastrously). They started off with a few successes; Patrick Minford's model at the University of Liverpool seemed to be predicting the early 1980s recession pretty well. But after a few years, it was noticed that Minford's model predicted recessions more or less all the time, and thus occasionally did very well in the same way in which a stopped clock is occasionally right. This was the problem with rational-expectations models from a mathematical point of view; they tend to have "positive feedback" characteristics which make them sink into certain preferred solutions, leading to forecasting performance which, in the words of Steve Nickell, "was enough to make you weep if you cared about that sort of thing". How bad was it, Virginia? I'll tell you how bad. Robert Lucas, who won a Nobel Prize himself for inventing rational expectations models, has more or less given up on them. Yup, these models were bad enough to make an economist admit he was wrong. (We should note at this point that it is my personal view that "rational expectations" as a principle of economic modelling was never really given a fair go. The limitations in the mathematical form of the models actually used were so severe that they would have cocked up in exactly this way more or less whatever the economic intution they were modelling. But here we are departing from the broad historical sweep).

So then, we reach Kahneman and Tversky (in case you're interested, Tversky unfortunately died, and hence isn't eligible for the Nobel which is not awarded posthumously1). While the empirical battle over rational expectations was dragging out to a bloody end, they came in with a theoretical contribution to the debate. This basically involved taking some of the results from experimental psychology about how people formed expectations and made decisions (fixation on key levels, loss aversion, concerns for distributive equity, etc), and used them as the basis for making a case that people did, in fact, make systematic errors of judgement, and it was not safe to make the assumption that errors would cancel each other out. Rational expectations in macro was dead, and the "behavioural finance" crowd have been chipping away at efficient markets ever since.

So, certainly a hurray from me as a heterodox economist. Rational expectations was a bad theory, and it is good that it no longer rules the roost, and Kahneman certainly did his bit. But only two cheers, because in my view, economics is never really going to get to grips with time and uncertainty as long as it is stuck in a paradigm under which the response to the failure of the last approach is to start tinkering with the way in which we model expectations.

To start with, consider the mathematical structure of the models we've been talking about (if you aren't familiar with the mathematical structure, just adopt a thoughtful facial expression). Although the concept of future time is present through the expectations operator, they're actually static models. "Taking expectations" is not really a way of modelling the future; it's a way of avoiding modelling the future by flattening it down into the present, only treating it at all through its effect on today's expectations. Kahneman's work doesn't actually change this fundamental characteristic; behavioral models of expectations are still, structurally, one-period models being forced to do the work of genuine dynamic modelling.

The real work that needs to be done is in attacking the fundamental assumptions of "expectations" modelling in economics. I mentioned above that Samuelson's assumptions underlying the Law of Iterated Expectations were "innocent-looking", which they are, but they're actually extremely restrictive. Importantly (and this is a topic I've harped on about before), they're only valid for expectations of *ergodic* processes.

What the hell is an "ergodic process" when it's at home?

Ergodicity is a statistical property. A data generating process is "ergodic" if the data that it generates is "well-behaved" in the sense that you can take a sample of it and that sample will be in some way representative of the whole. Imagine a random number generator, spewing out numbers, and yourself sitting in front of it, writing the numbers down. After 1000 numbers, you calculate the mean of the observations. If the random number generator is driven by an ergodic process, you now have a decent estimate of what the mean will be after 10,000 observations. With ergodic stochastic processes, collecting more data gets you a better and better estimate of what the underlying parameters of the process are, as the "noise" cancels itself out in some statistically well-defined way.

But imagine if you were in front of the machine, and you kept on collecting more and more data, but the average after 1000 numbers was completely different from the average after 10,000, which was nothing like the average after 100,000 and so on. Imagine further that it *never* settled down, no matter how much data you collected. That would be a strongly nonergodic process; over time periods of around a week to a month, lots of weather data appears to be nonergodic, which is why medium term weather forecasting is so difficult. It's clear here that to talk about "expectations" of the future states of a nonergodic system are meaningless; people might have opinions about the future, but there aren't the solid linkages between these views and the actual data which one would need to call them "expectations". Certainly, there isn't enough to support the trick used by economists in using the expectations operator to make dynamic processes static so that they can be modelled tractably.

