Acemoglu and Robinson have, on their blog, very kindly responded to the email I sent them.
However, I'm inclined to say that their purported explanation falls short of explaining the empirical puzzle presented.
They resort to what is effectively rentier state theory - resource rich countries can buy off their populations, other ones can't. Unfortunately, this theory has several gaps in it.
1. What about Morocco, Jordan, Bhutan, Swaziland?
These aren't resource rich countries. (current accounts in Morocco, Jordan, Bhutan, Swaziland, all of which hover at or below 0. Note that the recent spike in Bhutan is caused by the building of a large hydroelectric powerplant, the energy from which is mostly exported to India).
Resource wealth can explain Saudi Arabia and Bahrain handily, sure, but how compelling is it as an explanation for Oman? True, Oman has plenty of resource wealth -Oil and Gas exports approached 50% of GDP in 2008-, but its patterns of reform hardly match that of a King buying off his population with reform. Prior to the Arab Spring, the only major threat to Bin Said was the Dhofar rebellion, which began in 1965 under his father's reign. According to Joseph Kechinian, “Oman was not just experimenting with participatory government”, under Qaboos, but in fact it was choosing to “stay well ahead of changing circumstances.”[1] When you look carefully, Rentier State Theory can only explain about half of the puzzle.
Acemoglu and Robinson try to explain this away by saying "The genius of the regimes in Saudi Arabia, Qatar, and the United Arab Emirates has been to use their resources before there was much of a protest movement." which brings us to
2. Libya?
As Acemoglu and Robinson acknowledge, Libya is resource rich. But they say, it has chosen the path of repression, and therefore was doomed to fall. But wait- wasn't the question of whether a state chooses the path of repression or accommodation part of the very thing we were trying to explain in the first place? Why did Libya choose repression and not Qatar? Here the authors cite the UAE, and Saudi Arabia's 'genius' as the explanation for their pre-emptive appeasement. But if this is so, why were regional scholars as recently as 2006 saying things like "the U.A.E actually represents one of the purest autocracies in the world…second only to Saudi Arabia.”[2]
The enormous resources of the U.A.E. and Saudi Arabia is related to their continued preservation, surely- but it seems to me that the resources merely gave these countries the power to make few genuine concessions that threatened the monarchs' stranglehold on power. The same explanation cannot be true for Oman or Kuwait, where meaningful alternative's to the King's power exist. Moreover, that explanation clearly has no relevance in Jordan or Morocco, where resources are lacking. Expanding the sample outside of the Middle East ("Region only begs the question about the factors actually at work… region is merely a summary of factors that have taken on geographical form"[3]) demonstrates that other resource poor monarchies have also managed to survive - such as in Bhutan and also in Swaziland. Rentier State Theory cannot explain why.
Some of these questions I tried tackling, here (warning, this is another shameless plug of my thesis). The most striking snippet of information can be found on the simple table on page 26. Personally, I found most interesting the relationship between the timing of reforms and the age of the King.
[1] Joseph. A. Kechichian, Oman and the world, the emergence of an independent Foreign Policy, p54 (RAND, 1995)
[2] Christopher M. Davidson, ‘After Shaikh Zayed: The politics of Succession in Abu Dhabi and the UAE’ Middle East Policy, Volume 13(1), Spring 2006, p42
[3] Valerie Bunce, ‘Rethinking Recent Democratization, Lessons from the Postcommunist Experience’ World Politics 55(2) January 2003 pp 191-192
Wednesday, 21 March 2012
Friday, 16 March 2012
Empirical Puzzles from the Arab Spring
On Acemoglu & Robinson's excellent new blog "Why Nations Fail", they point out that the prospects for a peaceful resolution in Syria are bleak, to say the least.
Their post reminded me of an empirical puzzle that I noticed back at Uni. Why is it that Monarchs seem to behave so differently to autocrats when they are faced with rebellions? The Arab Spring (which those who know me will realise post-dates my thesis by some time) provides what seems to me to be clear evidence on this. Looking across the monarchies that have seen protests, Oman, Morocco, Jordan, Kuwait, Saudi Arabia and Bahrain, all have avoided out and out civil war or revolution, generally by buying off their populations and/or with small political liberalisations. By contrast, the dictatorships in Egypt, Yemen, Tunisia, Syria, Libya have been far less succesful, generally avoiding any conciliatory policies and hence often leading to total overthrow or civil war. In fact the only country that seems to somewhat buck the trend is Algeria, which politically as I understand it (which honestly is not that well) is somewhat less authoritarian than most of the other countries that benefitted from the Arab Spring. The case is bolstered still further when we look further at Monarchies outside the Middle East, such as Bhutan, Swaziland and Brunei.
The answer to why there is this difference is not immediately obvious.
In the end, I decided not to make this the central puzzle of my thesis, and instead focussed on an associated but more specific problem to do with the distribution of liberalisations within Monarchies (for anyone interested, that work, adapted to be reader friendly and without ugly tables, can be found here, pages 4&5 giving the best summary of what it is about). Given the events that have since happened, perhaps I ought to have focussed on this problem. I've sent these questions over to Acemoglu & Robinson, who were kind enough to write back to me indicating that they might deal with issue in an upcoming blog post. I look forward to reading their views.
Their post reminded me of an empirical puzzle that I noticed back at Uni. Why is it that Monarchs seem to behave so differently to autocrats when they are faced with rebellions? The Arab Spring (which those who know me will realise post-dates my thesis by some time) provides what seems to me to be clear evidence on this. Looking across the monarchies that have seen protests, Oman, Morocco, Jordan, Kuwait, Saudi Arabia and Bahrain, all have avoided out and out civil war or revolution, generally by buying off their populations and/or with small political liberalisations. By contrast, the dictatorships in Egypt, Yemen, Tunisia, Syria, Libya have been far less succesful, generally avoiding any conciliatory policies and hence often leading to total overthrow or civil war. In fact the only country that seems to somewhat buck the trend is Algeria, which politically as I understand it (which honestly is not that well) is somewhat less authoritarian than most of the other countries that benefitted from the Arab Spring. The case is bolstered still further when we look further at Monarchies outside the Middle East, such as Bhutan, Swaziland and Brunei.
The answer to why there is this difference is not immediately obvious.
In the end, I decided not to make this the central puzzle of my thesis, and instead focussed on an associated but more specific problem to do with the distribution of liberalisations within Monarchies (for anyone interested, that work, adapted to be reader friendly and without ugly tables, can be found here, pages 4&5 giving the best summary of what it is about). Given the events that have since happened, perhaps I ought to have focussed on this problem. I've sent these questions over to Acemoglu & Robinson, who were kind enough to write back to me indicating that they might deal with issue in an upcoming blog post. I look forward to reading their views.
Thursday, 15 March 2012
Sri Lanka's Killing Fields, War Crimes Unpunished
This truly horrifying programme documents multiple war crimes in Sri Lanka. Graphic violence, and disturbing throughout, but nonetheless a rare example of important journalism.
Channel 4 Documentary on Sri Lanka's Unpunished War Crimes
Channel 4 Documentary on Sri Lanka's Unpunished War Crimes
Monday, 12 March 2012
Which Macroeconomic Model Best Describes Reality?
Another one of my Quora answers that got traction reproduced here:
TL;DR
1. No economic models accurately describe reality
2. No economic models are very good at making predictions about the future
3. The Smets-Wouters (2003 & 2007) model is considered the best of a bad bunch, the dwarf among pygmies.
Smets-Wouters, 2003 & 2007 is generally considered the most accurate general model of the economy in macroeconomics, when it comes to prediction[1] (note that this is different to 'describes reality most accurately', but I'll get on to this distinction later). It operates in the New Keynesian (or sometimes called the New Neoclassical Synthesis) school of thought, meaning that it takes a 'Dynamic Stochastic General Equilibrium' framework (in other words it works out its equations by examining individual, household maximising behaviour), but incorporates into that framework, multiple frictions, such as wage and price stickiness.
What are the main findings of this model?
