Club Troppo

This Internet, which any demented person, any drunk can get drunk and write in, do you believe it? The Internet is like a vacuum cleaner, it can suck anything. Any useless person; any liar; any drunkard; anyone under the influence; anyone high on drugs; can talk on the Internet, and you read what he writes and you believe it. This is talk which is for free. Shall we become the victims of “Facebook” and “Kleenex” and “YouTube”! Shall we become victims to tools they created so that they can laugh at our moods? We decide our destiny, based on facts and our needs. Besides, this is not the era of blood, of smoke, of burning, of knives and axes; this is the era of the people, and supposedly the era of democracy. Everything is by election and referendum, ie, through the people’s direct authority, which is the people’s direct democracy, and not through rumours, and Facebook, and YouTube, and the Kleenex and the cables of American Ambassadors. This world wide web Internet is laughing at us and damaging our countries; it is tearing up our clothes; and killing our children for it.

HT this World Bank blog.

Having just watched Q&A on the republic (looking for my daughter who’d got herself into the audience!), I was intrigued by the post I’ve replicated below.  I am the most luke warm republican around and have almost certainly put Chris Dillow’s first argument below somewhere on Troppo and agree with his third argument.  The second argument is certainly intriguing.  Anyway, the quote that is the heading to this post comes from the article on Meritocracy by the guy who coined the term – in irony (so many memorable expressions begin similarly) – Michael Young.  The link is below and is well worth clicking through to.

Timothy Garton Ash gives some guarded support for the UK having a monarchy. I’d go further, and suggest it is a good idea, for three reasons.

First, the existence of a monarchy is irrational, out-of-date and absurd, with all its pomp, invented tradition and flummery. But this is an argument for it, not against it. The monarchy is much like the NHS: idiotic in theory but surprisingly successful in practice. It therefore reminds us that rationality is a very weak tool for judging the efficacy of institutions.  Only “progressives”, with their unthinking and self-regarding faith in their limited stock of reason, believe rationality should be the sole arbiter of how we should organize ourselves.
Secondly, John Band makes a superb point:

I suspect it’s not a coincidence that the countries which are best at equality overall (e.g. Sweden, Denmark, Norway, the Netherlands) [he might have added Japan - CD] also tend to be monarchies

This, he says, is because monarchies remind us that our fate in life is due not solely to merit but to luck, and thus increases public support for redistribution. Is it really an accident that monarchical Spain is more equal than presidential Portugal, or Canada more egalitarian than the US, or Denmark more than Finland?

The Observer says that “meritocracy and monarchy is one marriage that just doesn’t work.” True. But a true meritocracy would, as Michael Young famously pointed out, be even more horribly inegalitarian than the fake one we have now. So given the choice, give me monarchy.

Thirdly, there’s a question. If we had an elected presidency, what sort of preening, self-loving narcissistic egomaniac would think they were capable of representing and symbolizing the nation? (Tony Blair, you all answer.)

An elected presidency would thus symbolize – and so help entrench – our culture of ego, the belief that people are to be valued for who they are as individuals rather than for their roles. By contrast, a monarchy embodies the opposite principle – that people matter for what they do, not for who they are. In this sense, of course, a republic would be “modern”. But this is precisely a reason for opposing one.

Now, I can imagine two objections to all this. One is that a monarchy is a symbol of a society that is disfigured by class division. True. But we should worry about the bird, not the plumage.
Secondly, my objections to a republic could be overcome by having not an elected president but one chosen by lot. This would replace the lottery of birth with the lottery of, well, a lottery. There is, though, a very high chance that this would throw up as our head of state someone far more obnoxious than our present Royals. And given that there is a little to be said for impressing the outside world, we might as well stick with what we have.

 

Here it is folks, courtesy of Cafe Hayek.

Ken’s last post seeks to crowdsource ideas for teaching law students some of their cognitive biases.  I’d been contemplating on posting on something I’d read in Supercrunchers, and this gave me the perfect opportunity.

Good questions Ken. I can’t answer them very satisfactorily but I hope the Tropposphere in its dialectical wisdom comes up with some good ideas for you. One thing your post puts me in mind of is a result I can reference for you if you want. When someone tried to predict the decisions judges on the Supreme Court made using an extremely crude algorithm that asked whether the decision they were hearing on appeal was ‘left’ or ‘right’ leaning, they found that the algorithm predicted more accurately than constitutional experts.

