I did mention previously that I would do a part 2 to the previous post regarding Scot's Independence, looking at the viability of an independent state in the north. This has not been forgotten, but may take slightly more digging to find all the relevant figures (not helped by the Government not producing regional budgets). This particular piece is also tangentially relevant to the independence debate. So, with European elections pending and the spectacle of Msrs Clegg and Farage about to do metaphorical battle, the issue once again needs to be addressed: how many chickens is a pretty sunset worth?
**
Clearly I am not actually about to launch into the logic and equations required to equate fowl and orbital phenomena (though for those interested the answer is 60), instead the point is to illustrate the difficulty, or perhaps impossibility of comparing things that come in wildly different units or contexts. It's easy to say which of two objects if more expensive, or which of 2 films if longer, because the unit of comparison is consistent (GBP and Minutes respectively). Likewise it can sometimes be possible to equate two things a third object to produce a comparison (in the example about the figure of 60 is based on the GBP cost of a chicken and the cost of renting a chalet on the Isle of Skye - apparently the best place to watch a sunset in the world). But what do you do when the two just aren't comparable at all?
The particular issue at hand is the pro's and con's of EU membership.
The pro-EU camp then to lean towards arguments around the economic situation Britain would find itself in were it to leave, compared with retaining membership. Whether or not you agree with the figures provided, or the arguments advanced, the debate itself seems to make sense - if we (as a nation) lose money by being outside the EU then we should stay inside.
The problem is that the anti-EU camp has a second road of attack, and one that the (largely pro-EU) media do their best to downplay - that of sovereignty, national identity, and shared culture (for the sake of ease through the rest of this piece, I'm going to refer to this as the "cultural" route). The point many (myself included) make is that even if we will suffer economically from being outside the EU (a point I don't concede), it is still preferable to be sovereign. As the say goes, better a poor free man than a rich slave. This therefore raises the inevitable question: How many jobs, or what % of GDP, is being a sovereign nation worth?
Unfortunately I can see no way of answering this question - the two concepts exist in such different contexts as to be incomparable. Instead the two have to be considered independently, leading to a few possible outcomes if you wished to rationally compare the inside/outside scenarios:
Firstly you may consider that on both the economic and cultural strands one of the two options is preferable, thereby becoming a clear winner. This is the "better in every way" style of outcome, there is no trade off, no advantage parred with a disadvantage. In a sense if one of two options is superior in all relevant aspects it is the "correct" choice, and all others can be dropped.
Secondly, and far more likely, you get a scenario of one option is superior in one regard, and weaker in another. (The whole idea of economics is to understand this kind of choice, where different options present different advantages and disadvantages). In fact this is the scenario that occurs in virtually every interaction we ever undertake; do you prefer the tasty £4 sandwich or the acceptable £2 sandwich, do you prefer a three door or a five door car; do you want a safe, low return investment, or a risky, high return one.
How do we resolve this issue in real life then (i.e. outside of politics)? Usually by considering which of the various strands is the most important, and which of the various aspects are "must haves" and which are "nice to haves."
If money is the most important thing then the £3 sandwich beats the £5, the cheaper car beats the nicer car, and so on. If pleasure in the experience is more important than you get luxury sandwiches and sports cars. Just to reiterate its not that one is "better," in the sense of having an absolute advantage, rather you have chosen to rank the advantages of the preferred option as more important than its disadvantages.
We can, in fact, apply exactly the same logic to the matter of EU membership - do "we" (national We now), care more about the economic impacts of EU membership, or the political/cultural implications?
If we choose the economic thread as the dominant one then the matter becomes purely academic. Undertake some serious, detailed, independent, research into the most likely scenarios for a Britain inside, or outside the EU, and pick the option with the best prospects for growth in the UK economy. If the results are close (i.e. more akin to the safe low return investment or the risky high return one) have a referendum to see if the people think the potential risk is worth the potential pay off.
Likewise if we have a predominately cultural concern, lets have that same level of research into the impacts on British life in the case of an in or out scenario. To what extent will our Parliament lose its powers? To what extent will British votes and influence in various international bodies be subsumed into an EU voting block? What is the genuine, unbiased research into the impacts of significant immigration into a largely homogenous community? What are the likely changes in population make up, size and skill set, and what impacts will this have?
As above again if a clear winner emerges, all good, and the economic costs can be disregarded, and if the case is close put it to a national vote.
Why will this not happen? Simple - the current situation gives both camps a counter-argument to whatever the other side is pushing. Either group can give an economic answer to a cultural point and vice versa. This suits everyone in the political world, and guarantees the answer will never get resolved.
Would it be possible to resolve with less politicians and more realists in charge? - Maybe.
If we look at the two strands it is clear that a research consensus could never be reached on the cultural front because you have ranking systems (or 2 sources of authority in ethics speak). Those who style themselves Europeans would see the breakdown of national identities and boundaries and the creation of a new homogenous European cultural group as a positive. An enlightened move onto the next stage of civilization, just as the nation state was the successor to the feudal barony. On the other hand nationalists will say exactly the same thing is bad, a loss of history, place and identity into the grey gloop of institutionalized bureaucracies.
On the other hand it should be possible to deliver an answer with regard to the economic strand. Generally the measures of economic success only go in one direction; more wealth is good. A higher GDP/capita is better than a lower one, a higher growth rate is preferable to a lower one and so on. Hence if one of the options in the EU debate could be shown to deliver an absolutely superior economic output (i.e. higher GDP, higher GDP/capita and a higher growth rate), then this strand can be definitively "closed." Its possible you will get a multi-strand situation again, i.e. a higher GDP but lower GDP/capita, in which case you have to put the main debate on hold and have a sub-debate on which metrics are deemed the most important. However, this point aside it still seems more probable an economic argument could be resolved in a way the cultural one can not.
So, having got an economic answer, what comes next?
This is actually the easy part, if a vote shows that people find the economic arguments more important then the cultural ones then your research provides the final answer. If people say the cultural issues are more important than the economic factors can be set aside as a "known known" and issue addressed via a vote purely on cultural grounds.
I doubt we will ever have an electorate that is well enough informed, or a voting system sufficiently response to have this kind of "decision tree" voting structure. Therefore I feel we will just have the same argument repeated ad nauseum until the election. In essence; how many UK jobs is an independent seat in the WTO worth?
//
I'd like to end with a completely unrelated note about Darwinism, and the extent to which it is misunderstood. The phrase "survival of the fittest" should, in common parlance, probably be rendered "growth of the most suitable". Fittest in this context is not about speed, strength, intelligence, ability to earn wealth and so on. It is about fitting into your environment - the creature or population most "suitable" to its environment will thrive and reproduce faster than those less suited. As far as I'm aware there is no evidence that this process can go into reverse.
The exact example I found today was about wolves and dogs. Yes wolves are faster, stronger, better hunters and so on. But dogs are more suitable to a world dominated by humans. Thus, the dog is more "suitable" or "fitter" to their environment then the wolf. It is not "reverse" Darwinism that lead to dogs being less physically capable than wolves, it was real Darwinism leading to an adaption to a new environment .
This is also a point worth barring in mind next time you see any of the studies about changing intelligence in various populations. One study I found (and which was widely reported) concluded the average Victorian was 14 IQ points above today's average.
//
Happy Trails.
/Z
Saturday, 22 February 2014
Thursday, 20 February 2014
Freedom?!
So in a scant few months the Union of the Kingdoms of England and Scotland may come crashing down, ending 300 years of successful partnership (albeit with the usual neighborly bickering from time to time). Is this right? Is it proper? Why is it happening now? What will happen should this event come about? And perhaps most importantly... can we invade if it does?
**
I should begin by pointing out I am a shining example of practical double-think when it comes to the issue of Scottish independence. One the one hand I am with Mr Denny Crane in considering the idea that part of my country could just break away as both treason and heresy. On the other hand I'm of the view that if you don't want to be part of the group then the sooner you leave the better. As with many things (education, gaming groups or anything else), if you don't want to take part, fine, leave. Just don't hang around and whinge while incurring costs to everyone and yourself.
Thus in the interests of this not descending (more than necessary) into a string of rants on the topic of nationalist heresy, I'm going to focus more on my expectations for probable outcomes of the referendum and some of the conceptual and political challenges they face.
From current situations it seems there are four possible outcomes in September; a minor yes vote or a minor no vote on a small turnout (55% either way, maybe 50% turnout), or a strong no vote on a minor or moderate turn out (65%+ on a 55%+ turnout). I'd be willing to expressly rule-out a strong "yes" vote - all the main polls conducted so far show a roughly 2-1 slant in favor of retaining the Union in representative and sensibly sized samples. The challenge for the "Yes" camp is to mobilize a biased enough voting population to overcome the underlying splits, and to make full use of the likelihood that those in favor of a split are more likely to be engaged and enthusiastic (and therefore more likely to vote). It is in furtherance of this agenda that the voting age has been lowered to 16, and any Scots living outside Scotland have been removed from the electoral role. The former group (young people; no real economic awareness, limited, or no, experience of the job market, and easier to bribe with things like university tuition fees) are generally more pro-independence, while the latter (older, probably worked and lived in a variety of roles and regions etc) are generally more pro-union.
In turn then;
Cry "Freedom!"
-A minor yes on a small turnout
This is possibly the worst outcome for almost all concerned. Contrary to media image the SNP do not necessarily want an independent Scotland- it opens the door on months (years) of messy negotiations, transfers responsibilities for all the ills in Scotland from Westminster to Holyrood, and robs them of the main plank of their political agenda (the Scotland / England tension). Instead the true objective here is some form of "Devo-Max" where the Scottish Parliament gains the powers to raise tax in Scotland and set things such as welfare levels, but continues to receive additional financial support from the rest of the UK, and Westminster picks up the bill for foreign and defense policy. Independence is simply a ploy to push for this increase in power for the Scottish politicians .It will be a bitter blow to those who consider themselves British (and will therefore be saddened to see nearly a tenth of our country break away), and will no doubt be exceptional difficult for those with businesses, jobs, and families which will now exist in a foreign country.