While “demand” shocks such as the risk premium, exogenous spending and investment specific technology shocks explain a significant fraction of the short-run forecast variance in output, both wage mark-up (or labour supply) and to a lesser extent productivity shocks explain most of its variation in the medium to long run. Second, in line with Galí (1999) and Francis and Ramey (2004), productivity shocks have a significant short-run negative impact on hours worked. This is the case even in the flexible price economy because of the slow adjustment of the two demand components following a positive productivity shock. Third, inflation developments are mostly driven by the price mark-up shocks in the short run and the wage mark-up shocks in the long run.[2]
In other words, in the short run, Government Spending, Risk Appetite and technological progress that requires heavy investment to be realised explains output, whilst classical factors like Labour Supply and (to a lesser extent) productivity shocks matter in the long run. Productivity shocks matter less because they are offset by changes in hours worked, so that if people start earning more per hour, they simply choose to work fewer hours.
However, even though this is the "best" model, that does not mean it is very good! In fact, the performance of the model and models of its class are remarkably bad, given their significance in policy making.
The image below shows the performance of these models against the Fed's "Greenbook model" (GB) and against a purely statistical model with no theoretical underpinning (BVAR). Anything below one means that model has more accurate predictions.
CAVEAT
Strictly speaking, this has not answered your question. Afterall, you asked "what model describes reality most accurately" - the only answer to that question is that economic models do not describe reality.
The job of an economic model is not to accurately describe reality, but rather, to accurately summarise the relationships between economic variables, such as output and inflation. It tells you what happens to inflation for a given change in output, and it gives you a systematic way of thinking about that relationship, but it does not pretend to give you a "true" story, in the sense that the truth is something along the lines of, well household a,b,c,d had a little bit more money, and they got together and said, lets spend on this on a trip to Paris, and then the airline that provides flights to Paris saw a 7% rise in demand. Since they didn't have the capacity to meet this demand, the board sat down and said "Look, we either raise our prices, or we keep them constant. Raising our prices will earn us more money in the short run, but may ultimately damage our brand". There was 14-5 split on the board in favour of raising prices, so prices went up. And then something similar also happened for groceries, and televisions etc etc. Obviously, no economic model is therefore going to accurately describe reality, in the way that a historical account might do. In general, therefore economists' models are judged on how useful they are, rather than how accurately they describe reality.
[1] http://www.voxeu.org/index.php?q=node/6158
[2] http://www.ecb.int/pub/pdf/scpwps/ecbwp722.pdf
TL;DR
1. No economic models accurately describe reality
2. No economic models are very good at making predictions about the future
3. The Smets-Wouters (2003 & 2007) model is considered the best of a bad bunch, the dwarf among pygmies.
Smets-Wouters, 2003 & 2007 is generally considered the most accurate general model of the economy in macroeconomics, when it comes to prediction[1] (note that this is different to 'describes reality most accurately', but I'll get on to this distinction later). It operates in the New Keynesian (or sometimes called the New Neoclassical Synthesis) school of thought, meaning that it takes a 'Dynamic Stochastic General Equilibrium' framework (in other words it works out its equations by examining individual, household maximising behaviour), but incorporates into that framework, multiple frictions, such as wage and price stickiness.
What are the main findings of this model?
While “demand” shocks such as the risk premium, exogenous spending and investment specific technology shocks explain a significant fraction of the short-run forecast variance in output, both wage mark-up (or labour supply) and to a lesser extent productivity shocks explain most of its variation in the medium to long run. Second, in line with Galí (1999) and Francis and Ramey (2004), productivity shocks have a significant short-run negative impact on hours worked. This is the case even in the flexible price economy because of the slow adjustment of the two demand components following a positive productivity shock. Third, inflation developments are mostly driven by the price mark-up shocks in the short run and the wage mark-up shocks in the long run.[2]
In other words, in the short run, Government Spending, Risk Appetite and technological progress that requires heavy investment to be realised explains output, whilst classical factors like Labour Supply and (to a lesser extent) productivity shocks matter in the long run. Productivity shocks matter less because they are offset by changes in hours worked, so that if people start earning more per hour, they simply choose to work fewer hours.
However, even though this is the "best" model, that does not mean it is very good! In fact, the performance of the model and models of its class are remarkably bad, given their significance in policy making.
The image below shows the performance of these models against the Fed's "Greenbook model" (GB) and against a purely statistical model with no theoretical underpinning (BVAR). Anything below one means that model has more accurate predictions.
CAVEAT
Strictly speaking, this has not answered your question. Afterall, you asked "what model describes reality most accurately" - the only answer to that question is that economic models do not describe reality.
The job of an economic model is not to accurately describe reality, but rather, to accurately summarise the relationships between economic variables, such as output and inflation. It tells you what happens to inflation for a given change in output, and it gives you a systematic way of thinking about that relationship, but it does not pretend to give you a "true" story, in the sense that the truth is something along the lines of, well household a,b,c,d had a little bit more money, and they got together and said, lets spend on this on a trip to Paris, and then the airline that provides flights to Paris saw a 7% rise in demand. Since they didn't have the capacity to meet this demand, the board sat down and said "Look, we either raise our prices, or we keep them constant. Raising our prices will earn us more money in the short run, but may ultimately damage our brand". There was 14-5 split on the board in favour of raising prices, so prices went up. And then something similar also happened for groceries, and televisions etc etc. Obviously, no economic model is therefore going to accurately describe reality, in the way that a historical account might do. In general, therefore economists' models are judged on how useful they are, rather than how accurately they describe reality.
[1] http://www.voxeu.org/index.php?q=node/6158
[2] http://www.ecb.int/pub/pdf/scpwps/ecbwp722.pdf
Wednesday, 29 February 2012
How much profit will the sale of Northern Rock make?
Short Answer, approximately £0.
So the UKFI argue that the sale will be completed for somewhere between £46-48bn, and that the cost of the bailout was £37bn bailout. Sounds like everyone's a winner, right?
Wrong!
Now, before I go any further, I want to make it clear that I don't see this analysis as having any normative significance. I don't think the fact that the sale won't generate a profit means that the bailout should not have occurred. As for whether the sale to Virgin should have occurred, (its worth noting all the 'profit' -ie where the return to the Govt exceeds what the Govt put into it-comes not from the Virgin sale but from winding down the rest of the company) I gather from scanning the report that there were other complicating factors involved that required the Govt to make a deal.
The point is this: an £11bn return after a 10 to 15 year period on an investment of £37bn... looks a lot less attractive than before. On page 6 of the full UKFI report, we see:
"However, this cash is expected to be returned over a period of around 10 to 15 years from 2012 as
Northern Rock (Asset Management) plc is run-down and the remaining Government loan is repaid. This
is equivalent to receiving an annual rate of return on the Government’s intervention of 3.5% to 4.5% per
year and compares to the Government’s estimated notional annual funding costs during the period of
intervention of 3.9%"
In other words, the rate of return is about the same as the interest we've paid on the debt we borrowed to pay for the purchase. So we took on a huge risk, and have no profit to show for it.
(But, to be fair of course, letting Northern Rock go bankrupt would have been worse. However, anyone who tries to spin this as a huge victory for the government is clearly being deliberately deceptive).
So the UKFI argue that the sale will be completed for somewhere between £46-48bn, and that the cost of the bailout was £37bn bailout. Sounds like everyone's a winner, right?
Wrong!
Now, before I go any further, I want to make it clear that I don't see this analysis as having any normative significance. I don't think the fact that the sale won't generate a profit means that the bailout should not have occurred. As for whether the sale to Virgin should have occurred, (its worth noting all the 'profit' -ie where the return to the Govt exceeds what the Govt put into it-comes not from the Virgin sale but from winding down the rest of the company) I gather from scanning the report that there were other complicating factors involved that required the Govt to make a deal.
The point is this: an £11bn return after a 10 to 15 year period on an investment of £37bn... looks a lot less attractive than before. On page 6 of the full UKFI report, we see:
"However, this cash is expected to be returned over a period of around 10 to 15 years from 2012 as
Northern Rock (Asset Management) plc is run-down and the remaining Government loan is repaid. This
is equivalent to receiving an annual rate of return on the Government’s intervention of 3.5% to 4.5% per
year and compares to the Government’s estimated notional annual funding costs during the period of
intervention of 3.9%"
In other words, the rate of return is about the same as the interest we've paid on the debt we borrowed to pay for the purchase. So we took on a huge risk, and have no profit to show for it.