But there was more to it than that. The algorithm picked those leaning right much better than the experts, and those leaning left somewhat worse! As close as you’re gonna get to catching them with their ideological pants down I would have thought.

This led to some argy bargy between me and a couple of conservatives (I hope I’m not offending them – the ‘c’ is small as in Burke and I have the greatest regard for conservatism – and liberalism and social democracy). Anyway, the exchange and the algorithm which predicted judicial outcomes better than those who read the legal arguments are over the fold for your delectation and deliberation. (Continued)

A bunch of new rules are being introduced to Parliament today governing what is usually called the “financial planning” industry. Big new regulatory schemes often have large unintended consequences, and this one could too. But if ever an industry needed to change its behaviour, it is “financial planning”.

I put the words “financial planning” in scare quotes because I can’t bring myself to take the title seriously. The industry is simply not designed to offer financial planning. That’s not how it works. A small group of planners charge consumers for their advice by the hour, but most live on the commissions from the product providers. Their customers are mostly not consumers who need financial plans. Their customers are mostly large financial firms who need people to sell products to consumers. When financial products providers – AMP, AXA, MLC, BT, Perpetual and so on- write the checks, they’re the customers.

So at the level of the consumer, the industry is basically a sales force masquerading as a profession.

This is why calling the industry “financial planning’ is like calling the brothel business “personal counselling”. Sure, you might get some counselling as a byproduct, but the people in the industry are, by and large, being paid for something else entirely.

I seem to recall that Alan Kohler – a journalist who actually understands the role of sales in business – once suggested that the industry could most simply be reformed by forcing “financial planners” to call themselves “salespeople”. He was right. Rather than passing new legislation, the government might simply have told the ACCC they had its support to apply existing law to the industry’s marketing patter.

Don’t believe me? Have a read of this piece from the well-informed recruitment news service eFinancialCareers:

The skill shortage in financial planning is nothing new but employers are becoming more innovative in their efforts to solve it, according to the recent eFinancialCareers roundtable in Melbourne, which was attended by HR professionals from several international and Australian firms.

“We’re all in the market for them and there aren’t too many of them around,” said one of the panelists, all of whom asked not to be named in this report.

So what to do? Well, one firm is recruiting business-to-business salespeople from outside the financial sector, putting them through fin planning qualifications and providing training.

“They have the fundamental skills and importantly they are used to working on long-term deals, unlike those from retail sales who have a shorter-term mentality. We need salespeople who we think will stick with the business and fit into our culture,” said the firm’s representative.

Read the full piece at eFinancialCareers.

Nicholas Gruen’s post about Einstellung (a person’s predisposition to solve a given problem in a specific manner even though there are “better” or more appropriate methods of solving it) has given me an idea.  I would like to devise a couple of seminars for undergraduate Law students to be delivered as part of the subject Jurisprudence that I am next teaching at CDU in semester 2 2012 (so there’s plenty of time to work out how to do it).

When you consider obstacles to rational thinking and problem-solving  like Einstellung, “framing” as enunciated by people like Kahnemann and Tversky, confirmation bias, and Jonathan Haidt’s “social intuition” model of moral decision-making, it’s pretty clear that much of what we usually believe to be genuinely reflective, critical and analytical thinking, both on our own part and by others, is actually much less considered and rational than we might imagine.

I have in mind a couple of seminars that would explain the basics of each of these research approaches to cognitive biases or shortcomings.  We would also have students undertake versions of some of the surveys that led to these research findings.

However, what I’m also wondering is whether there are any well accepted practical techniques for diagnosing and correcting suchcognitive biases in ourselves, other than the obvious but difficult one of attempting to adopt a skeptical stance in interrogating one’s own thought processes, especially when dealing with a question likely to arouse strong emotions?  And what useful indicators might exist to tell us when to engage in that sort of careful skeptical reflection about our own motives, assumptions and thought processes?  Heuristics and habit are unavoidable and useful behaviours.  None of us has the time or energy to reflect carefully and skeptically on every decision we make in our daily lives, and in most cases repeating behaviour that worked previously is both efficient and sensible.  Are there any reliable guides for picking when that might not be so?