I say "almost" all concerned because there is one group that benefits from a Scottish breakaway - the Conservative party. With the Conservatives all but wiped out in Scotland, and Labour holding a number of seats, simply removing the Scottish MPs presents an opportunity for the Conservatives to counteract the bias in constituency boundaries by effectively eliminating 40-50 Labour MPs. The cynical may wonder to what extend this consideration has played on the minds of senior conservative ministers and party mandarins, maybe the splitting of the country would, for them, be seen as a political coup rather than damning indictment of failed governance.
There are also significant democratic issues with this outcome. A 55% yes vote on a 50% turn out means only 27.5% of the population actively voting to dissolve the Union, amongst them potentially a high proportion of 16-17 year olds, whose opinions will have generational consequences in terms of diplomacy, politics, macro-economics, foreign policy and military affairs. While we may assume that apathy with general elections is a consequence of many people not caring for any of the main parties and thereby accepting any outcome as equally awful, it requires a certain sangfroid to consider that 75% of the Scottish population don't care whether they are an independent country or part of the UK. IF this is indeed the case the question should (but won't) be raised as to why people are so uncaring, and if they are why it is being portrayed as such a huge political issue in Scotland.
Sorry I didn't hear you
- A minor No on a small turnout
This is possibly shaping up to be the most likely outcome, a 55 / 45 type outcome in favor of retaining the Union ("No"), on a relatively low turnout (around 50% again). While this has slightly less democratic issues than the yes vote - effectively your maintaining the status quo so a low level of support suggests most people don't care enough to vote for change though the issue of why people don't care is still reasonable.
The biggest problem with this is the question of what happens now. The independence-campaigners will come up with an excuse as to why the result isn't binding and begin calling for a repeat referendum. A no vote with anything less than a shattering majority does nothing to resolve the issues, and potentially gives the SNP another route to making noise (by claiming the referendum was won by threats, bullying or outright cheating). There is also the potential controversy around whether a Westminister government with only a few months to run before a general election will want to cede significant new powers to Holyrood, even with the Union intact, as has been mooted.
In effect a minor-No simply resets us back to a where we were when the referendum was first suggested, and we can go through the whole rigmarole again.
No changes here
- A strong no on a small turnout
In practice this has virtually no differences to the minor no on a small turnout. If the polls are to be believed we may see anything up to a 65/35 split without the outcome being unexpected. However, as with the point above there is nothing to stop the whole cycle being repeated. A strong no will do nothing to dismay the SNP (who are already running fine with the polls 2-1 against independence), and if anything this just gives them slightly more leverage to bully Westminster into handing over more power - "See," they will say, "we want to stay British, but in payment we want more local power."
I would not all be surprised to see this type of result portrayed as a "Vote for Devo-Max" by the SNP, regardless of the fact that that wasn't the question asked. The fact that maybe people want to stay in the Union and have Scotland and England run with similar policies will be ignored, and instead the narrative will be that people don't want to break the union, so they must want more power in Holyrood (see point above about this, conveniently, being the SNPs desired outcome).
United we stand
-Strong no on a high turnout
Almost certainly not going to happen, but included here on a off chance it does. The polls do not support the idea that a high turnout will return a Yes vote. As the size of the voting population goes up, so to does the tendency for the result to reflect the majority views of the populace, which are, in this case, largely against a 'hard' split from the UK.
What will happen with this result then?
My feeling here is a similar spin war to that mentioned above, where the SNP will paint a picture of a call for more powers to be moved from Westminster to Scotland. The only difference is potentially a stronger bargaining hand for Westminster. With a strong vote in favour of the Union on a high turnout (preferably enough to be a solid majority of the total voter population), the SNP have far less leverage to force another referendum, and thus less bargaining power overall.
Most likely the whole issue will be dropped (in the same way as voting reform following the referendum on that issue), and we will continue on as if it had never happened in the first place.
I'll maybe try and pull together something regarding the finances of an independent Scotland, and its political possibilities, though the only point it seems worth mentioning on this at present is that the White Paper produce by Salmond some time ago has increasingly been shown to be full of lies, statistics and huge assumptions. Therefore the logical assumption is that, having reviewed the matter, the SNP analysts concluded the truth was bad for them, and they would need to present an amended version of reality. That maybe says it all.
Happy Trails
/Z
**
I should begin by pointing out I am a shining example of practical double-think when it comes to the issue of Scottish independence. One the one hand I am with Mr Denny Crane in considering the idea that part of my country could just break away as both treason and heresy. On the other hand I'm of the view that if you don't want to be part of the group then the sooner you leave the better. As with many things (education, gaming groups or anything else), if you don't want to take part, fine, leave. Just don't hang around and whinge while incurring costs to everyone and yourself.
Thus in the interests of this not descending (more than necessary) into a string of rants on the topic of nationalist heresy, I'm going to focus more on my expectations for probable outcomes of the referendum and some of the conceptual and political challenges they face.
From current situations it seems there are four possible outcomes in September; a minor yes vote or a minor no vote on a small turnout (55% either way, maybe 50% turnout), or a strong no vote on a minor or moderate turn out (65%+ on a 55%+ turnout). I'd be willing to expressly rule-out a strong "yes" vote - all the main polls conducted so far show a roughly 2-1 slant in favor of retaining the Union in representative and sensibly sized samples. The challenge for the "Yes" camp is to mobilize a biased enough voting population to overcome the underlying splits, and to make full use of the likelihood that those in favor of a split are more likely to be engaged and enthusiastic (and therefore more likely to vote). It is in furtherance of this agenda that the voting age has been lowered to 16, and any Scots living outside Scotland have been removed from the electoral role. The former group (young people; no real economic awareness, limited, or no, experience of the job market, and easier to bribe with things like university tuition fees) are generally more pro-independence, while the latter (older, probably worked and lived in a variety of roles and regions etc) are generally more pro-union.
In turn then;
Cry "Freedom!"
-A minor yes on a small turnout
This is possibly the worst outcome for almost all concerned. Contrary to media image the SNP do not necessarily want an independent Scotland- it opens the door on months (years) of messy negotiations, transfers responsibilities for all the ills in Scotland from Westminster to Holyrood, and robs them of the main plank of their political agenda (the Scotland / England tension). Instead the true objective here is some form of "Devo-Max" where the Scottish Parliament gains the powers to raise tax in Scotland and set things such as welfare levels, but continues to receive additional financial support from the rest of the UK, and Westminster picks up the bill for foreign and defense policy. Independence is simply a ploy to push for this increase in power for the Scottish politicians .It will be a bitter blow to those who consider themselves British (and will therefore be saddened to see nearly a tenth of our country break away), and will no doubt be exceptional difficult for those with businesses, jobs, and families which will now exist in a foreign country.
I say "almost" all concerned because there is one group that benefits from a Scottish breakaway - the Conservative party. With the Conservatives all but wiped out in Scotland, and Labour holding a number of seats, simply removing the Scottish MPs presents an opportunity for the Conservatives to counteract the bias in constituency boundaries by effectively eliminating 40-50 Labour MPs. The cynical may wonder to what extend this consideration has played on the minds of senior conservative ministers and party mandarins, maybe the splitting of the country would, for them, be seen as a political coup rather than damning indictment of failed governance.
There are also significant democratic issues with this outcome. A 55% yes vote on a 50% turn out means only 27.5% of the population actively voting to dissolve the Union, amongst them potentially a high proportion of 16-17 year olds, whose opinions will have generational consequences in terms of diplomacy, politics, macro-economics, foreign policy and military affairs. While we may assume that apathy with general elections is a consequence of many people not caring for any of the main parties and thereby accepting any outcome as equally awful, it requires a certain sangfroid to consider that 75% of the Scottish population don't care whether they are an independent country or part of the UK. IF this is indeed the case the question should (but won't) be raised as to why people are so uncaring, and if they are why it is being portrayed as such a huge political issue in Scotland.
Sorry I didn't hear you
- A minor No on a small turnout
This is possibly shaping up to be the most likely outcome, a 55 / 45 type outcome in favor of retaining the Union ("No"), on a relatively low turnout (around 50% again). While this has slightly less democratic issues than the yes vote - effectively your maintaining the status quo so a low level of support suggests most people don't care enough to vote for change though the issue of why people don't care is still reasonable.
The biggest problem with this is the question of what happens now. The independence-campaigners will come up with an excuse as to why the result isn't binding and begin calling for a repeat referendum. A no vote with anything less than a shattering majority does nothing to resolve the issues, and potentially gives the SNP another route to making noise (by claiming the referendum was won by threats, bullying or outright cheating). There is also the potential controversy around whether a Westminister government with only a few months to run before a general election will want to cede significant new powers to Holyrood, even with the Union intact, as has been mooted.
In effect a minor-No simply resets us back to a where we were when the referendum was first suggested, and we can go through the whole rigmarole again.
No changes here
- A strong no on a small turnout
In practice this has virtually no differences to the minor no on a small turnout. If the polls are to be believed we may see anything up to a 65/35 split without the outcome being unexpected. However, as with the point above there is nothing to stop the whole cycle being repeated. A strong no will do nothing to dismay the SNP (who are already running fine with the polls 2-1 against independence), and if anything this just gives them slightly more leverage to bully Westminster into handing over more power - "See," they will say, "we want to stay British, but in payment we want more local power."
I would not all be surprised to see this type of result portrayed as a "Vote for Devo-Max" by the SNP, regardless of the fact that that wasn't the question asked. The fact that maybe people want to stay in the Union and have Scotland and England run with similar policies will be ignored, and instead the narrative will be that people don't want to break the union, so they must want more power in Holyrood (see point above about this, conveniently, being the SNPs desired outcome).
United we stand
-Strong no on a high turnout
Almost certainly not going to happen, but included here on a off chance it does. The polls do not support the idea that a high turnout will return a Yes vote. As the size of the voting population goes up, so to does the tendency for the result to reflect the majority views of the populace, which are, in this case, largely against a 'hard' split from the UK.
What will happen with this result then?
