Wednesday, 10 November 2021
Most people generally want a politician to mow their own lawn and travel in standard class. In some ways, this doesn’t make sense, as you would probably prefer them to work on, you know, political stuff. And maybe that means getting someone to cut the grass now and again. But the idea is the more a politician moves away from peoples ordinary lives, the less they are able to understand them (at least this is what I observe, way up high, in my tower made of elephant tusks).
This does raise the question though, should we pay them nothing? Surely the honour of serving as MP is reward enough? The problem with this argument is not only who would want to become an MP, but who could. You would have to be from an incredibly wealthy background to even consider it and you would end up with a parliament looking like one from the 1800s.
One of my research interests is occupational choice: why do people choose one career over another? So let’s say you were personally thinking of becoming an MP, what would you do? Well, you might write a big list of pros and cons of becoming an MP over what you are currently doing. Although there are lots of factors that make up the decision, let’s start with wages.
For most people, £80k a year is going to be a big wage increase so it seems like a no brainer that being an MP would be better. But there will be some people, some doctors and lawyers for example, that would have to take a wage cut. So if we paid MPs more would we get more applicants from these types of people? And if you think that these types of people would make better MPs, then it might be a price worth paying (whether this is true or not is up for debate, but let’s just go with it for now).
But just looking at current wages doesn’t take into account the long term. Becoming an MP is not necessarily a job for life. Lisa Forbes who was elected in June 2019 lost her seat in December of that year. There is an element of risk involved. This might not necessarily be a problem if you can slip back into your old career or move on to a new one (more on this later).
For many very high-paying careers (over 80k), however, taking time out can really hurt your pay. This is something women know only too well. So the amount you would have to increase MP’s pay by, in order to attract those who earn over 80k, would need to compensate not only for their current wage, but the job insecurity and future earnings hit they may receive. In other words, you would have to pay a lot more than simply matching someone’s earnings.
Now of course there are other important considerations when becoming an MP. Not least the fact that everyone will think you are an arsehole. How much you would have to remunerate someone for this is going to vary from person to person. Personally, I wouldn’t become an MP for anything less than the entirety of UK GDP. If you are the type of person who doesn’t care that everyone thinks you are an arsehole, then you are most likely an arsehole. It is a vicious circle.
But on the other side, if you make the job of being an MP too attractive by paying them lots and fawning over them all the time, then people might do anything to cling on to their job. When voting on a particular issue do we really want MPs to be thinking “this is going to costs me £X if I vote the way I think I should?
Joking aside, we have seen two MPs lose their lives in a very short space of time. To me, pay is probably the last thing on many peoples minds when deciding whether to become an MP or not.
OK, so would paying MPs more help with the whole second jobs scandal at least? Well, first we need to understand why second jobs are a problem to begin with. You could argue that MPs should focus all their time doing MP stuff, which is a fair point.
Another concern is that by taking a second job there is a potential for lobbying. Now the line as to what is legal and illegal here is a little blurred. It doesn’t have to be brown envelopes under the table kind of thing. It could be that I play within the rules but it still offers some advantage to whoever is paying me. Now it might be that the MP actually agrees with what the company they are lobbying for are doing, but the incentives here for them to be influenced are just extremely high and will inevitably lead to problems.
So if we pay MPs more, does this reduce the incentive to take on these 2nd jobs? Well to a certain extent, yes. But remember, what we really care about here is MPs doing corrupt things by accepting these 2nd jobs. This is where it gets a little complicated.
Is everyone corruptible, by that I mean is there a figure that you would be willing to do a corrupt thing? If yes, then by paying MPs more would push this value higher which may reduce overall corruption. But what if we just think there are some corrupt people and some uncorrupt people. If that is the case, paying MPs more just allows those corrupt MPs to bargain for higher payments without reducing overall corruption.
There is quite a big literature on this in economics and is an important question but I think we need to look at the issue of second jobs more closely. It seems that a lot of these second job scandals seem to be taken by former ministers who have lost the extra pay they get from performing ministerial duties.
To me this makes a lot of sense why these individuals would go looking for extra income. There is a huge finding in economics that people don’t like having their wages cut. OK, this may seem obvious, but hear me out. Let’s say your boss says you either work longer hours or get a pay cut, which one would you choose? Most people will choose to work longer hours.
You can kind of see why. You may have rent or mortgage repayments based on that level of earnings and all sorts of lifestyle choices that make a drop in income more undesirable than working extra hours. Economists call this downward wage rigidity to sound fancy.
