I’ve wanted to write about the Federal Government’s Close the Gap campaign for quite a while. But I am going to use this opportunity to raise a much bigger issue that underpins the campaign, and other calls for equality, such as women’s salaries, gay rights, and racial equality to name a few. That issue is fairness.
When I hear of calls for equality, I always ask, why would you expect equality? I never hear calls for more white guys in basketball or more black guys in swimming. I never hear cries of outrage when women in sport never seem to make the speeds, heights, of distances of the men; or even fury over gay fellows being far more fashionable than the rest of us straight guys. It is just plain UNFAIR!
So why do we suddenly decide that equal outcomes are important when it comes to other things?
For a start, we can only observe outcomes, not opportunities. What most of use really want are equal opportunities. But how can we know? When we look at nationwide data we can’t know how many women chose to work less, chose not to continue their education, or chose to do more housework?
Let’s take a closer look at the Close the Gap campaign. For starters, why would we expect life expectancy of a single race, to be the same as the average life expectancy of all other race in our society combined? And what about mixed race people? Are they an average of the racial heritage in their bloodline?
I’m pretty sure the data is out there for a real comparison which would isolate race from a number of other factors that are likely to have a large impact on life expectancy, such as alcohol and tobacco consumption, hours of exercise per week, occupation, family history of illness, location and so on. Somehow my instinct tells me that it’s highly unlikely that after all these factors are considered, that race has any impact on life expectancy.
“Why, but of course not!”
That’s the response I would expect from Close the Gap advocates.
“Of course it’s not race exactly that is the cause of shorter life expectancies (because if it is, there’s not much anyone can do about it), it’s all those other factors that are more prevalent amongst Aboriginal people.”
So? They also prevail to varying degrees in people from all races. This campaign is ONLY about improving conditions for Aboriginal people. Closing the gap gets a lot more difficult if you are helping the other races as well. How is that fair? If we were really to be fair we would ignore race altogether. Not one single policy should require the identification of race. Our new campaign would be called Let's Live Longer, but I don't think it would appeal to our emotions so much.
But when it comes to government social programs, fairness appears all the rage. Those people who oppose markets in human organs probably epitomise misdirected notions of fairness. They imagine for example, that a world in which kidneys must be donated, and where 1,000 people (these are arbitrary figures) die each year awaiting a donor organ, is better that a world where kidneys are bought from willing donors and where only 100 people die waiting for a kidney - based on the notion of fairness. They cry that rich people will have an advantage over poor people for access to kidneys. True. But that's no different from the markets for food, clothing or housing. The point is that donors will be able to accept rewards, thus encouraging donations. And every extra kidney will go to someone, rich or poor. The fair scenario in this case treats people differently, while the unfair case treats them all the same. It's the kind of backward logic that bugs me all too often.
But before I move on from the racist livespan campaign and unfair view of life saving surgery, I will reiterate that we can still only observe outcomes, not opportunities. If more Aboriginal people choose to live in shanty towns in the desert, choose not to seek medical attention, choose to abuse alcohol and smoke like a chimney, than who are we to intervene?
My gut instinct tells me that the remote location of many Aboriginal people is a key factor, which itself captures level education, access to health services, diet, exercise, and probably drug abuse. But does that mean that we should supply all the modern services available in the big smoke at every little tin-pot shanty town in the desert? No way.
Anyway, that’s enough about very popular but completely racist campaign; on to the ever-popular issue of equal pay for women. Again, we have an opportunity vs outcome problem here. Did you know that tall people earn more on average as well? I want equal pay for short people!
I won’t continue. I feel frustrated by the absurdity.
Tuesday, August 18, 2009
Monday, August 17, 2009
Health costs revisited
In July 2008 I wrote how preventative health care, such as screening and early treatments, actually increase the total cost to society for medical treatments.
Now, there is some more evidence in my corner. The US Congressional Budget Office is now on my side, with plenty of research to support the claim that preventative medicine adds cost to the health care system, rather than reducing costs.
Who would have thought that my original ideas (I had not read any of the studies that this letter refers to) would reflect reality!
I stated it like this:
What has happened is that improvements in medical treatments have enabled us to live longer lives, and because of much of the preventative treatments, we die less suddenly then ever, increasing these 'death postponing' medical costs. Because we can diagnose more problems, we can visit doctors more readily, and we treat more medical conditions then ever. Thus, it is because of the very efficiency and effectiveness of medical technology that our demand for it has grown, both during our lives, and in our ‘prolonged death’.