My feeling here is a similar spin war to that mentioned above, where the SNP will paint a picture of a call for more powers to be moved from Westminster to Scotland. The only difference is potentially a stronger bargaining hand for Westminster. With a strong vote in favour of the Union on a high turnout (preferably enough to be a solid majority of the total voter population), the SNP have far less leverage to force another referendum, and thus less bargaining power overall.
Most likely the whole issue will be dropped (in the same way as voting reform following the referendum on that issue), and we will continue on as if it had never happened in the first place.
I'll maybe try and pull together something regarding the finances of an independent Scotland, and its political possibilities, though the only point it seems worth mentioning on this at present is that the White Paper produce by Salmond some time ago has increasingly been shown to be full of lies, statistics and huge assumptions. Therefore the logical assumption is that, having reviewed the matter, the SNP analysts concluded the truth was bad for them, and they would need to present an amended version of reality. That maybe says it all.
Happy Trails
/Z
Monday, 10 February 2014
Coke or Pepsi?
Its been a far while since I put virtual pen to metaphysical paper. Partly because the various news stories and political meanderings of the last few months have not delivered anything in the way of new insights or considerations, partly because once one falls out of the habit of capturing and recording thoughts it is difficult to get back on the horse.
That said, I did formalize a thought which has been bouncing round for a while now, and may sustain a longer discussion - the effective use of Branding in the modern world.
**
Branding in its commercial sense is the association of positive ideas with a particular brand or make. Once you've established the idea that your trainers are better, your coke tastier, your mortgages cheaper or your bikes speedier, then a huge premium can be charge for what are, objectively, comparable (or even inferior) goods.
The major brands of the world are worth billions on their own, Apple, the world's most powerful brand according to Forbes, is worth $100 billion. In effect you would wipe this amount off Apple's share price if everyone forgot the past and just looked at the facts as they stand today.
And branding has jumped from the commercial and advertising world to the political world. It has become axiomatic that you no longer need to respond to someone's arguments if they can instead brand them a Nazi. This is such a clearly observed phenomenon that is has even been the source of a behavioral law; Godwin's Rule of Nazi Analogies, which states that if you let an internet discussion on any topic run for long enough, someone is going to get called (or at least compared to) a Nazi. The political gains to this approach are clear - rather than engaging with the facts of a matter, or the arguments laid out, you need simply directly, and personally, assault the person with whom you are debated. Once you have successfully hung your pejorative label of choice around their shoulders you can then simply dismiss their arguments. After all, how could anything suggested by such a person be worth considering?
From this I feel there are at least three examples of this behaviour which bear consideration in our current climate;
1.) The Climate Deniers
Contrary to the ever more grandiose claims of various (extremely biased) institutions and individuals, the ""science"" on climate change has not been categorically settled (or more precisely in this context; AGW or Anthropomorphic Global Warming). Climate science does not abide by the most basic of scientific principles; that a testable and disprovable hypothesis must be established, and then should data show your predictions to be in error, your hypothesis is wrong. Instead climate change institutions continue to pronounce ever more certainty in their theories, while simultaneously failing to deliver predictions borne out by data.
While I do not want to derail into an extended debate around the political and financial pressure brought to bear in the interests of the 'green' agenda, I do wish to make the point that there is not consensus in the scientific community around the causes and extent of climate change, in the same way that, for example, the scientific community came to accept the existence of the Higgs Boson after the recent experiments at CERN.
This distinction is used for a reason - the existence of the Higgs particle was not a political matter, and was therefore resolved in the way most scientific matters are - through discussions, experimentation and repeated, independent, interpretation of data. It is interesting to compare this to the way climate debates are handled.
The pro-climate lobby has successfully branded those who oppose them as "deniers" a term, which, however accurate in a grammatical sense, has very clear pejorative overtones. It implies that those who refuse to agree with the "consensus" (second bit of branding - make out that every but some fringe loonies agree with you) are dangerously short sighted or even willfully refusing to accept the clear truth. In the same way that there were those who denied the world was round or that deny the Holocaust took place, climate change "deniers" are painted as wrong by their very nature, with virtually no publicity or response given to the points they make.
Contrast this situation with one in which the branding is reversed and we have climate scientists and climate zealots (or alarmists as the term has slowly begun to seep in). Next time you read an article about global warming replace all instances of "denier" with "scientist" and preference anyone speaking up in favor of the AGW narrative as a "climate alarmist". Even relatively benign articles can be significantly altered through such branding.
2.) Welfare Entitlement
There has been a consistent attempt over the last sixty years to normalize the act of receiving state benefits. Why this is is open to debate. The cynical (me included) will say that if you wish to build a client state of those dependent on state handouts you have to first make it socially acceptable to take those handouts. Those of a more liberal bent may say that its necessary to ensure that the most vulnerable are able to receive support without becoming an underclass and being permanently locked out of society. The more extreme brand of socialists may even say that the successful have no right to their wealth, and so redistributing it should be applauded. Wherever you sit on this scale of explanatory tribalism, the fact remains that the language around welfare has changed, and with this new branding has come a different view on similar practices.
Welfare support was once called "National Assistance" for which you had to apply, and be judged worthy. It was just what it said - help provided by the country as a whole, to support those in situations deemed not necessarily of their own devising, but for which the majority of people would probably agree a helping hand may be in order. The wording is important here "Assistance" is clearly something extra not the whole of it. Assistance helps you do something you could do anyway a little bit easier, or make something impossible merely difficult. By the same extension when you applied for National Assistance you were, sometimes literally, going cap in hand to the representatives of your society and asking for help. It was humbling, it may even have been a embarrassing for those with a stubborn or proud streak. It was something done because you had no alternative.
Today we have Benefit Entitlements - although the system is broadly the same - the state provides financial support to those in various situations (unemployment etc etc), the terminology is completely different. Entitlement is a remarkably powerful term, in the private sector or normal day-to-day living the only things we can claim "entitlement" to are debts - things we are owed under law and which have, for whatever reason, been withheld. As citizens we are entitled to vote for our representatives and to be treated equally under the law - rights which a great many men have fought and died for over the centuries since the English first began to replace limits on a King's God-given entitlement to rule. Yet today we talk of entitlements not as the implementation of divine will, or as the foundations of our democratic system, today, we talk of entitlements to have money handed out to you for not wanting to work, money taken from others through taxation.
Tell someone they are entitled to something and you set a remarkably different expectation compared to telling someone they can apply to your for assistance. Yet that is exactly how successive governments have branded welfare payments. As such it is remarkably difficult to suggest even limiting the growth in welfare before a howling cry is sent up - after all you are suggesting taking away people's entitlements under god and law. How would the current welfare debate be shaping up if we still called it "National Assistance?" or even "Taxpayer Funded Assistance?" (My personal choice of nomenclature). It would certainly make it easier for a minister to stand up in the House and state "We are looking for ways to reduce the costs of Taxpayer Funded Assistance" rather than the daunting task now before him (or her!) "This government will reduce people's welfare entitlements."
3.) Communists and Fascists
This one is a little more generic than the two above, but it bears thinking about. As I mentioned at the beginning of this piece, Nazism (and fascism in general) are so engrained in our national psyche as purveyors of evil that we almost instinctively accept the premise that those with radical right wing beliefs must also be homicidal (or genocidal) maniacs intent on global domination. Yet we have no such horror when confronted with the extremes of the Left. Why?
Branding is again the answer here, Marxism has been portrayed in the liberal West as the older and maybe a little eccentric cousin of socialism. Largely harmless, and the kind of thing you expect from university ethics professors or bumbling house of lords representatives. By branding Marxism (and extreme left wing views in general) as the abode of the eccentric academic they have been accepted in the main in a way that their right wing mirrors could never be.
Yes there is the matter of WW2, in which, for various geopolitical reasons, the communists were on our side, and fought against the fascists. Objectively however the communist regimes in Russia, China, Cambodia and so on have inflicted death and economic misery on a scale at least as great of that as the fascists, and in the name of ideologies no more compatible with small c conservative, liberal capitalism then the regimes of Germany or Italy.
As could be done with either of the examples above I'd challenge anyone to read an article in which some is referred to as a communist (or Marxist) and replace those terms with fascist or even Nazi. How much of a difference does that make to the article, even when the content hasn't actually changed at all?
So... closing thoughts?
Most people don't want the facts, they don't even want the executive summary. Stereotypes emerge because we like the little colored boxes you can drop people, things and concepts into, because they make the world easy. Thought, decision making, and understand consequences isn't required if you can just read the label and know the answer - Liberals? Good, Deniers? Bad, Healthy - Good, Fat - Bad, and so on.
I doubt there is much that can be done to change this, the human condition is to mired in an eternal battle of "us" vs "them" for facts to ever come tribalism and its conceptual cousin Branding, but at least if people start being aware of the impact , maybe the odd person will actually make a decision based on the facts , rather than the insulting label applied to the speaker.
Happy Trails
/Z
That said, I did formalize a thought which has been bouncing round for a while now, and may sustain a longer discussion - the effective use of Branding in the modern world.
**
Branding in its commercial sense is the association of positive ideas with a particular brand or make. Once you've established the idea that your trainers are better, your coke tastier, your mortgages cheaper or your bikes speedier, then a huge premium can be charge for what are, objectively, comparable (or even inferior) goods.
The major brands of the world are worth billions on their own, Apple, the world's most powerful brand according to Forbes, is worth $100 billion. In effect you would wipe this amount off Apple's share price if everyone forgot the past and just looked at the facts as they stand today.
And branding has jumped from the commercial and advertising world to the political world. It has become axiomatic that you no longer need to respond to someone's arguments if they can instead brand them a Nazi. This is such a clearly observed phenomenon that is has even been the source of a behavioral law; Godwin's Rule of Nazi Analogies, which states that if you let an internet discussion on any topic run for long enough, someone is going to get called (or at least compared to) a Nazi. The political gains to this approach are clear - rather than engaging with the facts of a matter, or the arguments laid out, you need simply directly, and personally, assault the person with whom you are debated. Once you have successfully hung your pejorative label of choice around their shoulders you can then simply dismiss their arguments. After all, how could anything suggested by such a person be worth considering?