So one way around this 2nd job problem would be to equalise ministers pay with MPs, so that being fired or resigning from being a minister doesn’t involve losing out on extra pay (this may cause other issues but I am not paid enough to solve all of the government’s problems for goodness sake).
The other thing to consider is what happens once an MP leaves parliament. Banning second jobs doesn’t preclude MPs from lobbying from outside once they leave office, like the recent scandal with David Cameron. Going back to the decision as to whether you want to become an MP or not, those who are inherently corrupt may actually be attracted to the future income streams that being a politician can provide. So I think any discussion about second jobs needs to also involve people who have served as an MP too.
So to sum up, will paying MPs more result in better “quality” MPs or less corrupt ones. Even if it were politically possible, I think probably not. Although I am not totally wedded to this view and am open to changing my mind, as I do need some new wallpaper...
Tuesday, 9 November 2021
Anyone who thinks that you can have infinite growth on a planet with finite resources is either a madman or an economist - Sir David Attenborough
Do you think we can get infinite growth on a finite planet? Personally, I would not say “yes” to this question. I think economists answer this question badly as there is just so much room for misinterpretation. So here is how I would answer it…
I do not believe you can continue to use finite resources forever. They are, by definition, of limited quantity. Ultimately, we need to shift away from fossil fuels and reduce CO2 emissions to help fight climate change.
We often think about economic growth as using up materials. We take some of these finite resources and use them to create something else, something new. In my mind, I picture industrialisation, huge factories being built out of solid concrete puffing out huge plumes of smoke.
And throughout most of recent history, resources have been a key input in driving economic growth. Economists call this extensive growth - when you use more physical inputs to get more output.
If you were a farmer back in the Middle Ages and wanted to grow more vegetables, you could just plant some more in a neighbouring field. More resources, more output. At some point though all the neighbouring fields become occupied by other farmers.
Farmers found out by simply rotating where crops were planted each season, they were able to get more output with the same amount of inputs. This is what economists call intensive growth and what we often refer to as productivity.
At this point you may say, this is all very well, but we still need to use some physical inputs to get more outputs. Even if we make a coal plant more efficient, we still need to put at least some coal in it.
So this is where we get to the crux of what growth actually is. The way we often measure it, GDP (Gross domestic product), is based on summing up the value of everything that is sold in the economy. If I buy a beer and a pack of crisps in a pub, I am adding to GDP (I like to do my bit for the economy) and using up physical recourses.
But I also like to go to concerts. When I pay to see someone play music, is that using any physical inputs? You could say, of course it does because I travelled there by train, and they needed electricity to plug in their Yamaha CS-80 synthesiser.
But what I am really paying for here is listening to the musician play. Even if we lived in a society that banned travel and the use of electricity, I may still want to pay to see someone sing even if I had to walk there. So if we were somehow able to create sustainable resource use (and that’s a big if), then in the future we could get “infinite” growth: as long as people want things, you will get “growth”.
This is what economists are thinking of when they say “yes” to the question posed by Sir David Attenborough. But to me, it is sort of feels like a technicality – a quirk of how we calculate growth.
The more pressing question is climate change. If we continue at the same levels of C02 emission there will be negative consequence for the climate. This is why we should care about the amount of physical inputs we are using, even if we are getting more intensive growth out of them.
This is why to some, the Degrowth movement is appealing: in order to decreases carbon emissions, we need to decrease growth. However, I would prefer to rephrase this a different way: we need to decrease carbon emissions, even if this costs economic growth.
Economic growth is not the root cause of climate change, it is carbon emissions. Focusing our attention on growth - with all its weird idiosyncrasies – leads you down a blind alley.
Let’s say that in order to decreases growth we ban the use of air travel overnight. Do I think this will causes a recession - yes. Do I think it will have a long-term decrease on growth – I don’t know. The reason I do not know, is once you have banned the use of air travel, the incentive to innovate new ways to travel is huge. Banning air travel does not stop people wanting to see the world. And let’s say, that some miraculous way to travel quickly to other countries is invented without producing carbon – would we want to ban that as well?
Even in my example society where electricity and transport were banned – it may take you to the level of what growth was at in the Middle Ages but it is highly unlikely to stop growth from that particular level. People will try and innovate around those constraints and invent new ways of finding out what people want.