(But, to be fair of course, letting Northern Rock go bankrupt would have been worse. However, anyone who tries to spin this as a huge victory for the government is clearly being deliberately deceptive).
Saturday, 18 February 2012
The Stimulus is Favoured by most economists
The IGM Forum produces a poll of a sample of the world's top Economists on a variety of issues. The sample includes a wide variety of opinions, including Alesina, Goolsbee, Acemoglu and many others. The results are supposed to be a quick glance at how the economics profession feels about any given topic. The sample size is 40, for obvious Central Limit Theorem / Law of Large Numbers related reasons. (The short version is that 40 is about the number when a population sample tends to become reliably reflective of the wider population, provided that you're not distinguishing the sample by too many variables).
This is just one of many, many interesting results. The overwhelming consensus among economists is that the stimulus created jobs. More importantly, I suppose, it is also by far the most commonly held view that the benefits outweighed the cost. 78% of those expressing an opinion pro or con said the benefits outweighed the costs. It is worth saying here however that the sample size is somewhat small, since almost 1/3 of those asked did not express a firm opinion either way.
This is just one of many, many interesting results. The overwhelming consensus among economists is that the stimulus created jobs. More importantly, I suppose, it is also by far the most commonly held view that the benefits outweighed the cost. 78% of those expressing an opinion pro or con said the benefits outweighed the costs. It is worth saying here however that the sample size is somewhat small, since almost 1/3 of those asked did not express a firm opinion either way.
Friday, 17 February 2012
We are all in this together, but some of us are more in it than others
This graph requires no explanation.
Monday, 30 January 2012
Be Careful with Correlations
Hello one and all,
A friend of mine brought to my attention a blog post from Mike Webb (also a friend), arguing that there was a crisis in confidence in the UK Government. The blog post is a good attempt at rigour, but I'm afraid Mike fell into a simple trap.
The argument is expressed in detail here but I think a not unfair summary is this:
1. Uk Government yields have been closely correlated with Yields from European nations..
2. In the months leading up to May 2010, there was a steep dropoff in that Correlation
3. The most natural explanation for that is uncertainty over the outcome of the election.
Statements 1 & 2 are both true, and statement 3 seems reasonable at first glance. So I can say that I liked the blog post. I particularly liked the effort he went to to double check his findings by comparing across multiple regions - UK compared to Germany, France, Italy etc.
Unfortunately his conclusion, that there was mounting suspicion over UK solvency has only a very superficial link to the data. His predictions entail maximally that UK Government Yields climbed in these months. Minimally, his explanation entails that UK yields behaved in a way that was at odds with a wide range of countries in those months.
With a Bloomberg machine able to run correlations he checks only the correlations between different Governments' yields. Unfortunately, he doesn't bother to show us what happened to the actual yields themselves.
Here are UK Yields in the relevant time period (click on the image to see it blown up):
From the graph, we see that over the period UK yields moved up a bit, down a bit, and actually ended the period that he is referring to (January - April 2010) at about the same level, maybe a tiny bit up.
Now here are the European Yields that he is referring to:
Yes, falling yields, implying pessimism over the economy and as yet no worries about fiscal solvency.
The absence of any rise in UK yields is at least a worry for the argument that investors were getting jittery about UK solvency, Now, one could argue, I suppose: "Well, what happens if there was some, external international event that dragged those other yields down, and would have dragged UK yields down as well, if it weren't for solvency jitters?"
Well lets look outside of Europe for a moment:
Ah yes, they all went up, slightly.
In other words, the drop off in correlation he refers to is explained only by a decline in Bond Yields in European countries. One would be very hard pressed to argue that suddenly investors got jittery over UK yields- There's no actual evidence for this in the data whatsoever.
So next time you look only at correlations, remember to actually look at the things you're correlating, before you jump to any conclusions!!!
A friend of mine brought to my attention a blog post from Mike Webb (also a friend), arguing that there was a crisis in confidence in the UK Government. The blog post is a good attempt at rigour, but I'm afraid Mike fell into a simple trap.
The argument is expressed in detail here but I think a not unfair summary is this:
1. Uk Government yields have been closely correlated with Yields from European nations..
2. In the months leading up to May 2010, there was a steep dropoff in that Correlation
3. The most natural explanation for that is uncertainty over the outcome of the election.
Statements 1 & 2 are both true, and statement 3 seems reasonable at first glance. So I can say that I liked the blog post. I particularly liked the effort he went to to double check his findings by comparing across multiple regions - UK compared to Germany, France, Italy etc.
Unfortunately his conclusion, that there was mounting suspicion over UK solvency has only a very superficial link to the data. His predictions entail maximally that UK Government Yields climbed in these months. Minimally, his explanation entails that UK yields behaved in a way that was at odds with a wide range of countries in those months.
With a Bloomberg machine able to run correlations he checks only the correlations between different Governments' yields. Unfortunately, he doesn't bother to show us what happened to the actual yields themselves.
Here are UK Yields in the relevant time period (click on the image to see it blown up):
From the graph, we see that over the period UK yields moved up a bit, down a bit, and actually ended the period that he is referring to (January - April 2010) at about the same level, maybe a tiny bit up.
Now here are the European Yields that he is referring to:
Yes, falling yields, implying pessimism over the economy and as yet no worries about fiscal solvency.
The absence of any rise in UK yields is at least a worry for the argument that investors were getting jittery about UK solvency, Now, one could argue, I suppose: "Well, what happens if there was some, external international event that dragged those other yields down, and would have dragged UK yields down as well, if it weren't for solvency jitters?"
Well lets look outside of Europe for a moment:
Ah yes, they all went up, slightly.
In other words, the drop off in correlation he refers to is explained only by a decline in Bond Yields in European countries. One would be very hard pressed to argue that suddenly investors got jittery over UK yields- There's no actual evidence for this in the data whatsoever.
So next time you look only at correlations, remember to actually look at the things you're correlating, before you jump to any conclusions!!!
Tuesday, 24 January 2012
Scattershot Thoughts
Hello all,
Sorry I did a bit of a disappearing act there for a while, you know work happened, life happened.
Anyway, I think its about time for me to pen some thoughts about the future, what with it being the first of the month and all that, a great opportunity to pontificate & predict etc.
Well, politically of course 2012 is a big year - its election time in the States. Obama vs Romney/Gingrich/Santorum/
Well, the Republicans are doing an awfully bad job of choosing their nominee this year.
Anyway, in keeping with the spirits of this blog, which is trying to use models to predict political outcomes, we have a few different models which we can bring to bear on this:
So most readers of this blog will be familiar with 1. & 2., whilst 3. is the controversial theory based on the simple empirical observation that since the television was invented in the 1920s, the tallest guy has tended to win the U.S. presidential election.
Median voter theorem unambiguously predicts Obama. Obama places jobs above the deficit as his prime concern, like the majority of the population. Obama supports a balanced tax&cuts approach to the deficit, like the vast majority of the population. Obama supports action on climate change, like the majority of the American population. Obama supported the repeal of Don't ask, Don't Tell, like the vast majority of Americans. The list goes on. In fact, Obama's attempt to occupy all of the mainstream Conservative positions has been so succesful that its driven the Republican party into the fringes of its base. With a Gay Soldier being booed in a Republican debate for no reason other than being Gay. So, Median Voter Theorem definitely scores this for Obama.
The Economic Referendum theory is a bit less clear. The basic principle is that the election is treated as a referendum on how well the current president is handling the economy. Until recently, it was obvious this theory would have predicted Romney would walk away with it. However, a few tantalising hints at a recovery (but no actual recovery yet as far as I can see) would suggest that the answer is not obvious. Part of the problem is that the theory isn't as simple as "Unemployment <7% = Incumbent elected, Unemployment >7% = Challenger elected". Partly its about directional movements etc. I would say, that if the economy continues to improve and growth hits 2% +/- 0.3% then this would score it for Obama. Anything less than 1% scores it for Romney. Between 1% to 1.7% is ambiguous.