From this I feel there are at least three examples of this behaviour which bear consideration in our current climate;
1.) The Climate Deniers
Contrary to the ever more grandiose claims of various (extremely biased) institutions and individuals, the ""science"" on climate change has not been categorically settled (or more precisely in this context; AGW or Anthropomorphic Global Warming). Climate science does not abide by the most basic of scientific principles; that a testable and disprovable hypothesis must be established, and then should data show your predictions to be in error, your hypothesis is wrong. Instead climate change institutions continue to pronounce ever more certainty in their theories, while simultaneously failing to deliver predictions borne out by data.
While I do not want to derail into an extended debate around the political and financial pressure brought to bear in the interests of the 'green' agenda, I do wish to make the point that there is not consensus in the scientific community around the causes and extent of climate change, in the same way that, for example, the scientific community came to accept the existence of the Higgs Boson after the recent experiments at CERN.
This distinction is used for a reason - the existence of the Higgs particle was not a political matter, and was therefore resolved in the way most scientific matters are - through discussions, experimentation and repeated, independent, interpretation of data. It is interesting to compare this to the way climate debates are handled.
The pro-climate lobby has successfully branded those who oppose them as "deniers" a term, which, however accurate in a grammatical sense, has very clear pejorative overtones. It implies that those who refuse to agree with the "consensus" (second bit of branding - make out that every but some fringe loonies agree with you) are dangerously short sighted or even willfully refusing to accept the clear truth. In the same way that there were those who denied the world was round or that deny the Holocaust took place, climate change "deniers" are painted as wrong by their very nature, with virtually no publicity or response given to the points they make.
Contrast this situation with one in which the branding is reversed and we have climate scientists and climate zealots (or alarmists as the term has slowly begun to seep in). Next time you read an article about global warming replace all instances of "denier" with "scientist" and preference anyone speaking up in favor of the AGW narrative as a "climate alarmist". Even relatively benign articles can be significantly altered through such branding.
2.) Welfare Entitlement
There has been a consistent attempt over the last sixty years to normalize the act of receiving state benefits. Why this is is open to debate. The cynical (me included) will say that if you wish to build a client state of those dependent on state handouts you have to first make it socially acceptable to take those handouts. Those of a more liberal bent may say that its necessary to ensure that the most vulnerable are able to receive support without becoming an underclass and being permanently locked out of society. The more extreme brand of socialists may even say that the successful have no right to their wealth, and so redistributing it should be applauded. Wherever you sit on this scale of explanatory tribalism, the fact remains that the language around welfare has changed, and with this new branding has come a different view on similar practices.
Welfare support was once called "National Assistance" for which you had to apply, and be judged worthy. It was just what it said - help provided by the country as a whole, to support those in situations deemed not necessarily of their own devising, but for which the majority of people would probably agree a helping hand may be in order. The wording is important here "Assistance" is clearly something extra not the whole of it. Assistance helps you do something you could do anyway a little bit easier, or make something impossible merely difficult. By the same extension when you applied for National Assistance you were, sometimes literally, going cap in hand to the representatives of your society and asking for help. It was humbling, it may even have been a embarrassing for those with a stubborn or proud streak. It was something done because you had no alternative.
Today we have Benefit Entitlements - although the system is broadly the same - the state provides financial support to those in various situations (unemployment etc etc), the terminology is completely different. Entitlement is a remarkably powerful term, in the private sector or normal day-to-day living the only things we can claim "entitlement" to are debts - things we are owed under law and which have, for whatever reason, been withheld. As citizens we are entitled to vote for our representatives and to be treated equally under the law - rights which a great many men have fought and died for over the centuries since the English first began to replace limits on a King's God-given entitlement to rule. Yet today we talk of entitlements not as the implementation of divine will, or as the foundations of our democratic system, today, we talk of entitlements to have money handed out to you for not wanting to work, money taken from others through taxation.
Tell someone they are entitled to something and you set a remarkably different expectation compared to telling someone they can apply to your for assistance. Yet that is exactly how successive governments have branded welfare payments. As such it is remarkably difficult to suggest even limiting the growth in welfare before a howling cry is sent up - after all you are suggesting taking away people's entitlements under god and law. How would the current welfare debate be shaping up if we still called it "National Assistance?" or even "Taxpayer Funded Assistance?" (My personal choice of nomenclature). It would certainly make it easier for a minister to stand up in the House and state "We are looking for ways to reduce the costs of Taxpayer Funded Assistance" rather than the daunting task now before him (or her!) "This government will reduce people's welfare entitlements."
3.) Communists and Fascists
This one is a little more generic than the two above, but it bears thinking about. As I mentioned at the beginning of this piece, Nazism (and fascism in general) are so engrained in our national psyche as purveyors of evil that we almost instinctively accept the premise that those with radical right wing beliefs must also be homicidal (or genocidal) maniacs intent on global domination. Yet we have no such horror when confronted with the extremes of the Left. Why?
Branding is again the answer here, Marxism has been portrayed in the liberal West as the older and maybe a little eccentric cousin of socialism. Largely harmless, and the kind of thing you expect from university ethics professors or bumbling house of lords representatives. By branding Marxism (and extreme left wing views in general) as the abode of the eccentric academic they have been accepted in the main in a way that their right wing mirrors could never be.
Yes there is the matter of WW2, in which, for various geopolitical reasons, the communists were on our side, and fought against the fascists. Objectively however the communist regimes in Russia, China, Cambodia and so on have inflicted death and economic misery on a scale at least as great of that as the fascists, and in the name of ideologies no more compatible with small c conservative, liberal capitalism then the regimes of Germany or Italy.
As could be done with either of the examples above I'd challenge anyone to read an article in which some is referred to as a communist (or Marxist) and replace those terms with fascist or even Nazi. How much of a difference does that make to the article, even when the content hasn't actually changed at all?
So... closing thoughts?
Most people don't want the facts, they don't even want the executive summary. Stereotypes emerge because we like the little colored boxes you can drop people, things and concepts into, because they make the world easy. Thought, decision making, and understand consequences isn't required if you can just read the label and know the answer - Liberals? Good, Deniers? Bad, Healthy - Good, Fat - Bad, and so on.
I doubt there is much that can be done to change this, the human condition is to mired in an eternal battle of "us" vs "them" for facts to ever come tribalism and its conceptual cousin Branding, but at least if people start being aware of the impact , maybe the odd person will actually make a decision based on the facts , rather than the insulting label applied to the speaker.
Happy Trails
/Z
Sunday, 1 December 2013
You Must Construct Additional Pylons
I've thought about various potential topics to write about recently, and realized, with some regret, that the act of publicizing this blog has, in addition to significantly increasing readership (1,200 cumulative page hits), also meant there are some things I just can't write about anymore. One of the oft-touted advantages of the internet is anonymity, however contentious your opinion on a particular subject may be, it is ultimately the opinion of an online tag, not a real world person. The act of discourse is dependent on context and an agreement between parties as to the extent of the topic, and the degree to which things are "just for argument's sake." Sadly, without this context a attributable one-way online monologue has to be written with at least one eye on how misinterpretable one's comments are. Hence, this is a return to the more innocuous realm of social-economic politics.
**
The pre-cursor leaks to the 'Autumn Statement' due to be delivered shortly by the Chancellor suggest that some form of tax or regulation may be due to land on the Buy to Let / Private Residential Lettings (B2L and RL respectively) industry. The purpose behind this is pretty clear, on the one hand a tax on B2L will raise a heap of cash for the treasury, and secondly it will allow various politicans to claim they are doing something to try and cool the B2L / RL market, which is often seen as a parasitical industry forcing people into a lifetime of rentals rather than homeownership.
There certainly seems to be some substance to the grumbles of Generation Rent, if the rent a landlord charges is expected to pay for the mortgage, plus wear and tear on the property (on average), and turn a profit, then it seems reasonable the renter should be able to pay the mortgage themselves. It is also telling that for most people my age the concern is not with paying a mortgage, but with saving a deposit while also paying rent, the deposit really serving little objective value (with mortgages common at the 90 and 95% level, is the up front payment really more relevant than the ability to pay the monthly amount?).
However, the Government's various schemes seem to be doing next to nothing to help matters, and the latest plan, to tax landlords (the actual proposal seems to be reduce the tax relief that can be claimed on mortgage interest, however the reduction in an allowance and the increase in a tax is a presentational difference not a mathematical one), is likely to make matters worse. As was once very simply pointed out on a news forum "Companies don't pay tax." Now after the scoffs regarding off shoring, tax efficient structuring and so on have abated, the point is more fundamental. Companies really don't pay tax - why? Because companies are ultimately just mechanisms for moving wealth between individuals. If the government removes some of the money from the transactions of a company (through VAT, Business Rates, Employer's National Insurance and so on), its not the company that pays that tax (how can it - companies only exist on paper and online), its the customers (who pay a higher price), the employees (who get a lower wage) and the shareholders (who get a lower return). Hence a corporate tax rise will just result one or more of those three groups receiving less. B2L works in exactly the same way. If a landlord makes £500 a month from a property, and the government changes the tax regime to mean the same landlord now only receives £100 a month, he will just increase the rent by £100/month (or whatever the required amount to keep the profit margin the same). Any increase in B2L taxes will, in full, be paid by those renting - supposedly the very people the proposal is meant to be helping.
The other failed intervention recently is Help To Buy mortgages. The idea here is that when you go along to a Bank for a mortgage you can apply for a Help to Buy mortgage - in this arrangement you take out an, apparently, normal mortgage with the bank (at say 95%). However, behind the scenes the government provides a guarantee on a proportion of the loan (20% I think). The idea is that since part of the loan is secured the banks should be more willing to lend. Effectively a 95% mortgage becomes a 75% mortgage (and therefore less risky) and a 20% loan to the government (far safer than lending to individuals).