Now you could try and shift those wants and preferences like the Degrowth movement by arguing we can be happier if we buy less stuff. And I agree with this argument in many ways: often we focus on the material as opposed to the things that really make us happy like spending time with family. But stuff can also help me spend more time with family, like helping me wash the dishes via a dishwasher. And if we are able to find ways for people to buy as much stuff as they want without harming the environment, then who I am to tell others what will make them happy?
The crucial thing here is that we should be willing to sacrifice some economic growth to help fight climate change - if that’s what it comes to. Economic growth is not an end to itself. We care about other things than incomes, as the pandemic made clear.
This is why most economists are in favour of carbon taxes. Personally, I am in favour of carbon taxes to the extent that it may decrease future growth. And it may be that proponents of Degrowth would go further than me in terms of how high these taxes should be. But the focus needs to move away from hypothetical arguments about growth (ironically one of the objectives of Degrowth is to stop our obsession with growth) and to one on actual policies to help fight climate change. Because at the moment, I think a lot of people are talking past each other and it's not very productive.
Friday, 28 May 2021
According to Dominic Cummings recent revelations, a lot of people in charge of the pandemic failed to grasp the idea of exponential growth. As Mike Bird says, we often ask kids what pocket money they would prefer: a pound every week or a penny that doubles every week. It should be a simple thing for people to understand but I would argue it isn’t.
If you are reading this you will probably have a good grasp of exponential growth. But I think for a lot of people it isn’t so obvious. This is what I would call “surely” knowledge. As in, you will say to me: “surely, people know this, it’s easy”.*
I think the reason for this is that there are not many things in life where we directly observe exponential growth, in real-time. The only thing I can think of is fire. You wouldn’t just leave a smouldering fire in the corner of the room, as you know it could burn down your home. But what is less intuitive is exactly how this occurs. I would highly recommend watching a video of it, just to see how it happens.
At the start, the fire takes ages for it to do anything. It takes a minute for it to double in size. At this point, you think you can easily deal with it. And then, suddenly, it really starts to take off. Three minutes in and the room is completely on fire. This, to me, is what makes exponential growth so dangerous. It can lull you into a false sense of security that the situation is manageable before getting completely out of hand.
Let's look at the first 5 days of the virus.
We can see that the case where R=1.5 is obviously bigger than 1.1, it is not quite double the number of cases but it is certainly not very large. However, at this stage in growth, things are still moving pretty slowly. This is the false sense of security phase where you think things are manageable. You may even think it's just a linear relationship and so anyone saying the sky is going to fall pretty soon are just Chicken Little. Now let’s look at the next 5 days.
On day 10, with an R number of 1.1, we have barely seen a doubling over the original value of cases. With an R of 1.3, it is only 5 times more than we originally started with. R=1.5, however, has really started to take off. This is the moment we would say a loud swear word. It is nearly 40 times its original size.
Monday, 19 April 2021
The issue was due to the headline implying that Bayes' theorem was an "obscure math theorem". The reason it produced so much heat is the phrase is debatable in meaning, like "the dress".
Baye's theorem is certainly well known for a theorem, it is taught in many introductions to stats classes. But then again, what percentage of the population would have taken stats classes, not a huge amount? What percentage of the population is low enough to qualify for something to be called "obscure" anyway?
Perhaps you think the meaning is clear so let's change it around. Let's say the headline was Bayes' theorem is a "well-known math theorem". Do you honestly think no one would reply: "Well-known! I haven't heard of it before!!!"
The irony of all this is that journalists (including Tom) often get annoyed at readers who think that they write the headline of an article. Journalists know that it is usually the editor that writes the headline as they have direct experience of this. However, how common is this knowledge amongst the general population?
Saying this, I can also understand people's anxiety that the headline may be misleading. I do think it highlights a broader issue with the disconnect between headline writers and those who write the article.
*Some people were concerned that the phrasing of the headline made it sound like it was more difficult to understand which could put people off. Another way of looking at is that for many, maths seems difficult to understand and acknowledging this may make people feel more confident. I have no idea which way is the right way to look at this.
**This is the Japanese for "this is simple".
Wednesday, 7 April 2021
Everyone has been accused of being patronising at some point in their lives. Patronising, by the way, is when you...
Ok, so this is a terrible joke but it does point to a problem: when do you explain something to someone?
The curse of knowledge happens in conversations when you mistakingly believe that they know what you know. It is more likely to happen in situations when jargon is involved but it is not always so easy to spot when you are doing it.