Mitt Romney is a shade taller, so the third theorem, that the taller guy always wins, would call this for Romney, by an inch.
I'm assuming Romney wins the Repub nomination, which looks likelier by the day.
Sorry I did a bit of a disappearing act there for a while, you know work happened, life happened.
Anyway, I think its about time for me to pen some thoughts about the future, what with it being the first of the month and all that, a great opportunity to pontificate & predict etc.
Well, politically of course 2012 is a big year - its election time in the States. Obama vs Romney/Gingrich/Santorum/
Well, the Republicans are doing an awfully bad job of choosing their nominee this year.
Anyway, in keeping with the spirits of this blog, which is trying to use models to predict political outcomes, we have a few different models which we can bring to bear on this:
- Median voter Theorem
- Economic Referendum
- The guy that's taller
So most readers of this blog will be familiar with 1. & 2., whilst 3. is the controversial theory based on the simple empirical observation that since the television was invented in the 1920s, the tallest guy has tended to win the U.S. presidential election.
Median voter theorem unambiguously predicts Obama. Obama places jobs above the deficit as his prime concern, like the majority of the population. Obama supports a balanced tax&cuts approach to the deficit, like the vast majority of the population. Obama supports action on climate change, like the majority of the American population. Obama supported the repeal of Don't ask, Don't Tell, like the vast majority of Americans. The list goes on. In fact, Obama's attempt to occupy all of the mainstream Conservative positions has been so succesful that its driven the Republican party into the fringes of its base. With a Gay Soldier being booed in a Republican debate for no reason other than being Gay. So, Median Voter Theorem definitely scores this for Obama.
The Economic Referendum theory is a bit less clear. The basic principle is that the election is treated as a referendum on how well the current president is handling the economy. Until recently, it was obvious this theory would have predicted Romney would walk away with it. However, a few tantalising hints at a recovery (but no actual recovery yet as far as I can see) would suggest that the answer is not obvious. Part of the problem is that the theory isn't as simple as "Unemployment <7% = Incumbent elected, Unemployment >7% = Challenger elected". Partly its about directional movements etc. I would say, that if the economy continues to improve and growth hits 2% +/- 0.3% then this would score it for Obama. Anything less than 1% scores it for Romney. Between 1% to 1.7% is ambiguous.
Mitt Romney is a shade taller, so the third theorem, that the taller guy always wins, would call this for Romney, by an inch.
I'm assuming Romney wins the Repub nomination, which looks likelier by the day.
Sunday, 1 January 2012
2012
I wanted to use the new year as an opportunity to pen some random thoughts about the new year. This is, afterall a blog thats supposed to be 1/3 about trying to use models to forecast the future and then using the data to improve the accuracy of our models.
So here are some thoughts:
Technology:
2011 has seen some really great additions to mainstream consumer web technology. Quora began to take off but still hasn't quite managed to make it mainstream. Google Plus exploded onto the scene but since then traffic trended downwards. Facebook continued its unabated storm to glory. Airbnb also had a break this year. Its more or less consolidated its dominant position now. Dropbox is supposedly running at a mental $5 Billion valuation! From a personal perspective, my friends have finally signed up in droves to twitter.
So, I think 2012 will be another hot year for tech startups. Facebook will IPO though, which will drive stock prices through the roof for a while before it all calms down again. The startups we come across this year will find that their success is made through their ability to forge real connections between people. Android's persistent growth will eventually begin to drive Google Plus this year I think - Google plus signups will stabilise and then begin to trend upward, slowly
Economics:
Unfortunately, all economists are predicting slow growth irrespective of their school of thought. Luckily for us however, the source of that slow growth varies and so we can therefore attempt to test some of the differences in views.
So here are some thoughts:
Technology:
2011 has seen some really great additions to mainstream consumer web technology. Quora began to take off but still hasn't quite managed to make it mainstream. Google Plus exploded onto the scene but since then traffic trended downwards. Facebook continued its unabated storm to glory. Airbnb also had a break this year. Its more or less consolidated its dominant position now. Dropbox is supposedly running at a mental $5 Billion valuation! From a personal perspective, my friends have finally signed up in droves to twitter.
So, I think 2012 will be another hot year for tech startups. Facebook will IPO though, which will drive stock prices through the roof for a while before it all calms down again. The startups we come across this year will find that their success is made through their ability to forge real connections between people. Android's persistent growth will eventually begin to drive Google Plus this year I think - Google plus signups will stabilise and then begin to trend upward, slowly
Economics:
Unfortunately, all economists are predicting slow growth irrespective of their school of thought. Luckily for us however, the source of that slow growth varies and so we can therefore attempt to test some of the differences in views.
- Austrians, like Ron Paul are predicting economic catastrophe, in the form of "unexpected inflation and a collapse in the value of the dollar".
- British Politicians across the board have been predicting anaemic growth, although for different reasons. The Labour Party Line is that the Treasury Bond yields will fluctuate with the health of the economy (bad economy = low yields, and a strong economy will see higher yields). Conservatives are saying yields will stay low provided that the economy remains on top of its deficit.
Tuesday, 13 December 2011
Opportunity Costs of the Iraq War
Some of you have seen or heard my musings on this issue before. This Quora answer seems to have gotten some traction, so I reproduced it here:
What could America have bought and built for itself with the trillions of dollars spent in Iraq and Afghanistan over the last decade?
Nobel laureate economist Joseph Stiglitz places our war costs over $5T. A NY Times infographic (http://www.nytimes.com/interacti...) puts the tally at $3.3T. Leaving aside the politics of whether our money has been wasted, what could it have bought, had it been spent at home?
$3.3 trillion is a lot of $$.
For example it is equivalent to:
$60,000 for the poorest 50% of Households. (about 57,000,000 households)
End the Eurozone crisis by paying off Greece, Italy, Spain, Portugal and Ireland's national debt. (Together, their national debt's are just over $3 tril)
Endow over 100 new Harvard Universities (Harvard's endowment is $32 bil)
Guarantee Unemployment below 5% for the next 6 years, offering $40,000 a year to volunteer for charity. (13million unemployed, 9% of country)
About 150 Manhattan Projects (each costing about $24billion)
What could America have bought and built for itself with the trillions of dollars spent in Iraq and Afghanistan over the last decade?
Nobel laureate economist Joseph Stiglitz places our war costs over $5T. A NY Times infographic (http://www.nytimes.com/interacti...) puts the tally at $3.3T. Leaving aside the politics of whether our money has been wasted, what could it have bought, had it been spent at home?
$3.3 trillion is a lot of $$.
For example it is equivalent to:
$60,000 for the poorest 50% of Households. (about 57,000,000 households)
End the Eurozone crisis by paying off Greece, Italy, Spain, Portugal and Ireland's national debt. (Together, their national debt's are just over $3 tril)
Endow over 100 new Harvard Universities (Harvard's endowment is $32 bil)
Guarantee Unemployment below 5% for the next 6 years, offering $40,000 a year to volunteer for charity. (13million unemployed, 9% of country)
About 150 Manhattan Projects (each costing about $24billion)
Monday, 12 December 2011
Tax Justice
I've been asked to contribute an essay on Tax Justice to the Tax Justice network's newsletter.
Here are my first thoughts on tax justice:
1. What is the point of taxes?
2. Under what conditions will takes fulfil that point?
3. Do those conditions hold?
4. How can we change things so that they do hold?
Firstly it seems to me that the point of taxes is two fold:
1. To raise revenue, for public goods provision, and social welfare projects.
2. To deter unwelcome behaviour, and reward welcome behaviour.
3. To act as a damper on the economy in boom times, and hence to act expansionarily in bad ones.
Secondly,
1. taxes effectively promote public goods and social welfare when it is generally progressive and fiscal expenditures are subject to proper democratic control.
2. taxes act as good behavioural influences if they tax negative externalities and effectively subsidise positive externalities.