Any hints or observations on how best to run seminars like this would be gratefully received e.g. Patrick noted that his law firm runs training programs where they examine cognitive phenomena like framing.

Speaking of $100 bills on the pavement, I haven’t looked into this – but look forward to doing so at some stage. Given the preponderance of IT systems which generate real time data for their organisations – firms and agencies – why aren’t we trying to do more of this with our national statistical collections, particularly those that we rely heavily on to manage the economy and others systems in need of ‘real time’ management. If it’s too hard and expensive to peek into every business’s accounting system, why not try to peek into a few – with assurances that the information would be anonymised or otherwise protected from the tax office finding irregularities between firms reporting in real time and to itself. If necessary one could pay a representative sample of firms to participate – they could press a button and send in data every day or week or month – or one could see if one could get buy-in by offering participating firms advance access to the collective information good generated from their data.

In any event it seems odd that so little is being done in this area. But then perhaps it is and I just don’t know about it. I was prompted to write this by this article (pdf) which shows that using Google searches can help in forecasting economic developments.

From the Abstract.

Most economic variables are released with a lag, making it difficult for policy-makers to make an accurate assessment of current conditions. This paper explores whether observing Internet browsing habits can inform practitioners about real-time aggregate consumer behavior in an emerging market. Using data on Google search queries, we introduce a simple index of interest in automobile purchases in Chile and test whether it improves the fit and efficiency of nowcasting models for automobile sales. We also examine to what extent our index helps us identify turning points in sales data. Despite relatively low rates of Internet usage among the population, we find that models incorporating our Google Trends Automotive Index outperform benchmark specifications in both in-sample and outof- sample nowcasts while providing substantial gains in information delivery times.

And from the conclusion.

Our results show that models incorporating Google search resultsoutperform competing benchmark specifications in both in and out-of-sample nowcastingexercises. The Google data have a number of characteristics that should make them particularly attractive to decision-makers in emerging markets: (i) They are derived directly from micro user data; (ii) They contain information on a large proportion of Internet users, whichis a far more extensive sample than is commonly employed by surveying agencies; and (iii)They are released at high frequency and at regular intervals. Our finding that the accuracyof nowcasting models for automobile sales in an emerging market can be improved usingcontemporaneous search patterns suggests that Google data is a promising source of infor-mation for nowcasting components of aggregate demand in short-run models, an exercisewhich we leave to future research.

Niall Ferguson, MA, D.Phil., is the Laurence A. Tisch Professor of History at Harvard University and William Ziegler Professor at Harvard Business School.

Niall F’s website doesn’t just tell uswhat a dashing fellow he is. It shows us. There he is – hair pinned back by the onrush of the future he is building as he expounds our past.

And then it shows us that he collects job titles pretty much with every breath.

He is a resident faculty member of the Minda de Gunzburg Center for European Studies. He is also a Senior Research Fellow of Jesus College, Oxford University, and a Senior Fellow of the Hoover Institution, Stanford University.

Anyway, I was amazed to read this spray which dates back to September last year. (It’s mysteriously almost impossible to read on his website with the background nearly as dark as the text – perhaps it’s my browser – but if I were him I would have made the background darker still – and somehow prevented highlighting which turns the text an easy to read white on blue background – but I digress).

It argues that Australia’s fiscal stimulus didn’t save jobs and save Australia from a (technical) recession. (I’ve occasionally seen Ferguson wade into economics proper and it’s seemed to me that he’d kept his claims calculatedly vague to try to stay out of the way of those who might deconstruct his claims in the blogosphere. In any event he has run into flak from Krugman and others who pulled his arguments apart.

Here what’s telling is Ferguson’s reciting partisan talking points. Viz.

Spare us the fable that it was better designed. After the home insulation fiasco and the now-proven waste on new school halls, that can’t withstand serious scrutiny.

Well if you read the reports the school halls exercise seems reasonably well managed – only it attracted lots of headlines – not hard with 20,000 odd projects and a rushed timetable.  Indeed it’s not even clear that the insulation was such a fiasco, but we’ll leave that to one side.  But the thing wrong with Ferguson’s claim is that from a macro-economic perspective which is all that’s relevant to the argument the stimulus was well designed. In other words even if the projects were a micro-economic fiasco, they had the same short run macro-economic characteristics as brilliantly executed projects. And their macro-economic impact was as you’d expect and as measured – strongly supportive of the economy.