So what? Well, so this:

Most processes which are characterised by positive feedback are nonergodic

Most economic processes of interest are subject to significant, destabilising positive feedback

It's a real problem, and in my opinion, Paul Davidson ought to be looking at something like a Nobel Prize for being one of the few economists to take it seriously. (He won't get it, of course, because this is way out of the mainstream of academic economics, where it is still considered the mark of a clever young man to say that "chaos theory never amounted to much"). Kahneman's work is important, but in order to be a constructive contribution to some future correct theory of economics, it needs to be thought of as a description of human decision making and behaviour forming, not as a way of rescuing the broken models of expectations economics. So a hearty "Hip hip" from me, but I'll be keeping the champagne on ice for the meantime ...



1In fact, you can be awarded the Nobel Prize posthumously if you pop your clogs between the time it is announced and the actual awards ceremony.
posted by the management 10/16/2002 10:07:00 AM 0 comments
 
Scenes from the decline and fall of this weblog ...

Yep, now I'm reduced to throwing hit 'n' run insults at short exceprts out of context from newspaper columns. Might as well go for the gusto by using the most hackneyed device on the web and awarding a "King Stupid" award to Thomas Friedman of the New York Times for this gem

How is it that Egypt imprisons the leading democracy advocate in the Arab world, after a phony trial, and not a single student group in America calls for divestiture from Egypt? (I'm not calling for it, but the silence is telling.) How is it that Syria occupies Lebanon for 25 years, chokes the life out of its democracy, and not a single student group calls for divestiture from Syria? How is it that Saudi Arabia denies its women the most basic human rights, and bans any other religion from being practiced publicly on its soil, and not a single student group calls for divestiture from Saudi Arabia?

I would guess that the reason that there is no campaign for divestiture from Syria is that it doesn't have a stock exchange.

There are a few Syrian companies quoted on the bourse in Doha, but they're not exactly mainstream investments. The Egyptian stock exchange is absolutely tiny; I seem to remember that Fleming-CIIC Securities (part of the JP Morgan Chase group) is the only international broker operating there (edit: Google says I'm wrong and that HSBC and ABN Amro have a presence. But google also tells me that the market capitalisation of Egypt is only $30bn), and although the Saudi stock market is capitalised at around $40bn, investment into it by foreigners is tightly regulated; basically, the only way you can buy into it is through a country fund managed by a Saudi bank and listed in London. Unlike Israel, which boasts a number of companies with New York listings and two S&P500 constituents, investment in the three countries mentioned is pretty hard-core emerging markets stuff, not really the widows-and-orphans territory of your typical university endowment.

In fact, on the basis of the above research, I would hazard a guess (and perhaps award a small prize to anyone who can gainsay me with proof), that the major American university endowments have no investments at all in Egypt, Syria or Saudi Arabia, making it rather fucking pointless to campaign for them to "divest".

It is considered traditional at this point to fulminate about the kind of individual who makes this sort of pig-ignorant blanket assertion without bothering to spend five minutes on google to check the facts, but I'm scared of the blowback from that one.

edit Apparently I thought this post was so great that I posted it eight times. I don't know how that happened, but I think normality has now been restored.
posted by the management 10/16/2002 12:58:00 AM 0 comments

Tuesday, October 15, 2002

 
Why are Americans so fat?

A fairly provocative question, prompted by this having a go at the citizens of that great nation for piling on the pounds, and suggesting that the government tax them for their sin. A quick glance at the title of this weblog reveals that I am hardly a disinterested party to this issue, but there you go. I considered having a go at the latest fad diet (which, pop culture types will be interested to know, was last popular in 1973-4, around the time of the last serious bear market; deep speaks to deep here, as they say, and you don't have to be a hardcore evolutionary psychologist to note a connection between financial wealth and the emotional relationship with food). But beer is apparently a carbohydrate, so fuck that.

Anyway, the question of why Americans are so fat is one which everyone and his fat wife have had a go at answering. And, surprisingly enough, everyone has come up with the same answer, viz:

Americans are so fat because of some moral failing particular to Americans today, and they would not be so fat if more people agreed with my political views.