3. They act as an 'automatic stabiliser' if they are progressive.
Which of these conditions hold?
Well, my guess is taxes are very slightly progressive, thanks to income tax. But I need to look into this. It goes without saying VAT is very regressive, and I suspect taxes on Cigarettes, Alcohol etc are so too. What does the incidence of corporation tax tell us? Surprisingly, the evidence seems to be that corporation tax is regressive (evidence to follow in the article)- really enormous companies hardly seem to pay any of it and high corporation tax rates seem to be associated with lower growth numbers. This tax is very popular though, so we need to think carefully about how we use it. Fiscal expenditures are sometimes extraordinarily well controlled, whilst at other times almost no one seems to agree with them (find me a room of 20 people where 3 or more people support the CAP, and I will show you a farmers guild). Finally, taxes hit negative externalities when the special interests that produce those externalities aren't too powerful. Conversely, they promote positive externalities when the special interest who want those positive externalities are very powerful. Sometimes this works right (the Tobacco lobby has long been losing power), more generally it doesn't (a Carbon Tax in America is long overdue). In America, kids get taught how to code from a much younger age than anyone here in the UK is (most kids don't touch code -the language of the 21st Century- until you hit undergraduate, and even then, only if your doing a science subject). Why is America so far ahead of this game? ... Silicon Valley, anyone? Finally I've already dealt with the progressive issue. Since unemployment benefits are very progressive, this means tat overall fiscal policy does act as a good automatic stabiliser. It makes sense I think to look at taxes and spending together, since obviously they are related, but we have to be careful before saying tax revenue belongs to those who paid it - on the contrary, it belongs to society at large.
When it comes to getting things to work properly, we need to make sure taxation is:
1. Progressive
2. Simple
3. Non-distortionary
4. Well Targeted.
Sometimes good taxes will be regressive (Cigarettes, or Carbon Taxes for example). That means we have to be willing to use spending to offset those effects. But generally, thanks to income tax we can have a progressive tax code. A simple tax code, is good for everyone. Right now, companies are almost forced to dodge taxes- the pressures of shareholder value maximisation and the ineluctable logic of the market means you can't let your competitors get one up on you. If they're finding clever accounting tricks to avoid taxes, you sure as hell need to too. In the end, society loses. A simple code would make dodging impossible for those really keen to do it, and less necessary for those who feel compelled to. It might even reduce some of the deadweight losses associated with collecting taxes.
How do you make taxes non distortionary? A million and one views to pick through here. One that needs to be debunked is the argument that taxing millionaires is a job killer, as these people work less and produce fewer jobs. Wrong - low taxes on high income people tends, in general, to increase rent seeking, rather than production (again, evidence to follow in article). We hear a lot about the substitution effect, but hardly anyone mentions the extremely important income effect. Since income taxes are not perfectly marginal, changes in the tax rate will have both an income and substitution effect. For the richest members of society, the substitution effect will be negative on work, but the income effect will be positive. Which effect dominates? Well, probably neither - as we see, what we get instead is reduced rent seeking at higher tax rates. Broadly speaking, we want taxes to be consistent - why should corporate income be taxed so differently to personal income for example (corporate income is taxed only as 'profit', whilst household investment in things such as education, nutrition etc is totally overlooked). Why are mortgage repayments tax deductible? On the issue of well targeted, its really a case of building powerful coalitions in favour of good taxes, and this is primarily a political, not an economic, problem. These things need to be looked at very, very carefully.
I'll be thinking about these issues over the next few days. Let me know your thoughts @ ravin.thambapillai@gmail.com,
Here are my first thoughts on tax justice:
1. What is the point of taxes?
2. Under what conditions will takes fulfil that point?
3. Do those conditions hold?
4. How can we change things so that they do hold?
Firstly it seems to me that the point of taxes is two fold:
1. To raise revenue, for public goods provision, and social welfare projects.
2. To deter unwelcome behaviour, and reward welcome behaviour.
3. To act as a damper on the economy in boom times, and hence to act expansionarily in bad ones.
Secondly,
1. taxes effectively promote public goods and social welfare when it is generally progressive and fiscal expenditures are subject to proper democratic control.
2. taxes act as good behavioural influences if they tax negative externalities and effectively subsidise positive externalities.
3. They act as an 'automatic stabiliser' if they are progressive.
Which of these conditions hold?
Well, my guess is taxes are very slightly progressive, thanks to income tax. But I need to look into this. It goes without saying VAT is very regressive, and I suspect taxes on Cigarettes, Alcohol etc are so too. What does the incidence of corporation tax tell us? Surprisingly, the evidence seems to be that corporation tax is regressive (evidence to follow in the article)- really enormous companies hardly seem to pay any of it and high corporation tax rates seem to be associated with lower growth numbers. This tax is very popular though, so we need to think carefully about how we use it. Fiscal expenditures are sometimes extraordinarily well controlled, whilst at other times almost no one seems to agree with them (find me a room of 20 people where 3 or more people support the CAP, and I will show you a farmers guild). Finally, taxes hit negative externalities when the special interests that produce those externalities aren't too powerful. Conversely, they promote positive externalities when the special interest who want those positive externalities are very powerful. Sometimes this works right (the Tobacco lobby has long been losing power), more generally it doesn't (a Carbon Tax in America is long overdue). In America, kids get taught how to code from a much younger age than anyone here in the UK is (most kids don't touch code -the language of the 21st Century- until you hit undergraduate, and even then, only if your doing a science subject). Why is America so far ahead of this game? ... Silicon Valley, anyone? Finally I've already dealt with the progressive issue. Since unemployment benefits are very progressive, this means tat overall fiscal policy does act as a good automatic stabiliser. It makes sense I think to look at taxes and spending together, since obviously they are related, but we have to be careful before saying tax revenue belongs to those who paid it - on the contrary, it belongs to society at large.
When it comes to getting things to work properly, we need to make sure taxation is:
1. Progressive
2. Simple
3. Non-distortionary
4. Well Targeted.
Sometimes good taxes will be regressive (Cigarettes, or Carbon Taxes for example). That means we have to be willing to use spending to offset those effects. But generally, thanks to income tax we can have a progressive tax code. A simple tax code, is good for everyone. Right now, companies are almost forced to dodge taxes- the pressures of shareholder value maximisation and the ineluctable logic of the market means you can't let your competitors get one up on you. If they're finding clever accounting tricks to avoid taxes, you sure as hell need to too. In the end, society loses. A simple code would make dodging impossible for those really keen to do it, and less necessary for those who feel compelled to. It might even reduce some of the deadweight losses associated with collecting taxes.
How do you make taxes non distortionary? A million and one views to pick through here. One that needs to be debunked is the argument that taxing millionaires is a job killer, as these people work less and produce fewer jobs. Wrong - low taxes on high income people tends, in general, to increase rent seeking, rather than production (again, evidence to follow in article). We hear a lot about the substitution effect, but hardly anyone mentions the extremely important income effect. Since income taxes are not perfectly marginal, changes in the tax rate will have both an income and substitution effect. For the richest members of society, the substitution effect will be negative on work, but the income effect will be positive. Which effect dominates? Well, probably neither - as we see, what we get instead is reduced rent seeking at higher tax rates. Broadly speaking, we want taxes to be consistent - why should corporate income be taxed so differently to personal income for example (corporate income is taxed only as 'profit', whilst household investment in things such as education, nutrition etc is totally overlooked). Why are mortgage repayments tax deductible? On the issue of well targeted, its really a case of building powerful coalitions in favour of good taxes, and this is primarily a political, not an economic, problem. These things need to be looked at very, very carefully.
I'll be thinking about these issues over the next few days. Let me know your thoughts @ ravin.thambapillai@gmail.com,
Thursday, 24 November 2011
Euro-Trillions. (Doomsday is coming)
Eurozone Public debt is heading towards Reinhart and Rogoff's magical (and somewhat mysterious) 90% of GDP, over $11 trillion which is, in short, a lot of cash. (I don't have specific numbers to be honest, but the numbers were based on estimates taken from here and here and partially also here it's worthing calling to attention how massively wrong the IMF's statistic's were, understating Eurozone debt by about 10-15% of GDP!).