Then there’s the net exports story.

Net exports surged from 2.4 per cent of GDP in the firstquarter of 2009 — the nadir of the GFC — to 5.4 per cent in the first quarter of this year.

Problem is that that’s nowhere near enough to hold up GDP growth against expected plunges elsewhere. And surging mining exports won’t save many jobs – as seemed to be saved. If you look at the national accounts you find that consumers spent their cash splash in late 2008 and early 2009 so that retailing jobs were retained and that construction boomed.  That’s what saved the jobs. Funny that.

Ferguson’s article seems almost certainly done on the fly.  He argues that the RBA raising rates shows that the stimulus was overdone. But the RBA gradually put rates up to around a neutral level as it became clear that the economy was doing OK – looks like evidence of getting the economy back to normal ASAP to me. Wasn’t that what we wanted?  Perhaps there’s an argument here, but Ferguson leaves us none the wiser as to what it is. Then he says this “As economist Christopher Joye has shown, small business, residential mortgage, personal and credit-card interest rates have all been materially higher under the Rudd-Gillard government than under Howard.” And, through the very different economic times and periods of the cycle – and the increased margins after the GFC – and this is supposed to show what exactly?

The thing that took the cake for me was Ferguson falling for the right’s talking point that the mining tax showed a kind of Hugo Chavez kind of instinctive punishment of success.  It was a fine piece of micro-economics which would have lowered more distorting taxes (on companies – including low profit mining companies – and savings) which was the baby of Ken Henry, one of our finest econocrats, who’s a believer in free markets and lower taxes.

Finally, let’s raise our hats to Aussies who did the most to meet China’s booming demand: the diggers. Yes, theAustralian mining industry, which accounts for nearly 10 per cent of GDP and circa 40 per cent of total exports,moved heaven and earth — well, certainly earth — to satisfy China’s needs. We see the fruits of this effort everyday, most recently in the record $3.6 billion trade surplus in June, the biggest in history.Unfortunately, the government is doing the very reverse of tipping its hat. On the contrary: it’s dipping its handinto the mining companies’ pockets.

For shame . . .

Postscript: From last years Budget Paper No. 1, here is the Treasury’s breakdown of GDP growth in 2009-10 – the dark blue lines. It’s easy to see the fiscal stimulus in consumption, dwelling investment and public expenditure. It’s not so easy to see some of the factors that Ferguson mentions, like net exports for instance, though obviously they played some role.

Keynes famously said that the hardest part of coming up with the General Theory was not coming up with the new ideas so much as escaping from the old ones. I’ve just run into a great article on the implications of happiness research for making policy (and yes there are implications) at least according to John F. Helliwell. Read the whole article if you wish – it’s not very long, not technical and very interesting and it’s here (pdf). Anyway, here’s the first half of it’s conclusion which struck me, perhaps because I’ve been thinking about the Keynes quote a lot recently not in the intellectual but in the organisational context. Why is it that ideas that are clearly good ones, which have negligible risks and are clearly worth giving a go, are not given a go? Laziness? Inertia? The fact that people are busy and fully engaged in existing routines? Undoubtedly. But at least the chess example brought it home to me in a concrete way (and of course as a chess player it describes perfectly why I’m not very good – well one reason!)

There seems to be sufficient evidence already in hand to encourage policy field trials and policy experiments implementing what is already known from subjective well-being research. If this is so, why has so little changed? The relatively slow progress from accumulating evidence to even experimental changes in policies and procedures is partly due to the human predilection, evident in medicine and all sciences (Nickerson 1998), to adhere to old ways despite the arrival of contrary evidence. Even chess masters unconsciously stop looking effectively for better strategies once they have something plausible in hand, enough so to drag the quality of their play down by three standard deviations in the skill distribution (Bilalić et al 2008, 654). [this article is here btw, though there are better formatted, possibly later versions behind a paywall.]

Caution has its own rewards, however, as the inherent conservatism of science can at least reduce the likelihood of running off in all directions. But if taking subjective well-being more seriously has the potential for increasing the quality of lives while reducing pressures on available resources, should there not at least be a stronger commitment to broaden the range of policy alternatives to include those with a strong chance of improving subjective well-being?