And the CBO summarise one study like this:
The researchers found that those steps would substantially reduce the projected number of heart attacks and strokes that occurred but would also increase total spending on medical care because the ultimate savings would offset only about 10 percent of the costs of the preventive services, on average.
Remember, we all die. If you prevent someone from having a heart attack, although you may prolong their life, they will die from something else, and most likely, they will need further medical treatment for that ailment.
And now the economics blogosphere has picked it up here.
Now, there is some more evidence in my corner. The US Congressional Budget Office is now on my side, with plenty of research to support the claim that preventative medicine adds cost to the health care system, rather than reducing costs.
Who would have thought that my original ideas (I had not read any of the studies that this letter refers to) would reflect reality!
I stated it like this:
What has happened is that improvements in medical treatments have enabled us to live longer lives, and because of much of the preventative treatments, we die less suddenly then ever, increasing these 'death postponing' medical costs. Because we can diagnose more problems, we can visit doctors more readily, and we treat more medical conditions then ever. Thus, it is because of the very efficiency and effectiveness of medical technology that our demand for it has grown, both during our lives, and in our ‘prolonged death’.
And the CBO summarise one study like this:
The researchers found that those steps would substantially reduce the projected number of heart attacks and strokes that occurred but would also increase total spending on medical care because the ultimate savings would offset only about 10 percent of the costs of the preventive services, on average.
Remember, we all die. If you prevent someone from having a heart attack, although you may prolong their life, they will die from something else, and most likely, they will need further medical treatment for that ailment.
And now the economics blogosphere has picked it up here.
Sunday, August 9, 2009
Predictions
We all know that predicting is very difficult, especially about the future. Google tells my I should attribute that saying to the Danish physicist Neils Bohr, who won the Nobel Prize for physics in 1922, but I’m sure even he borrowed if from someone, because we are all in essence simply human prediction machines.
For the speculators out there, here are mine:
1.Oil will rise again. Maybe we’ll get to $200/barrel this time. Other raw materials will follow the boom.
2.We will have another crash in prices – shares, commodities, and possibly housing will come along for the ride this time.
3.People will point the finger in all directions except to the finite oil supply. Only the lone fighter on this blog will point out that we are in an adjustment period where we are going to have the change the way we do many things. But we will adapt, and we will look back at all the scaremongering and wonder why anyone thought it would be a difficult transition.
4.They say it’s all in the timing, but I am least confident about this point. The next crash will happen after Sept 2010, but before Dec 2012.
5.The crash is unlikely to be as sudden next time, although I wouldn’t rule out a surprisingly fast price free fall. I would expect some more restrained reactions by market actors after the 08/09 experience.
6.There is money to make in the next 12 months, but it might be wise to take profits when you can, phasing down exposure to financial stocks and commodities late next year.
7.For Capricorns, next year is a good time to focus on love, but also to gain control of your finances.
All but number 7 I reckon have merit. I just want to post this now so that if I am proven correct, I take credit for having amazing insight. If my predictions prove wrong, I’ll find reasons why and try and pass the blame. Although number 7 is a certainty!
For the speculators out there, here are mine:
1.Oil will rise again. Maybe we’ll get to $200/barrel this time. Other raw materials will follow the boom.
2.We will have another crash in prices – shares, commodities, and possibly housing will come along for the ride this time.
3.People will point the finger in all directions except to the finite oil supply. Only the lone fighter on this blog will point out that we are in an adjustment period where we are going to have the change the way we do many things. But we will adapt, and we will look back at all the scaremongering and wonder why anyone thought it would be a difficult transition.
4.They say it’s all in the timing, but I am least confident about this point. The next crash will happen after Sept 2010, but before Dec 2012.
5.The crash is unlikely to be as sudden next time, although I wouldn’t rule out a surprisingly fast price free fall. I would expect some more restrained reactions by market actors after the 08/09 experience.
6.There is money to make in the next 12 months, but it might be wise to take profits when you can, phasing down exposure to financial stocks and commodities late next year.
7.For Capricorns, next year is a good time to focus on love, but also to gain control of your finances.
All but number 7 I reckon have merit. I just want to post this now so that if I am proven correct, I take credit for having amazing insight. If my predictions prove wrong, I’ll find reasons why and try and pass the blame. Although number 7 is a certainty!
Tuesday, August 4, 2009
Aussie husbands fair – not world’s worst
Many things piss me off. One of them is when the media misinterprets technical material, be it scientific, legal, economic or anything else they can find that appears to have a populist twist.
I recommend for those who hate scientific research being totally abused by the media to pay attention to Ben Goldacre’s blog here.