Unsurprisingly (cough, as I predicted), the Commission has used this as an opportunity to promote integration.
Equally unsurprisingly, at least one National Government is cautious about ceding sovereignty to 'more Europe'. Perhaps a bit more surprising (but not really, given the context), the main national government opposing the move is Germany.
Nouriel Roubini, yet again finds himself the man of the hour after not just predicting in 2006 the (then) impending subprime mortgage crisis but also for warning, way ahead of the curve, of the serious risk of sovereign debt default in the Eurozone. Today, he has an interesting take on Europe's battalions of woes.
He makes the very important point that even if the ECB did take the leap of faith and start acting as a lender of last resort, that there's a good chance that someone in Germany is going to sue the ECB in the German Constitutional Court. Since the German Constitutional Court has a history of being jealous of the ECJ, the chances are pretty good that they would then win that case. Some ECB members could then face prosecution (urgh I saw this in a video a few days ago and can't find it now - readers, if any of you saw it, could you link it in the comments section on the blog?)!
Roubini's take is now that the most likely option is widespread debt-restructuring and a probable partial Euro-zone breakup. Other than 'nein' to all attempts at salvaging the Eurozone, its not clear what Merkel's response to Germany's failed bond auction will actually be.
The crisis is deepening day by day. Although French public debt looks not catastrophic on the face of things, the possibility of private debt being socialised in the event of peripheral defaults leading to bank insolvency is a serious threat (which, by the way, is what happened in Ireland which otherwise had been a very fiscally responsible country). French exposure to Italian debt is obscene. The data is a bit hard to pick through but from what I can make out, France is exposed to about half of Italy's externally owed sovereign debt according to the Bank of International Settlements.
At the same time, peripheral debt is either going to be taken on by Germany, the ECB, or Defaulted on. Right now, Merkel is effectively, forcefully insisting that it will be defaulted on. If it comes about, that will lead to massive payouts on Eurozone sovereign debt Credit Default Swaps and sovereign debt Derivatives (which Warren Buffet called in 2003, financial weapons of mass destruction- which could (and probably would) trigger a second financial crisis in the Eurozone, resembling the one that hit America after CDS's and CDO's on Sub-prime mortgages collapsed.
That scenario is sufficiently doomsday-esque that Merkel might, just might, be forced to pull back from it. But even if she does, there's no guarantee that ECB 'full fire power' intervention would actually save the situation. Since Euro-bonds are a more long term ambition anyway, there's no reason to think they are likely to make much impact in the short term.
The point of this post, other than to illustrate just how catastrophic the emerging and ever more likely doomsday scenario is, is to point out that one way of reading Germany's options is as a 'relative vs absolute' gains problem, common in the international relations literature.
Relative Gains become important when countries are more concerned about what happens to them relative to everyone else, as opposed to how well they do per se. For example, if Germany chooses a Doomsday scenario, even though salvaging the Eurzone would be better for everyone just because the costs of salvaging the Eurozone fall largely on Germany (note, Doomsday costs Germany even more, but it costs everyone equally) then it is making a relative gains decision.
An absolute gain decision would be if a country benefits from a decision, but not by as much as everyone else. Here, Germany would gain from saving the EU, but peripheral nations would likely gain even more. IF Germany went along with this, it would be making an absolute gains decision.
Realists in International Relations Theory tend to think countries, even the ones in the European Union, make decisions based on Relative Gains. Liberals think they make decisions based on Absolute Gains (at least on Economic Issues). This seems to me to be a possible test of that outcome.
Right now, things look good for the Realists.
Unsurprisingly (cough, as I predicted), the Commission has used this as an opportunity to promote integration.
Equally unsurprisingly, at least one National Government is cautious about ceding sovereignty to 'more Europe'. Perhaps a bit more surprising (but not really, given the context), the main national government opposing the move is Germany.
Nouriel Roubini, yet again finds himself the man of the hour after not just predicting in 2006 the (then) impending subprime mortgage crisis but also for warning, way ahead of the curve, of the serious risk of sovereign debt default in the Eurozone. Today, he has an interesting take on Europe's battalions of woes.
He makes the very important point that even if the ECB did take the leap of faith and start acting as a lender of last resort, that there's a good chance that someone in Germany is going to sue the ECB in the German Constitutional Court. Since the German Constitutional Court has a history of being jealous of the ECJ, the chances are pretty good that they would then win that case. Some ECB members could then face prosecution (urgh I saw this in a video a few days ago and can't find it now - readers, if any of you saw it, could you link it in the comments section on the blog?)!
Roubini's take is now that the most likely option is widespread debt-restructuring and a probable partial Euro-zone breakup. Other than 'nein' to all attempts at salvaging the Eurozone, its not clear what Merkel's response to Germany's failed bond auction will actually be.
The crisis is deepening day by day. Although French public debt looks not catastrophic on the face of things, the possibility of private debt being socialised in the event of peripheral defaults leading to bank insolvency is a serious threat (which, by the way, is what happened in Ireland which otherwise had been a very fiscally responsible country). French exposure to Italian debt is obscene. The data is a bit hard to pick through but from what I can make out, France is exposed to about half of Italy's externally owed sovereign debt according to the Bank of International Settlements.
At the same time, peripheral debt is either going to be taken on by Germany, the ECB, or Defaulted on. Right now, Merkel is effectively, forcefully insisting that it will be defaulted on. If it comes about, that will lead to massive payouts on Eurozone sovereign debt Credit Default Swaps and sovereign debt Derivatives (which Warren Buffet called in 2003, financial weapons of mass destruction- which could (and probably would) trigger a second financial crisis in the Eurozone, resembling the one that hit America after CDS's and CDO's on Sub-prime mortgages collapsed.
That scenario is sufficiently doomsday-esque that Merkel might, just might, be forced to pull back from it. But even if she does, there's no guarantee that ECB 'full fire power' intervention would actually save the situation. Since Euro-bonds are a more long term ambition anyway, there's no reason to think they are likely to make much impact in the short term.
The point of this post, other than to illustrate just how catastrophic the emerging and ever more likely doomsday scenario is, is to point out that one way of reading Germany's options is as a 'relative vs absolute' gains problem, common in the international relations literature.
Relative Gains become important when countries are more concerned about what happens to them relative to everyone else, as opposed to how well they do per se. For example, if Germany chooses a Doomsday scenario, even though salvaging the Eurzone would be better for everyone just because the costs of salvaging the Eurozone fall largely on Germany (note, Doomsday costs Germany even more, but it costs everyone equally) then it is making a relative gains decision.
An absolute gain decision would be if a country benefits from a decision, but not by as much as everyone else. Here, Germany would gain from saving the EU, but peripheral nations would likely gain even more. IF Germany went along with this, it would be making an absolute gains decision.
Realists in International Relations Theory tend to think countries, even the ones in the European Union, make decisions based on Relative Gains. Liberals think they make decisions based on Absolute Gains (at least on Economic Issues). This seems to me to be a possible test of that outcome.
Right now, things look good for the Realists.
Saturday, 19 November 2011
Guest Blog - Occupy Can Make the World Better
I heard someone say recently: “I’m not naïve enough to think that camping outside St Paul’s cathedral is going to bring down capitalism”. Call them the sceptic.
The sceptic is saying: “Protesting is extremely unlikely to bring down capitalism. Even if bringing down capitalism is a worthy goal, why bother protesting?”
The obvious reply to the sceptic is: all movements for social change start out small. But they grow and grow, until success looks inevitable. So scepticism is premature. As Schopenhauer said, “All truth passes through three stages. First, it is ridiculed. Second, it is violently opposed. Third, it is accepted as being self-evident.”
Both the sceptic and the dreamer accept this assumption: if the movement directly brings down capitalism, then it has succeeded. Otherwise it has failed.
But that assumption is wrong. There are other reasons to protest.
Democracy
Everyone likes democracy.