Postscript: Here’s the problem in the experiment.

(a) 2-Solution problem; (b) 1-Solution problem (these positions are based on an idea of Pertti Saariluoma). White to move in both problems. In (a) the familiar smothered mate solution is possible: 1. Qe6+ Kh8 2. Nf7+ Kg8 3. Nh6++ Kh8 4. Qg8+ Rxg8 5. Nf7#. The shorter optimal solution is: 1. Qe6+ Kh8 2. Qh6 Rd7 3. Qxh7#, or 2.. . . Kg8 3. Qxg7#. In (b) the smothered mate is no longer possible because Black’s bishop now covers f7. The optimal solution is still possible. 1. Qe6+ Kh8 (If 1..... Kf8, 2 Nxh7#) 2. Qh6 Rd7 3. Qxh7#, or 2.. . . Kg8 3. Qxg7#, or 2 . . . Bg6 3. Qxg7#. The crucial squares for the familiar solution are marked by rectangles (f7, g8, & g5) and the optimal solution by circles (b2, h6, h7, & g7) in (a).

The experimental procedure then involved comparing the ease with which people presented with the first problem saw the most efficient solution – given that they would almost certainly have seen the less efficient (smothered mate) solution first.

And from the article:

Across a range of skill levels, the presence of a familiar solution that first came to mind [the smothered mate in the first problem] reduced the problem solving performance of the experts to that of players about three standard deviations lower in skill. Similar results were obtained using different problems and the more naturalistic instruction to find the best move (Bilalic´ et al., 2008). Three standard deviations is a gulf in skill level. The chance of a player being beaten by one 600 Elo points lower is close to zero. And yet the Einstellung effect temporarily reduced the problem solving ability of the experts to that of the less skilled players. It is a very powerful effect. . . .

We show, by measuring players’ eye movements, that the mechanism by which the first idea prevents a better idea coming to mind can be demonstrated. Crucially, we find that players believed that they were actively searching for better solutions when in fact they continued to look at aspects of the problem related to the first idea they consid- ered. This is why the Einstellung effect is pernicious – peo- ple do not realize that it is influencing their thoughts.

It was (I read somewhere) to avoid this (Einstellung) effect that Freud refused to read Nietzsche because he thought his ideas would pre-empt and so displace his own emerging ideas.

More generally while there are sub-disciplines variously entitled the ‘methodology’, the ‘sociology’, the ‘philosophy’, the ‘history’ and the ‘theory’ of one’s discipline, one of the most interesting and useful of these sub-disciplines might be called the ‘psycho-pathology’ of one’s discipline.  Such a sub-discipline, which I think there should be courses in which could be very valuable for the health and usefulness of the discipline would seek to generate greater self-awareness amongst practitioners of the psycho-pathology of their own discipline. Certainly there’s a dark psycho carnival going on in economics. Wouldn’t it be worth making some awareness of the psychological foibles of their discipline a routine part of the intellectual apparatus of economists?  Ditto, (mutatis mutandis) for lawyers, doctors and other professional practitioners.  Shouldn’t all people seeking to become ‘experts’ of one kind or another be familiar with all the foibles of expertise, as documented for instance by Philip Tetlock?

I can attest to the truth of Krugman’s claim that a zombie talking point is alive and well in the US, which hasn’t really taken root here.  It is that only the rich pay tax.  That’s roughly true here if you’re looking at families (because of family payments), but it’s based on a bit of a trick which is that not only is it not true if you don’t have kids, but it’s also not true if you include indirect taxes – here mainly GST, payroll tax and stamp duty (although the latter is a little progressive at least nominally by house price).

Anyway, I recall overhearing some American woman explaining to an Australian that no-one paid tax in America except the wealthy.   Krugman offers this graph in contradiction.

And in news just to hand Bill O’Reilly and Glenn Beck explain why George Soros and Paul Krugman are trying to destroy the US economy (so they can install socialism obviously enough). Glenn Beck also explains why oil prices have gone up against the dollar – the reason paradoxically is that they’re pegged to the dollar.  Watch, listen and learn, direct from the echo-chamber.

There is no category in Troppo’s catalogue for ‘Conspiracies to destroy the world’ but there should be.