However, this seems to be treating the symptom not the problem. The reason people struggle to build a deposit (and therefore need a loan to value mortgages) is because house prices are, relative to incomes, ginormous (- I hate the spelling of that word), driven by an abundance of cheap money. Making it easier for people to borrow vast sums of money just reinforces the problem, thereby pushing prices up even further. (Think about this from the other way round, if your selling a property the more people who can afford to bid the higher you can push the price. Help to Buy means people can afford bigger mortgages, or people who previously couldn't afford one now can, hence demand goes up and so does price).
The higher, and growing, cost of property is also one the reason for the boom in B2L. Buy a property, get a tenant to pay the mortgage and general running costs for you, and watch the property value itself grow. Unlike equity in a family home this is actual capital as well. After all you really can see a B2L house and take the money. (As an aside, I don't doubt that those who bought at the peak of the boom are now sitting on negative equity and it isn't all looking like fun and games. This doesn't really invalidate the industry as a whole, its an oft-quoted rule that shares should be held for the long term (minimum 5 years) to ride out boom/bust. Property is, of course, exactly the same).
With the housing market flooded with not just those looking for a residential property, but also huge amounts of restless capital looking for an investment offering higher returns than stagnant traditional investment channels, its not surprising that the price continues to grow. Higher prices mean its harder for tenants to become owners, so the government makes it easier for them to borrow, so the price goes up even more, so it looks like a better investment, so more B2L landlords enter the market, so the price goes up, so rents go up, repeat ad nauseum.
The solution? There seem to be three legs to this milk-stool of a trilemma; supply, deposit building and demand. (Listed in that order for a reason).
Firstly; Supply. This is the obvious and boring one. If you had more houses the price should drop, supply and demand etc etc. We are in a bit of a trap on this one because of the continually rising prices in general. New builds tend to fall into the "expensive and exclusive" category - why? Because there is demand for this. With the number of million and billionaires growing every year, with wealthy French, Chinese, Russians and so on all setting up shop in London, high market, preposterously priced houses and apartments net developers huge pay offs, and don't do much to help the market. The second problem is a little more insidious; at the other end of the spectrum the value of land a low-ladder property is built on is a big component of the value. A plot of 10 houses with planning permission is worth very nearly the same amount as the 10 houses; and that price goes up every year. So why bother to develop when you could just sit on the land and bank increased asset value year after year?
Unfortunately in this instance I'm inclined to advocate state interference (I do have a socialist side; its just normally cowering in the background). Social housing, built and sold at cost (or even subsidized) for first time buyers on a buy-to-live basis, will eventually cap and begin to reduce the market price for entry level housing. This will in turn break the appeal of sitting on unused land, and should stimulate the private sector to also begin building (hopefully at a mid-market level).
Second; Deposit Building; as mentioned above a re-occurring grumble is that while you may be able to comfortably pay a mortgage, its harder to have both the monthly outgoings and accumulate a deposit. Before getting on to possible ways to assist with this I want to touch on a slightly tangential point about deposits;
One of the claims I've heard is that accumulating a deposit is seen as a 'test' as to whether an individual can afford a mortgage repayment and still have money left over to cover unforeseen expenses which a landlord would cover for a tenant. If you can save £15,000 in addition to paying your rent, then you can probably afford any expenses that crop up. There is some bizarre logic in this IF you assume that everyone gets their deposit through saving, and continues to save at that rate once they have a mortgage. This however is very, very, stretched assertion. Bank's do not ask for proof that a deposit was obtained from saving, inheritance, poker winnings, work bonuses, deliberate thrift; its all the same. You got the money or you don't; and the how is largely confined to checking for illegal activities. (Note this is not the same as "stress testing" mortgages. Anyone taking out a base-rate linked mortgage today should be able to afford increases to 5% base rate or more, assuming 0.5% for the next 20 years is likely to be a bad bet).
That point aside it is also a reasonable challenge to say whether deposit building even should be encouraged. Why shouldn't we all just rent? Renting certainly has a role to play in a country's residency make up. Renting allows a flexible and mobile workforce, and for those on carefully controlled budgets it avoids the possibility of sudden unexpected costs (i.e. a new boiler and or a tree falling on the roof). I don't even see a problem with the job of 'professional landlord' ultimately having one expert dealing with everyone's domestic problems and building up a network of trade-contacts should be more efficient than everyone trying to do their own thing.
On the flip side homeowner's tend to be less likely to engage in criminal activity, are more likely to plan and save for their future, take more pride in their neighborhood, are more politically active and are more likely to be employed. Home ownership provides a long term stake in a community that renting does not.
The thing that Britain lacks relative to other countries with a much higher proportion of rentals however is a 'big business / long term' rental market. At the moment you might rent for 12, or in extreme, 24 months, mostly likely that a private landlord. This does not provide much in way of stability. Rents can go up year on year, often with short notice. Your landlord might decide to sell up, or simply decide they don't want to renew your tenancy. This does not provide any long term stability, and is one of the main appeals of home ownership.
If residential letting could be moved onto a longer term and more dependable footing, it may alleviate some of the ill-will between tenants and landlords. If leases were 5 - 10 years, with pre-fixed annual increases (to say the RPI), and managed by companies rather than individuals, then renting may become a viable, stable, long term solution. You may also see rental values starting to come down; a company that owns a block of flats outright (due to being both developer and corporate rental), only has to provide a reasonable level of return on a, close to gold plated, investment. Rates should therefore be tracking something comparable to gilts, rather than mortgage repayment rates. Actually bringing this about however would require building a market almost from scratch, and outside the scope of my idle musings.
If all of this is put to one side however, and it is assumed we do want to support those trying to build deposits, it would seem we need a way for those renting who want to save for a property, to get bonus income from somewhere. The simplest way I can think of this to work without obvious risks of exploitation is some form of tax relief. Anyone who doesn't own a property, who rents from a landlord meeting certain criteria (i.e. not your wife if your an MP!), who has income below a certain threshold (40% tax bracket maybe), can apply for income tax relief - with the amount saved being held by the government in some form of savings account. These funds can only be used as a deposit on a house to be used as a primary residence, and could be capped (15-20,000?).
The cost to the government should be relatively trivial, after all the people this would impact do not make up a major source of income tax, and economy should get a minor boost from people spending more of their income as their deposit is accumulating from their tax-relief, and some of the ire is taken out of landlords tax relief on mortgage interest for B2L properties. How much it would cost to administer this may be a factor, as would the potential knock on impacts.
As an attempt to curb the effect this would have on rising property prices it may be possible to force a decrease in loan-to-value as the amount of tax reliefed savings increases. Thus while the average deposit may increase from 10,000 to 30,000, this results in mortgages dropping from 95% to 85% rather than people bidding for more expensive houses. Exactly how to implement this may require a little more thought, but some kind of cap on prices seems a possible way to go. If a cap of (say) 200,000 is placed on the value of a house that the tax-relief fund can be used for, then people could save towards a lower/low-mid range house while renting, but this couldn't be abused by the super wealthy to saver for mega-properties, nor could it force prices up too far. Once the price goes over 200,000 anyone using a tax-funded deposit would be unable to use their fund.
The final point - demand - is again a rather obvious one. More people = more demand for housing = higher prices. While there are potential some things which could be done at a local level to help on this front (i.e. services for finding housemates for professionals?), the more systemic issues around immigration and population dynamics are realistically out of scope here, and are mentioned purely for the sake of completeness.
So, to recap; we should not try to tax landlords since this will backfire, we should introduce a long term, corporatized, rental market, and tax relief is a possible way of encouraging saving for deposits.
House market solved.
/Z
Friday, 8 November 2013
Mathematical Inequality
//
Disclaimer: This one is potentially a little more controversial than some of the other topics discussed. You've been warned.
//
I believe in Meritocracy - meaning appointing the person most able to fulfill the duties and obligations of a role to that role or position. Meritocracy is about equality of opportunity (anyone can apply for the role) and elitism of choice (only the best will succeed). I'm, unfortunately, in a fairly small minority. Why? Because most people don't actually believe in meritocracy - they believe in equality of outcomes. It doesn't matter if the best people are selected, just so long as those people meet the required criteria in terms of factors other than ability (such as race, religion and gender).
**
There is, for want of a better word, a zeitgeist at the moment towards equality in various fields (pay, FTSE directors, university admissions and so on), based purely on population characteristics. 50% of the population is female, so 50% of total pay must be earned by women, 2% of the UK population is black so we must have 13 black MPs and so on. The main point of these factors is they ignore actual ability. For proportional representation style of equality to work it is necessary to prove that actual suitability for roles, actual productivity, actual work-ethic is evenly distributed.
Note - I pointedly use the term actual here. This is vital. I make no attempt to even touch on the minefield like subject of whether the neurological and biochemical make up of the male brain is more or less likely to produce talented astrophysicists than the female or any comparable topic. Instead the query runs more like this: Pick 100 random people off the street and give them a maths test which starts relatively simple (2+2) and finishes with post-graduate level algebra. You then grade and rank and papers. Are you really going to be that surprised if the results come back that 6 of the top 10 scores are female, 18 of the top 25 are male, and 30 of the top 50 are female? Hopefully not - even if you state as a precondition that men and women are not inherently better or worse at maths that doesn't mean any given sample will not have a bias one way or the other.
Rather than try and illustrate my point with anecdotes or theory as usual I'm instead going to use the dark art of simple mathematics. This is to try and head off the inevitable counter arguments predicated on my own 'innate bias' or some other straw-man counter which avoids addressing the genuine issue.
To run this out I created an excel spreadsheet with 100 Sample Groups, each Sample group containing 50 people from group "A" and 50 from group "B". (For a total of 10,000 observations). Each observation was then allocated a random score between 1-100 using the Excel RandBetween function. Therefore, assuming Excel itself is fair, the score an individual received was not based on their Group - the precondition of potential equality holds.
For each Sample Group I then summed up the scores for Group A and Group B, and allocated the group winner as either A or B based on the total. I then reproduced this across the100 Sample Groups to produce 1 Test Result - displayed as a percentage (i.e. 45% A / 55% B).