I'm paraphrasing, obviously. But it would certainly be bad news for people like these if peddlers of political platitudes had to sign up to the same code of rigorous scientific analysis that these people are meant to follow in making claims about losing weight. In fact, it's pretty easy to understand why Americans are getting fatter, if you just take account of a few unarguable facts about work, leisure and productivity. You can even do it all without leaving the marginalist paradigm, so those people who are put off by heterodox economics can keep reading.

First of all, let's think about the activity of eating. First, we can note that it is mainly a leisure-time activity, and it's an action of consumption rather than production in economic terms. Very few people get paid for eating, and eating food is a processing which has only one output, which nobody is in the business of selling except that conceptual artist whose name I forget. So, let's draw up a list of substitutes for eating food; other activities which people carry out for pleasure. We have things like:

  • Conversation
  • Reading
  • Sunbathing
  • Sexual intercourse
  • Listening to music
  • etc.


Basically, various other physical and intellectual pleasures. Now, let's look at a couple of other stylised facts.

Consider this as a stylised fact. for instance; the average leisure time of the average American has not increased at all over the last hundred years. Arguably, it's shrunk. Now that might have happened for any of a million reasons, but let's for the moment treat it simply as a social fact. Time, as the newspapers tell us, is a scarce resource.

But, it's a scarce resource which is in fixed supply. Although the onward rush of technology has made us unimaginably richer in material terms over the last hundred years, we are still only supplied with twenty-four hours in a day, only about eight of which we can really count as being available for use in leisure activities. If you ever think that there's something funny about those chained-GDP examples which puport to prove that the bottom 1% of current workers enjoy a better standard of living than the millionaires of 1780, then this is part of the reason why; if it had occurred to him to do so, David Ricardo could have buggered off and spent the day playing golf whenever the whim took him, and you can't.

Now, let's look at the substitutes for eating listed above. Straight off, we notice that most of them are highly demanding in time, and that the input of time is more or less invariant in order to get a unit of pleasure out of them. A favourite example of Brad DeLong's of how technology has improved our life is that these days, the poorest of persons in America can easily listen to the world's greatest virtuoso playing the violin at the touch of a button. Which is true; but another interesting way to look at it is that it takes us exactly as long to listen to a symphony as it took Emperor Franz Joseph, and there's nothing at all that technology can do to help us with that. Our acts of sexual intercourse take as long as they did for Napoleon (I have no figures on this), it takes as long to have a conversation as it took Doctor Johnson, and the last improvement in our ability to read books (Dr Bruno Furst's Speed-Reading System) was about fifty years ago.

But ... one area where things have improved mightily over the last hundred years is our ability to eat food. Food takes roughly the same time to eat however yummy it is, and the industrialisation of agriculture, whatever it's done to the environment, has certainly massively increased the amount of food-related pleasure which the average man can extract out of a minute. And given this massive increase in the pleasure productivity of food-eating, is it any wonder that the American population has responded by choosing to spend less time in the comparatively less efficient pursuits of having sex and reading, and more time on stuffing their faces? It's the simple result of a rational optimisation calculation; to become uglier, stupider and fatter is simply where the comparitive advantage has shifted to.

So, courage, my American friends. If you can fill the unforgiving minute, with sixty seconds worth of sugar and lard ...
posted by the management 10/15/2002 09:59:00 AM 1 comments

Monday, October 14, 2002

 
Sowin' the seeds, the politics of greed

Yes, another entirely original title made up purely by myself ...

One of the finest phrases Margaret Thatcher came up with1, she came up with in the context of the 1988 Budget, the lynchpin of which was a sudden, slashing cut in the top rate of income tax from 60% to 40%. An earlier budget had cut the top rate from 83% (ask yer grandad) to 60%, but the 1988 cut was the most breathtaking, because it came in the context of a budget which offered almost literally bugger all for everyone else. Obviously, this kind of chutzpah takes some selling, and the phrase all over the Tory media that summer (budgets used to be in the Spring in the UK, ask grandad again) was the resonant accusation that anyone who complained about massive tax cuts for the rich combined with swinging reductions in benefits and social spending, was guilty of ...