The definitive element of democracy is the feedback loop from the citizens to the leaders. The citizens tell the leaders what they want. The leaders are supposed to do things that the citizens want. If the leaders don’t do this, the citizens can make them leave. Because leaders don’t want to leave, the policies adopted tend to be ones that the citizens mostly agree with.
In the UK, the way this works is through elections. But elections are a crude way of achieving this feedback loop.
The quantity of feedback is pretty terrible too: turnout is low, and we vote roughly once every four years. Information-wise, it’s a choice on a menu. Worse, there are only two real alternatives: so the information coming to the government is just a set of binary yes/no answers.
The quality of feedback is poor, too. Elections focus on the wrong issues. If elections are the only reason for people to think about politics, then they end up not being very well informed on the majority of issues. Moreover, they don’t get to decide what we are talking about.
There’s a lot of evidence for this, and it’s easily found, so I will confine myself to one example. Americans want, by a 2-1 margin or higher, depending on which poll you look at, universal healthcare. When was the last time you saw universal healthcare seriously discussed in a Republican debate, or a Democratic debate, or an election debate? Instead they’re talking about putting tariffs on China, which will help nobody and hurt lots of people.
Leaders end up talking about unimportant things, acting however they want, and selling this to the citizens – which is not how it’s supposed to work. And citizens end up feeling either apathetic or angry.
After the great recession happened, a lot of apathetic people became angry.
Protest
‘Protest’ is the wrong word. It implies people shouting, ‘I don’t like this.’
Occupy is an organization, discussing how to improve the way things work. It’s a part of ‘civil society’. Democratic theorists like ‘civil society’, because:
It increases the quantity of feedback going to the leaders, both directly, by expressing citizens’ views, and indirectly, by encouraging people to talk more about politics, about the economy, the environment, and all the other things that elites would rather the people didn’t pay that much attention to.
It also increases the quality of feedback: by discussing politics, and thinking about politics, people learn. And because the issues being talked about are important, the value of discussing these things is higher. Moreover, the organization itself is way more democratic than the government in charge of us, and the quality of views expressed is much better than the media would like us to believe.
If you’re a democrat, and someone tells you that we can improve the quality and quantity of feedback to the leaders, you would have to welcome that. Your attitude to the protests would be: “Excellent. Let’s listen to them, and let’s talk.”
Most people’s response was far more negative than that. So most people must be anti-democratic, even if they don’t realize it.
What if they don’t end up bringing down capitalism? Who cares? That’s the wrong goal.
They’re making democracy work better.
Social change
Our picture of revolutions, and social change, is of lots of people marching through the streets and a defeated government eventually giving in and changing a law, or stepping down and being replaced by a set of heroes.
That picture is wrong. Revolutions can be much more gradual. You might not be able to point to a specific time when they happened.
For example, it used to be OK to call gay people ‘fairies’ and all sorts of ugly names. Casual racism was a standard part of the landscape in 70s Britain, as was blatant, overt sexism.
Now that’s unthinkable: people are growing up who are almost race-blind, i.e. the distinction between a brown person and a white person is ceasing to matter to people, just like the distinction between a ‘noble’ and a ‘base’ origin person has completely moved out of our minds now. A generation ago, that was unthinkable. Similarly, whether someone’s gay or straight is seen as unimportant. But there wasn’t a revolution. Nothing huge happened; change was gradual.
But that doesn’t mean that it was inevitable: it happened because people did something about it. Slowly, they changed the way we talk and the way we think. And the result is that whether someone is gay or straight or brown or white is becoming as unimportant to our view of them as, say, what flavor of ice cream they prefer. It just doesn’t matter as much as it used to.
Even if the Occupy movement doesn’t succeed in bringing down capitalism, they could accomplish something different – and better, by changing the way we talk and think, and by changing what we are talking about. If they continue, they could change the way we see things – which means changing the world.
Why ask them to stop?
Today's Blog entry is a guest post from Nabeel Qureshi, Casberd Scholar of Politics and Economics at St John's College, Oxford University and contested President of the Mensch Committee.
The sceptic is saying: “Protesting is extremely unlikely to bring down capitalism. Even if bringing down capitalism is a worthy goal, why bother protesting?”
The obvious reply to the sceptic is: all movements for social change start out small. But they grow and grow, until success looks inevitable. So scepticism is premature. As Schopenhauer said, “All truth passes through three stages. First, it is ridiculed. Second, it is violently opposed. Third, it is accepted as being self-evident.”
Both the sceptic and the dreamer accept this assumption: if the movement directly brings down capitalism, then it has succeeded. Otherwise it has failed.
But that assumption is wrong. There are other reasons to protest.
Democracy
Everyone likes democracy.
The definitive element of democracy is the feedback loop from the citizens to the leaders. The citizens tell the leaders what they want. The leaders are supposed to do things that the citizens want. If the leaders don’t do this, the citizens can make them leave. Because leaders don’t want to leave, the policies adopted tend to be ones that the citizens mostly agree with.
In the UK, the way this works is through elections. But elections are a crude way of achieving this feedback loop.
The quantity of feedback is pretty terrible too: turnout is low, and we vote roughly once every four years. Information-wise, it’s a choice on a menu. Worse, there are only two real alternatives: so the information coming to the government is just a set of binary yes/no answers.
The quality of feedback is poor, too. Elections focus on the wrong issues. If elections are the only reason for people to think about politics, then they end up not being very well informed on the majority of issues. Moreover, they don’t get to decide what we are talking about.
There’s a lot of evidence for this, and it’s easily found, so I will confine myself to one example. Americans want, by a 2-1 margin or higher, depending on which poll you look at, universal healthcare. When was the last time you saw universal healthcare seriously discussed in a Republican debate, or a Democratic debate, or an election debate? Instead they’re talking about putting tariffs on China, which will help nobody and hurt lots of people.
Leaders end up talking about unimportant things, acting however they want, and selling this to the citizens – which is not how it’s supposed to work. And citizens end up feeling either apathetic or angry.
After the great recession happened, a lot of apathetic people became angry.
Protest
‘Protest’ is the wrong word. It implies people shouting, ‘I don’t like this.’
Occupy is an organization, discussing how to improve the way things work. It’s a part of ‘civil society’. Democratic theorists like ‘civil society’, because:
It increases the quantity of feedback going to the leaders, both directly, by expressing citizens’ views, and indirectly, by encouraging people to talk more about politics, about the economy, the environment, and all the other things that elites would rather the people didn’t pay that much attention to.
It also increases the quality of feedback: by discussing politics, and thinking about politics, people learn. And because the issues being talked about are important, the value of discussing these things is higher. Moreover, the organization itself is way more democratic than the government in charge of us, and the quality of views expressed is much better than the media would like us to believe.
If you’re a democrat, and someone tells you that we can improve the quality and quantity of feedback to the leaders, you would have to welcome that. Your attitude to the protests would be: “Excellent. Let’s listen to them, and let’s talk.”
Most people’s response was far more negative than that. So most people must be anti-democratic, even if they don’t realize it.
What if they don’t end up bringing down capitalism? Who cares? That’s the wrong goal.
They’re making democracy work better.
Social change
Our picture of revolutions, and social change, is of lots of people marching through the streets and a defeated government eventually giving in and changing a law, or stepping down and being replaced by a set of heroes.
That picture is wrong. Revolutions can be much more gradual. You might not be able to point to a specific time when they happened.
For example, it used to be OK to call gay people ‘fairies’ and all sorts of ugly names. Casual racism was a standard part of the landscape in 70s Britain, as was blatant, overt sexism.
Now that’s unthinkable: people are growing up who are almost race-blind, i.e. the distinction between a brown person and a white person is ceasing to matter to people, just like the distinction between a ‘noble’ and a ‘base’ origin person has completely moved out of our minds now. A generation ago, that was unthinkable. Similarly, whether someone’s gay or straight is seen as unimportant. But there wasn’t a revolution. Nothing huge happened; change was gradual.
But that doesn’t mean that it was inevitable: it happened because people did something about it. Slowly, they changed the way we talk and the way we think. And the result is that whether someone is gay or straight or brown or white is becoming as unimportant to our view of them as, say, what flavor of ice cream they prefer. It just doesn’t matter as much as it used to.
