A graphical challenge

When I floated the idea of an infographic wiki the other day I said this.

The problem of course is that infographics are created by graphic designers, who are trained to do what they do. Someone in the policy crowd might want to offer their knowledge on an issue in an infographic but they wouldn’t be able to create one easily. Just a few weeks ago I was trying to give a plain English explanation on why compensation was possible with a carbon price to submit to The Drum. Miraculously as I was struggling with the final draft Jess Irvine did a great job on the same topic, but the ability to do an infographic would have been a blessing.

Which brings me to the placard at right by Martin Jones at the SayYes rally on Sunday. I think is clever, very insightful and full of applied knowledge. I also suspect it’s completely and utterly impenetrable to anyone who doesn’t know the subject matter.

But I have no idea how I’d improve it so it would inform rather than bewilder.

This is important since confusion about compensation is rife, despite the importance of the issue. Take this example in the Australian. I’ll give PvO the benefit of the doubt and assuming he’s merely ignorant rather than actively disingenuous (though this distinction is distressingly difficult to make in the News Ltd press). A sincere commentator would benefit greatly by infographics that provide access to specialist knowledge, and subsequently their non specialist readers who aren’t prone to access the wiki themselves.

Does anyone have any ideas how something that is easy to explain given time – such as the distinction between income and substitution effects – can be expressed concisely and graphically to the majority whom have no sat through Microeconomics lectures? Because the alternative seems to be schoolboy errors echoed and magnified.

About Richard Tsukamasa Green

Richard Tsukamasa Green is an economist. Public employment means he can't post on policy much anymore. Also found at @RHTGreen on twitter.
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Martin Jones
10 years ago

I’m glad you liked my placard, Richard!

I had a few people ask me to explain the graph to them, and I tried to give them a basic introduction to the micro (see below), but even if you can rattle off the words in under a minute it takes most people longer to understand the idea. So my aim was probably more symbolism than really education.

The black line represents the combination of polluting and clean goods you can buy. It’s straight because the ratio at which you can exchange those products is fixed by their prices. The black curved line represents a combination of products with which you are equally happy. It’s curved because the more you have of one product, the less valuable it becomes, and the ratio at which you are willing to exchange products changes. The “higher” the black line is, the better, and it’s highest when you consume at A*.

A price on pollution means you can buy fewer polluting products, so the black line turns into the red line. When you get compensation, you can keep buying A* if you like, so the red line moves across to become the blue line. But, as you can see, on the blue line you can move to a higher curved line B, rather than A, which is obviously better. The highest point is at B*, where you consume fewer polluting products, more clean products, and are better off! Easy.

derrida derider
derrida derider
10 years ago

Those words are a good explanation of the microeconomic theory, but you really don’t need that to counter the “but if you tax me and then pay it back to me then nothing will have changed except more public servants” line that the shock jocks are putting about. Try something like:

“Its a bit like the TAB in reverse. We tax you according to how much carbon you use, then we put all the tax raised into a pool and divvy the pool up equally before we hand it back. So if you use less carbon than the average you come out ahead. If you use more, you come out behind. So everyone will be trying to use less than today’s average to try and come out ahead – which is the point of the exercise”.

How hard is that, even for shock-jock listeners?

Labor Outsider
Labor Outsider
10 years ago

Sounds good DD but it isn’t true because the revenue will not be divided up equally.

derrida derider
derrida derider
10 years ago

Don’t be pedantic, LO (yeah,I know – as Bertrand Russell said “a pedant is someone who prefers his statements to be true”).

You want to illustrate the mechanism – the rest is detail. This is a shock-jock show we’re talking about. Do you think any of the listeners will know any of the detail? But if you insist on being fussy we could just drop the word “equally”.

Dave
Dave
10 years ago

DD,

You present it as a game which – whilst that might appeal to the Australian pysche – is not really an accurate description of the microeconomic effect you are supposed to be explaining.

I think part of the problem is that the carbon tax will primarily affect those goods – energy, food, petrol – which people don’t think they have a price elastic response to. Rather, the response is income elastic: “we can’t afford this electricity bill, so we’ll have to cut back”. So, they reason, if you gave them compensation for high prices, they would not have to cut back.

I wondered about using an analogy with a good that is clearly price elastic: eg restaurant meals. However, the unhelpful responses to that would probably either be, “yes, it works for restaurant meals, but not for electricity”, or “I didn’t know the carbon tax was going to be levied on restaurant meals.”

So, having said all that, I can’t offer anything better than your suggestion.

Peter
Peter
10 years ago

DD

Re the TAB analogy: the TAB takes a cut before handing back the punters’ revenue to those who backed the winner; that’s why to back every horse in a race to win $100 will cost the punter $110 (assuming a 10 per cent cut for the TAB); the cut I suppose is the equivalent of the deadweight loss the carbon price will induce.

aidan
aidan
10 years ago

I’m no graphing newbie (scientist, some stats background) but I find these economic graphy-things completely impenetrable. Krugman is forever bunging them up on his (excellent) blog and I’m none the wiser.

Is there something I’m missing? Are scientists conditioned to interpreting plots one way, economists another and ne’er the twain shall meet? They don’t speak to me that’s for sure.

It is also clearly a nod to xkcd.

aidan
aidan
10 years ago

Maybe most disciplines aren’t as used to the practice of using diagrams to get at the dynamics of simultaneous equations with uncertain parameters. Subsequently other disciplines are all geared up to see an X axis and a Y axis as showing data or a independent-dependent variable.

Nice explanation. This sounds exactly my problem. Plots (from my background) are static. As you say, these economic plots are designed to describe dynamics. To be honest, I think I’d rather have the equations written down.