To flesh out the test size I re-did this for 100 Tests, giving a total sample size of 1,000,000 observations (10,000 observations per Test and 100 Tests). Now the population/representation lobby would predict/require/demand that the outcome here is equality - 50/50 split between Group A and Group B.
The actual results were as follows;
68 Tests had a higher percentage of sample groups won by Group A (compared with 32 Tests for B)
The average difference between Test Wins was 7.5 (i.e. if 50/50 is 0 and 49/51 is 2, the average was 7.5).
The most skewed Test was 63/37 (i.e. out of the 100 Sample Groups in the Test, 63 of them were won by the same Group).
Now repeating this exercise would no doubt deliver different results, but it is unlikely to deliver an exact 50/50 split between the groups on a specific interation (Out of my 100 tests only 13 came back as 50/50 splits between Group A and Group B, meaning by extension 87% of Tests had a skew (For those interested the numerically most common skew was 8 points (54/46), occurring in 17 Tests). While 50/50 may be the statistical 'average outcome' any given iteration of the Test is more likely to deliver a result within +/- some margin.
The purpose of this is simply to highlight that even with a perfectly level playing field going in (everyone gets a random value between 1 and 100) its not unlikely, or unusual, or unfair, for the total aggregate results to show a skew towards certain groups, simply because of the randomness of the sample.
(A tangential observation is about poker players. Imagine a poker player plays 1,000,000 hands in their life, and on average should get dealt the winning hand 15% of the time. That means in your life you have an expected value of 150,000 winning hands. Yet by the same virtue of randomness as shown above it isn't really that unlikely that someone out there might get 175,000, or 200,000, and for 1 in a million people they might even get 300,000 or higher. Maybe successful poker players really do just get better hands more often. This isn't because of a rigged deck, or an unfair game or anything else, its just a case of actual results not exactly matching statistical expectation).
With the maths out of the way my final point is about what I think the above illustrates. Firstly, (as with many of the points I raise) we (pluralist national "we" now) need to make a decision about what we want; equality or meritocracy. They are probably mutually exclusive. If you want the House of Commons to be exactly 325 men and 325 women then you have to accept that your not picking the top 650 candidates.If you want the top 650 candidates then you have to accept that due to the quirks of actual ability, your going to get a 55/45 split or a 49/51 or even a 63/37.
If the conclusion is equality is more important than meritocracy then while I disagree, at least the objective is consistent with quotas, positive discrimination (a horrendous phrase that should be demised as quickly as possible. Discrimination is discrimination, "positive" discrimination is akin to stealing something and giving it to Oxfam, then calling it charity not theft), and all the other malarcky of the current zeitgeist.
If we pick meritocracy we still have our work cut out for us, but in a very different way. There really is inherent bias in many systems, whether its preconceptions about women, or race or sexual preference these prejudices do exist. The quest for the meritocrats should be to devise ways to prevent these biases from impacting on decision making processes, if a process can be cleansed of bias then the outcome whether it be 100% white middle class male, or 31% black under 21s, or anything else is equally acceptable.
On that final point a suggestion that came out of comparatively recent discussion was to remove face to face interviews in a recruitment process. Some companies already ask for 'age neutral' CVs which contain no dates or other age-identifying information, why not go one further and have name/address/age neutral CVs, and shortlist candidates who supply their answers to the interview questions in written form? Certainly this ships with its own problems (not in scope of this post), but its not an entirely ridiculous proposal.
Happy Trails,
/Z
EDIT: In response to a valid comment raised regarding this I feel I should clarify that the purpose of this is not to try and defend the current situation with regards to parliament/FTSE directors or anything else, its a rebuttal of the view that the outcome (i.e. exact 50/50 split by gender, or ethnic group or anything else) should be set in advance, and if necessary enforced through reserved seats, gender-fixed shortlists or some other approach.
Wednesday, 16 October 2013
The OxCam Entitlement Paradigm
I didn't go to Oxford or Cambridge (I didn't even go to the L.S.E.), however, it wasn't until recently that I actually clocked to how obsessed with these institutions certain parts of the media and the wider world are. Why?
**
I actually attended the University of Warwick and in due course graduated with a 2:1 in Politics, Philosophy and Economics, having learned important life skills such as how to play poker, how to drink borderline fatal quantities of alcohol and how to wash my clothes, cook my dinner and vaguely manage my finances. It should also be said that I picked up a splattering of economics, was exposed to a range of political ideologies, and spent enough time immersed in the grand thoughts of two thousand years of human curiosity that it fundamentally changed how I view the world.
It should also probably be pointed out in the interests of fairness (and to some extent to lay the ground work for some of the comments below) that Warwick, for all the fact that pretty much everyone who goes there is an Oxbridge reject, topped the current university league tables for Economics (as it did in at least 1 of the years I attended), beating out the LSE (2nd), Oxford (3rd) and Cambridge (4th).
Those same university league tables also make for some interesting reading, for example Buckingham has the highest rating for Student Satisfaction and St George's University of London has the highest rating for graduate employability.
Oxford and Cambridge no doubt do well, and come out on the top of the table in a number of high profile subjects (such as Medicine, Law, Business and Mathematics), however this seems at least in part due to the innate bias in the system. Part of the ranking is made up of an assessment of the average academic attainment required to gain entry into an institution. Thanks to Oxbridge's vaunted status they set higher entry standards, thereby boosting their ranking, thereby keeping their elite status. This may have some intrinsic value if it were not for the fact that A-Level results prove little beyond short term memory ability and some basic aptitude in exam technique and dropping in key buzz words.
Are Oxford or Cambridge graduates a superior species then? I have no doubt that the words "Cambridge University" next to your BA (Hons) opens doors, and that a certain sense of entitlement settles on to those who spend enough time in these ancient institutions, an air that translates well into interview confidence and pay-negotiation demands. I was told at least one anecdote of an Oxford graduate who submitted a CV to the graduate scheme of a major bank that read simply "John Smith - Oxford University". More worrying this individual actually got an interview (though not the role).
I have friends who attended these universities, I have met colleagues, acquaintances and randoms who have passed through them, they are, for the most part, intelligent, confident, well-informed individuals. But so are my friends from Warwick, Edinburgh, LSE, UCL, Cardiff, Durham and so on, Oxford and Cambridge do not hold a monopoly on genius, or curiosity or appreciation of beauty.
There are currently around 120 universities in the United Kingdom and a further 180 higher education institutions. They all have their share of the bright and brilliant, and to some extent the mediocre and the drug-addled (students remember). Yet the media, the government (both political and institutional), certain parts of the city, are dominated by Oxford and Cambridge graduates, and a lot of them, subtlety, take part in the social paradigm that sets the Old Universities apart from the rest of the world, above, beyond, the normal "small u" universities that the plebs attend.
I don't really have a definitive point to this, I'm not going to produce statistical tables that show that Oxford/Cambridge graduates do, or don't, on average make less good or bad policy decisions than alumni of other high caliber universities. But I would call attention to the OxCam Entitlement Paradigm. Next time you hear someone, anyone mention, even in passing, that they attended one of these institutions, ask them how that is relevant to the point they're making, or why they think that's a helpful contribution.
Please let me know if you get any meaningful responses,
Ta.
/Z (BSc (Hons) PPE)
**
I actually attended the University of Warwick and in due course graduated with a 2:1 in Politics, Philosophy and Economics, having learned important life skills such as how to play poker, how to drink borderline fatal quantities of alcohol and how to wash my clothes, cook my dinner and vaguely manage my finances. It should also be said that I picked up a splattering of economics, was exposed to a range of political ideologies, and spent enough time immersed in the grand thoughts of two thousand years of human curiosity that it fundamentally changed how I view the world.
It should also probably be pointed out in the interests of fairness (and to some extent to lay the ground work for some of the comments below) that Warwick, for all the fact that pretty much everyone who goes there is an Oxbridge reject, topped the current university league tables for Economics (as it did in at least 1 of the years I attended), beating out the LSE (2nd), Oxford (3rd) and Cambridge (4th).
Those same university league tables also make for some interesting reading, for example Buckingham has the highest rating for Student Satisfaction and St George's University of London has the highest rating for graduate employability.
Oxford and Cambridge no doubt do well, and come out on the top of the table in a number of high profile subjects (such as Medicine, Law, Business and Mathematics), however this seems at least in part due to the innate bias in the system. Part of the ranking is made up of an assessment of the average academic attainment required to gain entry into an institution. Thanks to Oxbridge's vaunted status they set higher entry standards, thereby boosting their ranking, thereby keeping their elite status. This may have some intrinsic value if it were not for the fact that A-Level results prove little beyond short term memory ability and some basic aptitude in exam technique and dropping in key buzz words.
Are Oxford or Cambridge graduates a superior species then? I have no doubt that the words "Cambridge University" next to your BA (Hons) opens doors, and that a certain sense of entitlement settles on to those who spend enough time in these ancient institutions, an air that translates well into interview confidence and pay-negotiation demands. I was told at least one anecdote of an Oxford graduate who submitted a CV to the graduate scheme of a major bank that read simply "John Smith - Oxford University". More worrying this individual actually got an interview (though not the role).
I have friends who attended these universities, I have met colleagues, acquaintances and randoms who have passed through them, they are, for the most part, intelligent, confident, well-informed individuals. But so are my friends from Warwick, Edinburgh, LSE, UCL, Cardiff, Durham and so on, Oxford and Cambridge do not hold a monopoly on genius, or curiosity or appreciation of beauty.
There are currently around 120 universities in the United Kingdom and a further 180 higher education institutions. They all have their share of the bright and brilliant, and to some extent the mediocre and the drug-addled (students remember). Yet the media, the government (both political and institutional), certain parts of the city, are dominated by Oxford and Cambridge graduates, and a lot of them, subtlety, take part in the social paradigm that sets the Old Universities apart from the rest of the world, above, beyond, the normal "small u" universities that the plebs attend.
I don't really have a definitive point to this, I'm not going to produce statistical tables that show that Oxford/Cambridge graduates do, or don't, on average make less good or bad policy decisions than alumni of other high caliber universities. But I would call attention to the OxCam Entitlement Paradigm. Next time you hear someone, anyone mention, even in passing, that they attended one of these institutions, ask them how that is relevant to the point they're making, or why they think that's a helpful contribution.