Even if the Occupy movement doesn’t succeed in bringing down capitalism, they could accomplish something different – and better, by changing the way we talk and think, and by changing what we are talking about. If they continue, they could change the way we see things – which means changing the world.
Why ask them to stop?
Today's Blog entry is a guest post from Nabeel Qureshi, Casberd Scholar of Politics and Economics at St John's College, Oxford University and contested President of the Mensch Committee.
Thursday, 17 November 2011
SOPA - Protecting the Internet
The internet is a truly amazing place. Despite concerns, which are probably true, that it has cost jobs in the western world, the internet has been a place for free expression (sometimes shockingly so), discussion, organization and so much more.
The real magic of the internet is its freedom. But that freedom, at least in the United States, is now seriously under threat. A bill that received a Congressional Hearing yesterday wants to, effectively, put an end to all that. The idea is supposed to be to protect intellectual property violations, which are, admittedly, widespread on the internet. But the law seeks to give the government the ability to effectively ban or blacklist websites on which users post violating links, videos or any other material. If the law had been in place, YouTube, Wikipedia and many other websites which we rely on today (quite probably including facebook and certainly including Google) would never have taken off.
Its absolutely critical to the future of free expression - and arguably therefore for humanity itself - that this bill does not go through.
This video provides a useful vantage point:
The real magic of the internet is its freedom. But that freedom, at least in the United States, is now seriously under threat. A bill that received a Congressional Hearing yesterday wants to, effectively, put an end to all that. The idea is supposed to be to protect intellectual property violations, which are, admittedly, widespread on the internet. But the law seeks to give the government the ability to effectively ban or blacklist websites on which users post violating links, videos or any other material. If the law had been in place, YouTube, Wikipedia and many other websites which we rely on today (quite probably including facebook and certainly including Google) would never have taken off.
Its absolutely critical to the future of free expression - and arguably therefore for humanity itself - that this bill does not go through.
This video provides a useful vantage point:
PROTECT IP Act Breaks The Internet from Fight for the Future on Vimeo.
For those keen to contribute ideas to the Occupy Movement
This is the link to contribute ideas to the occupy movement, as well as expressing your own views on how good currently submitted ideas are.
Occupy London Manifesto Voting
And this is the summary
Occupy London Manifesto Voting
And this is the summary
Links & E-petitions
Strictly off topic post, but may interest some readers:
Links to a few good reads:
Curious happenings at twitter
Martin Wolf vs Bob Diamond
Google takes another swipe at Apple (it all comes down to NFC, really)
Paul Krugman is wrong - and in an interesting way! (he says so himself)
Really interesting 1% datasets
Funny & Interesting post by Tim Harford on Polygamy
Links to a few E-Petitions:
Teach our kids to code
Tax Justice
Remove ban on gay people donating blood
Legalise cannabis
British Support for Palestinian Statehood
Links to a few good reads:
Curious happenings at twitter
Martin Wolf vs Bob Diamond
Google takes another swipe at Apple (it all comes down to NFC, really)
Paul Krugman is wrong - and in an interesting way! (he says so himself)
Really interesting 1% datasets
Funny & Interesting post by Tim Harford on Polygamy
Links to a few E-Petitions:
Teach our kids to code
Tax Justice
Remove ban on gay people donating blood
Legalise cannabis
British Support for Palestinian Statehood
Wednesday, 16 November 2011
The Great Unravelling
The European Central Bank intervened in debt markets yesterday & earlier today, driving down (ever so slightly) bond yields. Those bond yields are now already back up to where they were before the intervention, according to the FT.
French-German bond spreads have widened at an alarming rate, indicating that France is about to get sucked into the vortex of 'peripheral' countries with dubious abilities to handle their debt burdens.
Meanwhile unemployment climbs, with Youth Unemployment in the UK reaching the pretty scary figure of 1 million, with 2.62 million on the records unemployed in the UK. Growth in the first half of 2012 expected to be below 1% (in other words, the output gap is going to widen, if anything), and the only weapon governments are using to change this is the terminally ineffectual Quantitative Easing program, which they are hindering with fiscal austerity. Experience has shown us that the money is being using to shore up balance sheets, not lend to businesses and as a result the stimulative effect is very limited. QE should either be a 'helicopter drop' direct to businesses who need it, or else should come with strict lending requirements for the banks (for example, we can demand Banks improve balance sheets by doing more to raise capital, as opposed to shrinking assets). Consumer price inflation, by the way, is still at 5%, although it is expected to come down, since wage inflation is low.
At the same time, in the US, it is now expected that 2012 will be (another) recession year, according to the Federal Reserve Bank of San Francisco. That will hurt exports in the rest of the world, and could well prompt the election of Mitt Romney, who is arguing for what amounts to starting a Smoot-Hawley style trade war with China (which he excuses on the grounds that there is already a trade war going on between the two countries, apparently).
This really is a quite terrifying situation. If the Eurozone breaks up, as is looking ever more likely, then even the European Commission's cataclysmic prediction of 0.5% Eurozone growth in 2012 and 1.5% in 2013 look hugely optimistic (the same report puts recession in 2012 at a probability just a fraction under 50%).
This is all, very, VERY bad.
PS on the inflation issue, see this BoE report, which Krugman described as 'courageous'. The speed of declining Inflation estimates definitely look 'courageous' to me!
French-German bond spreads have widened at an alarming rate, indicating that France is about to get sucked into the vortex of 'peripheral' countries with dubious abilities to handle their debt burdens.
Meanwhile unemployment climbs, with Youth Unemployment in the UK reaching the pretty scary figure of 1 million, with 2.62 million on the records unemployed in the UK. Growth in the first half of 2012 expected to be below 1% (in other words, the output gap is going to widen, if anything), and the only weapon governments are using to change this is the terminally ineffectual Quantitative Easing program, which they are hindering with fiscal austerity. Experience has shown us that the money is being using to shore up balance sheets, not lend to businesses and as a result the stimulative effect is very limited. QE should either be a 'helicopter drop' direct to businesses who need it, or else should come with strict lending requirements for the banks (for example, we can demand Banks improve balance sheets by doing more to raise capital, as opposed to shrinking assets). Consumer price inflation, by the way, is still at 5%, although it is expected to come down, since wage inflation is low.
At the same time, in the US, it is now expected that 2012 will be (another) recession year, according to the Federal Reserve Bank of San Francisco. That will hurt exports in the rest of the world, and could well prompt the election of Mitt Romney, who is arguing for what amounts to starting a Smoot-Hawley style trade war with China (which he excuses on the grounds that there is already a trade war going on between the two countries, apparently).
This really is a quite terrifying situation. If the Eurozone breaks up, as is looking ever more likely, then even the European Commission's cataclysmic prediction of 0.5% Eurozone growth in 2012 and 1.5% in 2013 look hugely optimistic (the same report puts recession in 2012 at a probability just a fraction under 50%).
This is all, very, VERY bad.
PS on the inflation issue, see this BoE report, which Krugman described as 'courageous'. The speed of declining Inflation estimates definitely look 'courageous' to me!
Mike Jones & Science
Mike Jones, a serially successful internet entrepreneur, has just announced his new Startup Incubator, Science.
But Science is an incubator in the 'real' sense - not just taking good ideas and transforming them into businesses, Science will be in the business of creating these ideas, endowing them with value and given them open ended deadlines to become hegemonic business forces.
I think its a fantastically good idea. There's been a lot of research in how to fund really amazing ideas and I think this is in line with a view of those ideas - long leashes and open ended deadlines for example. That will tend to attract talented people. Bring the right people together and there's no doubt they can do anything.
But Science is an incubator in the 'real' sense - not just taking good ideas and transforming them into businesses, Science will be in the business of creating these ideas, endowing them with value and given them open ended deadlines to become hegemonic business forces.
I think its a fantastically good idea. There's been a lot of research in how to fund really amazing ideas and I think this is in line with a view of those ideas - long leashes and open ended deadlines for example. That will tend to attract talented people. Bring the right people together and there's no doubt they can do anything.
Subscribe to:
Posts (Atom)