The curse of knowledge, however, is always present. It is happening right now as I am this writing this. I am making an assumption about your knowledge. To do this, I have a likely reader in mind, someone who I think knows the definition of patronising and can read English, for example. The problem is out of the (many millions) of people who read my blog, it is likely that someone will not understand the definition of patronising. What is even more likely, is that I have a slightly different definition to you.
In any conversation, the chances of a misunderstanding in this way are a result of two things: me not explaining something and you not asking me to explain what I mean. The former can happen because I assume you know how I am defining something or I don't want to appear patronising. The latter happens because you are afraid to ask and don't want to look stupid.
Alternatively - and the one I believe is the cause of most misunderstandings - you have a different definition to me and we both assume our definitions are the same. This happens all the time with debates about "capitalism" or "socialism" and is particularly pernicious with misleading words.
So why do we get annoyed by someone explaining something to us that we already know? What we are accusing them of, is thinking it is highly likely we will know.
The person explaining, however, could in fact think it is quite likely that you do know, but they just want to make sure. This all implies though that there is some level of certainty of the other person's knowledge above which we won't bother explaining e.g. I won't explain X if I am 80% sure the other person knows. Of course, we don't actually think in probabilities and this tolerance level will change depending on the situation. I would want to be 99.99% sure the other person knows which colour wire to cut if I were talking someone through a bomb defusal, even if afterwards the person accuses me of being patronising (it's a cross I am willing to bear).
This level is quite important because the higher we set it, the more likely we are to make the mistake of explaining to someone something that they already know. The flip side is that it becomes less likely that we do not explain something and the person ends up not knowing. This is akin to false positives and false negatives from hypothesis testing in statistics. What level we set may be arbitrary but it has real trade-offs: decreasing the chances of false positives increase the chances of false negatives and vice versa. It is also a big part of how science works and something I think people should know more about.*
But what about situations where someone just wants to helpfully explain and make fewer false positives. If the person gets annoyed at you explaining it to them, is there annoyance really justified? If you are not being actively condescending by rubbing it in saying they "should really know the answer what", what's the harm?
Well I think there is some harm caused by this. Invariably you will make judgement calls about what to explain and when, you can't explain everything to everyone (it would take forever) and a lot of this reasoning is subconscious. Consider, for example, mansplaining. Men may think that they do not treat men and women differently when it comes to explaining things, but it is extremely difficult for a person to know for sure.
I don't think there is a simple solution to this. However, I do think rather than explaining the "correct" definition per se, it is probably better to offer personal definitions. For example, saying "my understanding" of something is very different from saying "this is what X means". At the same time, we should be politely asking people how they are defining something more often. Hopefully, this will let us avoid the curse of knowledge without being overly patronising.
*You may have heard of p=0.05 before which is often the arbitrary level set in hypothesis testing. There is nothing special about p=0.05, we can set it lower at p=0.01 and we would get fewer false-positive and more false negatives. If we set it higher, say at p =0.10, the opposite occurs. But it is not just a simple probability and has quite a specific meaning which is often misinterpreted. We explain hypothesis testing and why it often goes wrong in our new book.
Wednesday, 31 March 2021
Looking back, it was amazing to think people actually apologised for opening a random box that contained the £250,000 - as if they were somehow at fault. The contestants would often join hands if a crucial box was about to be opened, willing good fortune in messianic prayer.
Perhaps the weirdest thing was once a player had accepted an offer, they would continue to carry on playing the game to see what "would have" happened. Noel would frequently chastise a contestant if it turned out they had a higher value number in their box: he was giving people grief for not being able to predict the future.
My view is that Deal or No Deal should have never been broadcast or at the very least been put on after the watershed. Let's imagine for a moment that there was a TV show that doubted evolution called Ape or Not Ape. My bet is that there would be thousands of complaints by the "science-minded community" and drive it off the air within a matter of weeks.
You are probably thinking now that most people know that Deal or No Deal is rubbish and that I am overreacting.* However, just because you know something and find it easy, doesn't necessarily mean everyone else will. To quote another famous TV host: "it's only easy when you know the answer".
About 40% of the population do not get a C or above in Maths at GCSE and probably will only have a handful of lessons that are devoted to statistics. Yet just a few years ago, lots of kids would be getting taught Noel Edmond's version of probability, every day after school.