"THE POLITICS OF ENVY"

An absolutely marvellous phrase, it probably did a hell of a lot to persuade a generation of red-braced, spectacle-wearing yuppies that right wing politics were cool. It absolutely neutralises any attempt to portray the greedy party as being greedy, because it turns the charge right round 180 degrees, with a smarmy insinuation that people get involved with left wing politics because they're horribly and unattractively jealous of the rich, but they are too intellectually or personally inadequate to become rich themselves. Which is actually probably true of a lot of members of left wing political parties, which is why it was such a great piece of propaganda. Anyway, the left has had an inferiority complex about this phrase for the best part of fifteen years now, so I'm here to help us take it back.

Consider for the moment, the dockworkers of the ILWU, who were on strike until recently, and who earn around $100,000 a year for doing a job that basically involves attaching a hook to a container and giving the thumbs-up to a bloke in a crane.

Now of course, when you read a sentence like the one above in a media account, how you react to it depends on who you are. If you're Nathan Newman, you start immediately pointing out that it's a lock-out, not a strike, and giving us lots of extremely useful chapter and verse on the Taft-Hartley Act. If you're the ILWU, you start pointing out at length, what a skilled, complicated and dangerous job being a longshoreman is. And if you're Max Sawicky, you start interrogating those numbers a bit, and finding out that the sum of $100K is an utterly misleading, high-balled estimate, completely unrepresentative of the average dockworker's take-home pay and provided by management to an uncritical media.

But if you're me, you just think:

"Fucking good on them! When one thinks of all the arseholes pulling down a hundred thousand for doing next to nothing, why shouldn't someone get the same for hauling crates and occasionally half-inching the contents? They must have a bloody good union, good luck to them!"

The same goes for the London Underground platform staff, who get paid more than trained nurses (because they've got a good union), the Royal Mail postmen, who are the highest paid manual workers in Europe (because they've got a good union) and the Air France pilots, who regularly bring half of Europe's holiday traffic to a juddering halt (because they've got a good union). They may not be *worth* what they're getting, but the plain facts of the matter is that they're *getting* what they're getting, so who are we/you/anyone to start moralising over the contents of another man's pocketbook? Union members have higher salaries than those which would prevail if there were no union, and they often act like cartels through the closed shop, but if you are honestly of the opinion that this is the greatest injustice at work in our land, then there's something wrong with you. This is the only consistent view to take; anything else is purely and simply the politics of envy.

I think my view is shared generally; among the normal people I occasionally talk to, I really don't get any seething feeling of injustice at the fact that union men drew a lucky ticket. Even from women and black people, who often have a pretty damn good reason to object to some of the less reputable practices of some of the less reputable unions. This is true for the same reason that it was always a silly idea for the left to get all worked up about "CEO salaries" and about higher rates of income tax; the vast majority of people (that class of people which is sensible enough not to join political parties) is just not as venial, jealous and simply fucked-up with negative emotion, as that small segment of it which takes an active interest in party politics. The politics of envy, at base, involves projecting one's own lowered sense of self-esteem onto a public which, by and large, doesn't share it.

This is a useful analysis, because I think it can also be used to explain another phenomenon which mystifies people other than myself; the widespread popularity of subsidised university education, and the widespread unpopularity of measures aimed at making students go into debt. There is a line of argument under which it is argued that, because graduates earn so much more than non-graduates, to subsidise education out of general taxation is regressive; it's a "reverse Robin Hood" tax which takes money from carpenters and plumbers and hands it to merchant bankers.

On the other hand, once one stops looking at this through the lens of the politics of envy, it makes more sense. Young person gone to university and earning a big salary? Good luck to 'em. Why should they be saddled with a big debt? It's absolutely horrible being massively in debt, particularly if your repayment bill is very large in relation to your current disposable income (whatever its possible relationship to your lifetime earnings). Who would want to saddle a young person with that kind of burden, just at the time when they ought to be enjoying themselves? Not anybody I know, whatever their income. People fundamentally don't care about paying a couple of extra quid on income tax in order to subsidise an idyllic three years' idleness and alcoholism, so long as they have a reasonably fair expectation that it's handed out equitably and so long as they get to grumble good-naturedly at its public expression. The state sponsorship of university eduation is a subsidy to happiness. And as such, it (along with a close cousin, generous unemployment benefits) could only be opposed by someone who was at bottom, appealing to the politics of envy.



1Or possibly Nigel Lawson.

posted by the management 10/14/2002 10:46:00 AM 0 comments


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