Please let me know if you get any meaningful responses,
Ta.
/Z (BSc (Hons) PPE)
Tuesday, 1 October 2013
Warning Low Power
There was a time, perhaps, when politicians believed they were in
the business of Government; that is the responsible stewardship of a
nation. Sadly those times are long past, and our current crop are
clearly in the business of power-retention. With that end in mind, it is
increasingly obvious that the preferred model for winning elections is
now to throw money at swing and core voting blocks, with whichever party
offers the greatest bribes buying its way into office. Hence we come to
the latest debacle in a long line of debacles.... Mr Miliband's plans
to revert to cold war communism and begin setting the prices private
companies can charge.
**
As far as I can tell there are three issues which need to be addressed in the energy debate;
1.) Should the provision of electricity be run as a utility or as a private enterprise?
2.) Are energy bills too high? And if so why?
3.) Is it 'acceptable' to make a profit off the provision of a 'basic' requirement like power?
*
1.) Nationalise, Privatise, Re-nationalise...
The question of whether power companies should be utilities is further complicated by the split issue of whether we are talking in ideological or practical terms. On ideological grounds I see no problem with nationalised energy companies - in the modern world electricity and/or gas is as much as requirement of existence as water and shelter. It is what allows us to heat our homes, cook our food, warm the water for our showers and power the lights (not to mention keep the internet-hamsters happy so we can write online blogs). As an a priorii principle I am happy that the government should consider the provision of basic utilities as part of its role in providing the institutions on which society functions. In this version of the world of course nationalised industries are efficient, well run, well funded and receive regular investment from central government to build, develop and maintain infrastructure.
From a practical perspective however, energy companies are now private and that is unlikely to change. The current market capitialisation of the big six energy companies is around £140 billion (share price x number of shares), so even without a take-over premium this is the kind of figure a re-nationlisation would cost. While I acknowledge this is a bit of an off-the-wall comparison, if renationalising meant no shareholder dividends had to be paid, but everything else was kept constant (i.e. no loss / gain in efficiency, no changes in price etc just no profits), then it would take about 125 years for the Government to earn back its £140 billion upfront investment. Together with a potential backlash from investors over any mass appropriation of private companies, and possibly massive job losses as a result of amalgamating six companies back into one national one, it seems unlikely British Gas as a national entity is likely to be making a return anytime soon. Thus, for point 1 it seems safe to say energy is going to remain private.
2.) How much!?
Energy bills are certainly a material component in most people's outgoings. According to the industry body Ofgem the 'average' dual fuel bill is £1,315. This compares to a (bizarrely high in my opinion) average household income of £40,000 for a household with two adults (source: http://www.bbc.co.uk/news/magazine-15197860 - and I would be delighted with anyone who can find a more reasonable number, this is one must be skewed by super high earners dragging the average up). Assuming this is made up of 20x2 then your post tax household income is about £32.8k, and energy therefore accounts for around 4%.
I'm not going to dismiss 4% as trivial, but it is worth noting that energy bills are far more of an emotive subject than their actual costs warrant. A survey conducted in 2012 showed only 14% of respondents had a idea of what their energy bill was, or how the appliances in their home contributed. 81% admitted to having no clue whatsoever. This combination of huge ignorance, plus the rather painful experience of getting 6 months (or even annual) bills in one hit suggests its easy for people to get over-excited by energy costs.
Even putting to one side the issue of whether that £1,315 is a high enough percentage to warrant outrage, the question then arises of whether that number is in, and of, itself too high. To answer that let's look at what goes into the average energy bill (all taken from Ofgem):
Electricity Bills:
58% - costs of running the business (billing, sales, costs of having an office and staff etc)
16% - costs of distribution network (pipes and cables)
11% - costs of paying government subsidies for green energy schemes.
5% - VAT
4% - costs of high voltage transmission network (trunk connections)
1% - Rounding errors, misc, etc.
Which leaves a grand total of:
5% profit - or the equivalent of about £65 on your £1315 bill.
It's also worth pointing out the government takes another pop at that in the form of corporation tax at 23% (put another way the government takes 1.2% of your bill in tax, and the company makes 3.8% in profit).
The figures for gas are comparable - with some tweaking (the transmission is cheaper for gas, but the costs of the rest of the business are higher - the profit rate is comparable).
3.8% isn't a massive figure, and is comparable to entities like Tesco's who pay a dividend of around 4%. It seems then that allegations of the energy sector making vast profits off the back of the exploitation of freezing children are somewhat unfounded. The tactical use in the media of the figure of £3.3 billion in profits is designed to be inflammatory, and ignores the fact that that represents 3 years profits on a combined industry investment of £140 billion. While I sympathize (to some extent) with those who struggle to pay their heating bills, I can not, in all honesty, say the figures support a view of a market rampantly exploiting its customers, or its market position.
3.) Lawful Evil Incorporated
Economic arguments aside, I've heard many claims along the lines of 'its immoral to make a profit of providing basic human needs.' This extends to whatever the current target of vilification is - landlords? Shouldn't be allowed to make a profit, supermarkets? How dare you make a profit of people avoiding starvation! Medicine - outrageous that anyone could make a profit of treating disease! And so on..
This seems to me to be a symptom of a media and social paradigm that ignores the role of capital in production.
In the most basic sense production is a functional of f(labour) x f(capital) [i.e some function of labour multiplied by some function of capital]. Capital in this instance means anything that isn't labour, and while traditionally has meant things like tools, factories, tech etc in the modern world it also has the very simple meaning of money.
All the above formula says is that output requires you to have people willing to work, and the infrastructure to enable them to work, and one without the other is pretty useless. It is the accumulation of capital over thousands of years that separates the modern day hedge fund manager from the stone age hunter-gatherer. Education has improved the quality of our labour (supposedly) and the investment and growth of capital has raised the capital stock available to support that labour.
Just like you expect people to earn salaries in exchange for their salaries, so too should investors earn dividends in return for their capital. To expect capital without returns is in the same boat to expecting labour without salary. Its possible (after all slavery is still going strong), but it generally requires a coercive element which isn't compatible with claims of liberal rule-of-law capitalist democracy.
If you truly want people to invest in pharmaceutical companies so fund new medicines, in tech companies to give us new gadgets, in supermarkets to make buying food easy (etc etc) and in energy companies to deliver power to the little sockets in our homes, then you need to let them earn a reasonable return on investment.
The alternative is to centrally fund things (i.e. the Army - we don't have a private military anymore, and so the government pays the salaries, and coughs up the capital spending which would normally be attracted by the prospective dividends), now, as mentioned above, I'm not ideologically opposed to a nationalised energy company, but I very much do not trust the current brand of politicians to fund such an enterprise properly. As any gamer will tell you Logistics Wins Wars (though they may know it as 'macro harder!'), and that translates to fund your infrastructure well, and fund it early. Research technology, upgrade hardware and reinvest the growth generated into faster and further improvements. But there is no political capital in funding energy infrastructure. High levels of capital spending that would keep things ticking along without issue and at a potentially lower cost to the taxpayer carry no benefits (people don't notice things working well), while taking the money away from infrastructure and spending it on headline grabbing policies buys votes, and therefore power. Plus, at the end of day, if an adviser tells you the whole national grid is going to fall over in 10 years unless you spend now - so what? Chances are the other side are going to be in power by then and you can blame the whole mess on them. It therefore seems inevitable that a politically run power-company will invest insufficiently.
On the other hand, companies which generate profits attract capital flows - investors want to get in on a good thing, and so companies doing well can raise new funds to invest and grow further. Energy companies may be struggling to invest in the levels required without government subsidy, but maybe that's because they deliver such uninspiring levels of return. Why invest in Npower, with all the political risks, when you can invest in Tescos (which for the most part bumps along under the radar) and posts similar returns? Or even better invest in a major bank which despite all the recent flak still outperform utilities?
There is however a point which needs to be made in response to this - that of 'super-profits'. Under basic economics companies are able to derive a profit from their activities and still be in equilibrium. In fact equilibrium is achieved when a company can produce at a price which the market will pay, while covering sufficient salaries to attract the required labour, and sufficient dividends to attract the required capital. However, in some circumstances where perfect competition has failed (i.e. a monopoly or oligopoly), companies can make 'super-profits' - i.e. profits above that level required to attract sufficient capital for the business to function. These 'super-profits' are a market failure. In perfect competition the presence of super-profits should prompt new companies to move into the sector, and charge a lower price. Although they make a lower profit they still make sufficient profit to attract capital, and by undercutting the 'super-profit' firm should attract all the business.
If there is evidence of the energy companies generating super-profits than it is potentially an argument in favor of intervention (of one sort or another), but from the figures outlined above this seems hard to support.
4.) Temet Nosce
The energy sector is not without potential improvements, and one key one would be in the realm of customer knowledge. Even as a fairly cynical (and clued up) contract reader, and someone with experience of the labyrinthine terms and conditions of financial products I found my energy bill difficult to decipher. For the average customer its borderline impossible. Clear, straightforward billing, in a standardized measurement, along with up front explanations on things like changing tariffs (i.e. you pay about 5x more per KwH in the winter because of a 'seasonal adjustment') would help boost customer confidence in the sector. The problem is not necessarily what the energy companies are doing, but the complete ignorance most people have of what that is.
The final point I'm going to touch on is the madness of politicians promising/threatening to set prices in advance. First off this wiped £3billion off the share prices of the big six companies instantly. At that rate we could afford Mr Miliband to make about 100 speeches a year for his first term in office, after which he will have talked into oblivion the entirety of the FTSE 100. One thing politicians of all flavors who aspire to government need to learn (and many never do) is that they are not talking to the electorate, they are talking to the incorporeal world composed of all the interlocking confidence tricks that make the modern world work - poke them at your peril.
Second, if this seriously looks like coming into force than all the energy companies will do is raise their prices pre-emptively - potentially bringing forward price rises planned for 2017 to 2014 or sooner, again I struggle to see how this is supposed to help with a 'cost of living' crisis.