Often people think that the reason supernatural luck is unscientific is due to theoretical reasons. For example, what could possibly be causing the horseshoe to give you a higher chance of winning the lottery? You would have to believe in some supernatural effect that has powers to control the outcome of the numbers. As you cannot see the mechanism, it is unlikely to exist. But try and explain the theoretical reasons why a flame burns you without it sounding equally bizarre.
Saturday, 27 March 2021
If you ask most people what the £ is backed by, they will say "gold". There is a belief that somewhere, in the Bank of England, there is this huge vault of gold bars that you could exchange your hard-earned cash for. What gives money value, is not a question that most people really think about. That is until recently, with the advent of Bitcoin.
The £, like the majority of global currencies, is a fiat currency, which means it is not backed by a commodity like gold but is government-issued. You could interpret this as being "backed" by the government, as people will accept £s as payment because you can always pay your taxes in it. What this effectively means, however, is that fiat rests on one important aspect: trust.
Many Bitcoins proponents will say that because it is backed by blockchain technology (a type of transparent ledger) it is backed by something immutable. As a result, we can trust Bitcoin more than any government.
The problem is, for Bitcoin to actually work effectively, we still need to trust the government. Let's say you have some Bitcoin burning a hole in your virtual pocket and you decide to buy a Tesla. You send over your hard-mined, virtual cash and wait for delivery. But it never arrives. You send an angry e-mail to HR and no one gets back to you. You tweet at Elon Musk but he just tweets back: "lol n00b". At this point, you are understandably irritated and you decide to take Tesla to court.
But wait a minute, what is forcing Tesla to make good on its promise? "Well, you will quite rightly say, "it's the law, it was a legal transaction that the seller failed to oblige by". But who is enforcing that law, what gives the law, value? Just because it is the law, doesn't mean it will necessarily be enforced.*
So in order for this transaction to go smoothly with Bitcoin, you need to have trust. Trust in the fact that the government will enforce your contract (this is technically what a purchase is) and also protect your property. Although some libertarians will argue that you can get around this in all sorts of ways, I am unsure if many people will be comfortable going down this route, even if hiring goons to beat-up Elon is an attractive prospect.**
Put simply, if you can't trust a government to behave responsibly with its currency, then it's unlikely you are going to be able to trust the government - in many other ways - in order for us to use a currency of any kind. This is why making governments trustworthy is so important and why we have mechanisms such as democracy to instil that trust.
If we have that trust in fiat currency, it has the added bonus of central banks are able to have greater control over the booms and busts of the economy (I think this another aspect of monetary systems that most people are not really aware of). Also, Fiat currency doesn't have the issue of Bitcoin, which is that is inherently deflationary. As it gets harder and harder to mine Bitcoins it puts a limit on supply, as the value of Bitcoin increases people will want to hold on to them rather than use them to purchase stuff. What happens as a response is that sellers lower prices, which just makes Bitcoins more valuable and the spiral continues. This is one reason why a feature of a good currency is that it is stable over time.
Bitcoin also has the feature that it is untraceable.*** If you are living under nefarious government, then this would be something we would think is desirable. But is it really a good feature if the government is somewhat trustworthy? I can understand in some countries this would be beneficial, perhaps if you were raising money for a protest against a corrupt government, for example. However, all this lets us do under a trustworthy government is things we as a society have deemed we don't want, like buying a bag of weed, tax evasion or hiring a hitman.
If Bitcoin really became a serious candidate to replace fiat currency then you can see why governments would want to do something about it. However, even at the level it is operating at now, the amount of carbon it is producing (from all computational power needed to mine Bitcoin) is a serious cause for concern. This doesn't mean that certain types of research related to blockchain technology has to stop, but it would mean effectively having to ban cryptocurrencies (this is in fact what India have done).
So how would you ban Bitcoin? I am told from a legal expert friend that the high court in the UK has recently declared Bitcoin to be property, so in effect, you could ban owning it like we do with illegal substances. However, this has not yet been upheld by the Court of Appeal or UKSC.
Alternatively, you could make it illegal to mine bitcoins. This may be quite difficult to catch anyone doing it, but that's not the point. What it means is that if you buy something with bitcoin, and they don't fulfil your promise, you can't take them to court. The irony of all this is that if you were then to buy something with Bitcoin, you would have to trust the seller.
*The fancy Winnie the pooh terms here are De Jure and De Facto
**Although you may have to hire more goons, in order to beat up the goons that were meant to beat up Elon, if they didn't fulfil their contract).
***As it is an open ledger system potentially a government could force people to register their private wallets, which would sort out some of these issues.
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