Finally, this sends a very clear message that Labour is swinging towards a social model in which wealth creation via investment is outlawed. Profits will be hunted down and banned through price fixing. This means that investment has to come from central government, and how will it be raised? You know it - more taxing, and more borrowing.
Assuming the lights stay on that long,
/Z
**
As far as I can tell there are three issues which need to be addressed in the energy debate;
1.) Should the provision of electricity be run as a utility or as a private enterprise?
2.) Are energy bills too high? And if so why?
3.) Is it 'acceptable' to make a profit off the provision of a 'basic' requirement like power?
*
1.) Nationalise, Privatise, Re-nationalise...
The question of whether power companies should be utilities is further complicated by the split issue of whether we are talking in ideological or practical terms. On ideological grounds I see no problem with nationalised energy companies - in the modern world electricity and/or gas is as much as requirement of existence as water and shelter. It is what allows us to heat our homes, cook our food, warm the water for our showers and power the lights (not to mention keep the internet-hamsters happy so we can write online blogs). As an a priorii principle I am happy that the government should consider the provision of basic utilities as part of its role in providing the institutions on which society functions. In this version of the world of course nationalised industries are efficient, well run, well funded and receive regular investment from central government to build, develop and maintain infrastructure.
From a practical perspective however, energy companies are now private and that is unlikely to change. The current market capitialisation of the big six energy companies is around £140 billion (share price x number of shares), so even without a take-over premium this is the kind of figure a re-nationlisation would cost. While I acknowledge this is a bit of an off-the-wall comparison, if renationalising meant no shareholder dividends had to be paid, but everything else was kept constant (i.e. no loss / gain in efficiency, no changes in price etc just no profits), then it would take about 125 years for the Government to earn back its £140 billion upfront investment. Together with a potential backlash from investors over any mass appropriation of private companies, and possibly massive job losses as a result of amalgamating six companies back into one national one, it seems unlikely British Gas as a national entity is likely to be making a return anytime soon. Thus, for point 1 it seems safe to say energy is going to remain private.
2.) How much!?
Energy bills are certainly a material component in most people's outgoings. According to the industry body Ofgem the 'average' dual fuel bill is £1,315. This compares to a (bizarrely high in my opinion) average household income of £40,000 for a household with two adults (source: http://www.bbc.co.uk/news/magazine-15197860 - and I would be delighted with anyone who can find a more reasonable number, this is one must be skewed by super high earners dragging the average up). Assuming this is made up of 20x2 then your post tax household income is about £32.8k, and energy therefore accounts for around 4%.
I'm not going to dismiss 4% as trivial, but it is worth noting that energy bills are far more of an emotive subject than their actual costs warrant. A survey conducted in 2012 showed only 14% of respondents had a idea of what their energy bill was, or how the appliances in their home contributed. 81% admitted to having no clue whatsoever. This combination of huge ignorance, plus the rather painful experience of getting 6 months (or even annual) bills in one hit suggests its easy for people to get over-excited by energy costs.
Even putting to one side the issue of whether that £1,315 is a high enough percentage to warrant outrage, the question then arises of whether that number is in, and of, itself too high. To answer that let's look at what goes into the average energy bill (all taken from Ofgem):
Electricity Bills:
58% - costs of running the business (billing, sales, costs of having an office and staff etc)
16% - costs of distribution network (pipes and cables)
11% - costs of paying government subsidies for green energy schemes.
5% - VAT
4% - costs of high voltage transmission network (trunk connections)
1% - Rounding errors, misc, etc.
Which leaves a grand total of:
5% profit - or the equivalent of about £65 on your £1315 bill.
It's also worth pointing out the government takes another pop at that in the form of corporation tax at 23% (put another way the government takes 1.2% of your bill in tax, and the company makes 3.8% in profit).
The figures for gas are comparable - with some tweaking (the transmission is cheaper for gas, but the costs of the rest of the business are higher - the profit rate is comparable).
3.8% isn't a massive figure, and is comparable to entities like Tesco's who pay a dividend of around 4%. It seems then that allegations of the energy sector making vast profits off the back of the exploitation of freezing children are somewhat unfounded. The tactical use in the media of the figure of £3.3 billion in profits is designed to be inflammatory, and ignores the fact that that represents 3 years profits on a combined industry investment of £140 billion. While I sympathize (to some extent) with those who struggle to pay their heating bills, I can not, in all honesty, say the figures support a view of a market rampantly exploiting its customers, or its market position.
3.) Lawful Evil Incorporated
Economic arguments aside, I've heard many claims along the lines of 'its immoral to make a profit of providing basic human needs.' This extends to whatever the current target of vilification is - landlords? Shouldn't be allowed to make a profit, supermarkets? How dare you make a profit of people avoiding starvation! Medicine - outrageous that anyone could make a profit of treating disease! And so on..
This seems to me to be a symptom of a media and social paradigm that ignores the role of capital in production.
In the most basic sense production is a functional of f(labour) x f(capital) [i.e some function of labour multiplied by some function of capital]. Capital in this instance means anything that isn't labour, and while traditionally has meant things like tools, factories, tech etc in the modern world it also has the very simple meaning of money.
All the above formula says is that output requires you to have people willing to work, and the infrastructure to enable them to work, and one without the other is pretty useless. It is the accumulation of capital over thousands of years that separates the modern day hedge fund manager from the stone age hunter-gatherer. Education has improved the quality of our labour (supposedly) and the investment and growth of capital has raised the capital stock available to support that labour.
Just like you expect people to earn salaries in exchange for their salaries, so too should investors earn dividends in return for their capital. To expect capital without returns is in the same boat to expecting labour without salary. Its possible (after all slavery is still going strong), but it generally requires a coercive element which isn't compatible with claims of liberal rule-of-law capitalist democracy.
If you truly want people to invest in pharmaceutical companies so fund new medicines, in tech companies to give us new gadgets, in supermarkets to make buying food easy (etc etc) and in energy companies to deliver power to the little sockets in our homes, then you need to let them earn a reasonable return on investment.
The alternative is to centrally fund things (i.e. the Army - we don't have a private military anymore, and so the government pays the salaries, and coughs up the capital spending which would normally be attracted by the prospective dividends), now, as mentioned above, I'm not ideologically opposed to a nationalised energy company, but I very much do not trust the current brand of politicians to fund such an enterprise properly. As any gamer will tell you Logistics Wins Wars (though they may know it as 'macro harder!'), and that translates to fund your infrastructure well, and fund it early. Research technology, upgrade hardware and reinvest the growth generated into faster and further improvements. But there is no political capital in funding energy infrastructure. High levels of capital spending that would keep things ticking along without issue and at a potentially lower cost to the taxpayer carry no benefits (people don't notice things working well), while taking the money away from infrastructure and spending it on headline grabbing policies buys votes, and therefore power. Plus, at the end of day, if an adviser tells you the whole national grid is going to fall over in 10 years unless you spend now - so what? Chances are the other side are going to be in power by then and you can blame the whole mess on them. It therefore seems inevitable that a politically run power-company will invest insufficiently.
On the other hand, companies which generate profits attract capital flows - investors want to get in on a good thing, and so companies doing well can raise new funds to invest and grow further. Energy companies may be struggling to invest in the levels required without government subsidy, but maybe that's because they deliver such uninspiring levels of return. Why invest in Npower, with all the political risks, when you can invest in Tescos (which for the most part bumps along under the radar) and posts similar returns? Or even better invest in a major bank which despite all the recent flak still outperform utilities?
There is however a point which needs to be made in response to this - that of 'super-profits'. Under basic economics companies are able to derive a profit from their activities and still be in equilibrium. In fact equilibrium is achieved when a company can produce at a price which the market will pay, while covering sufficient salaries to attract the required labour, and sufficient dividends to attract the required capital. However, in some circumstances where perfect competition has failed (i.e. a monopoly or oligopoly), companies can make 'super-profits' - i.e. profits above that level required to attract sufficient capital for the business to function. These 'super-profits' are a market failure. In perfect competition the presence of super-profits should prompt new companies to move into the sector, and charge a lower price. Although they make a lower profit they still make sufficient profit to attract capital, and by undercutting the 'super-profit' firm should attract all the business.
If there is evidence of the energy companies generating super-profits than it is potentially an argument in favor of intervention (of one sort or another), but from the figures outlined above this seems hard to support.
4.) Temet Nosce
The energy sector is not without potential improvements, and one key one would be in the realm of customer knowledge. Even as a fairly cynical (and clued up) contract reader, and someone with experience of the labyrinthine terms and conditions of financial products I found my energy bill difficult to decipher. For the average customer its borderline impossible. Clear, straightforward billing, in a standardized measurement, along with up front explanations on things like changing tariffs (i.e. you pay about 5x more per KwH in the winter because of a 'seasonal adjustment') would help boost customer confidence in the sector. The problem is not necessarily what the energy companies are doing, but the complete ignorance most people have of what that is.
The final point I'm going to touch on is the madness of politicians promising/threatening to set prices in advance. First off this wiped £3billion off the share prices of the big six companies instantly. At that rate we could afford Mr Miliband to make about 100 speeches a year for his first term in office, after which he will have talked into oblivion the entirety of the FTSE 100. One thing politicians of all flavors who aspire to government need to learn (and many never do) is that they are not talking to the electorate, they are talking to the incorporeal world composed of all the interlocking confidence tricks that make the modern world work - poke them at your peril.
Second, if this seriously looks like coming into force than all the energy companies will do is raise their prices pre-emptively - potentially bringing forward price rises planned for 2017 to 2014 or sooner, again I struggle to see how this is supposed to help with a 'cost of living' crisis.
Finally, this sends a very clear message that Labour is swinging towards a social model in which wealth creation via investment is outlawed. Profits will be hunted down and banned through price fixing. This means that investment has to come from central government, and how will it be raised? You know it - more taxing, and more borrowing.
Assuming the lights stay on that long,
/Z
Subscribe to:
Posts (Atom)