For those who hate it when the media tells of a British economist who finds that Aussie blokes are the worst husbands, please read on.
Within a day of what I suspect was an innocent media release, I could google aussie bloke worst husband and get 107,000 hits. Most news sites, including all the major Aussie TV networks, and print newspaper sites, even local papers, had their articles flashing on their front page, but with 90% of the article text in common.
The same research was also used to claim that Amercians make the best husbands. I am now waiting for a Today Tonight special on the secret lives of Aussie husbands!
I will bet my house on the fact that not a single reporter read the original research paper, and if they did, had no clue what it meant. If you read it, you will see that it is a dense and technical document. That's apparently an excuse not to fact check in news reporting these days. A simple email to any university economics department in the country would have resulted in a good analysis of the findings, and some interesting broader social implications. I know a number of professors who love that kind of thing.
So, what did the now infamous paper actually find? Let me use Sanz’s own words:
Empirical results support the predictions of a house-hold formation model where less egalitarian social norms decrease the supply of men in the household market by increasing a man's cost of providing household labor. Both men and women living in more egalitarian countries have, everything else equal, a higher probability of forming a household. Furthermore, consistent with the theory, individual attitudes run opposite to social norms for the case of women. Whereas ceteris paribus a more egalitarian woman has a lower probability of forming a household, a woman living in a more egalitarian country has, everything else equal, a higher probability of forming a household.
To translate:
1. Societies with a culture of egalitarianism (equality) have higher rates of cohabitation or marriage, than less egalitarian societies.
2. The more egalitarian a women, the lower her chance of finding a mate
3. The more egalitarian a man, the higher his chance of coupling up.
What we don’t know is who is the best or worst husband. There is no difference between married and cohabitating males in the survey data, so that claim of relevance to marriage is bunkum.
But we do finally find details on housework, from a survey conducted in 1994 and 2002. Australian respondents (both men and women) stated that women always or usually do the laundry, cooking and shopping, 74%, 66%, and 60% of the time respectively. That seems reasonable to me for a society wide average, when you consider the average man’s ability to shop or cook! And it’s a lot better than Japan, where women apparently do laundry, cooking and shopping 94%, 94% and 80% of the time!
If we weight these chores equally into a housework index, we find Australia is actually 8th out of the 12 countries in the survey. The European countries only beat us because their men do more shopping! And surprisingly (because it makes at least one media report appear legitimate), US men do the most housework when measured this way!
The main results of the study should not surprise anyone. A man finds a woman more attractive when he believes she will contribute more to the household, while a woman finds a man more attractive when she thinks he will contribute more to the household. But is that news? At least the lucky author now has some attention on their work.
UPDATE
Another 24hours of media circulation brings the Google hits up to 1,310,000 for the phrase aussie husband worst. Still the only website that actually reports what the original research actually reveals is this one.
It was also a topic of discussion in '7pm', the new chat show on channel Ten, last night. Must be a slow news day!
I recommend for those who hate scientific research being totally abused by the media to pay attention to Ben Goldacre’s blog here.
For those who hate it when the media tells of a British economist who finds that Aussie blokes are the worst husbands, please read on.
Within a day of what I suspect was an innocent media release, I could google aussie bloke worst husband and get 107,000 hits. Most news sites, including all the major Aussie TV networks, and print newspaper sites, even local papers, had their articles flashing on their front page, but with 90% of the article text in common.
The same research was also used to claim that Amercians make the best husbands. I am now waiting for a Today Tonight special on the secret lives of Aussie husbands!
I will bet my house on the fact that not a single reporter read the original research paper, and if they did, had no clue what it meant. If you read it, you will see that it is a dense and technical document. That's apparently an excuse not to fact check in news reporting these days. A simple email to any university economics department in the country would have resulted in a good analysis of the findings, and some interesting broader social implications. I know a number of professors who love that kind of thing.
So, what did the now infamous paper actually find? Let me use Sanz’s own words:
Empirical results support the predictions of a house-hold formation model where less egalitarian social norms decrease the supply of men in the household market by increasing a man's cost of providing household labor. Both men and women living in more egalitarian countries have, everything else equal, a higher probability of forming a household. Furthermore, consistent with the theory, individual attitudes run opposite to social norms for the case of women. Whereas ceteris paribus a more egalitarian woman has a lower probability of forming a household, a woman living in a more egalitarian country has, everything else equal, a higher probability of forming a household.
To translate:
1. Societies with a culture of egalitarianism (equality) have higher rates of cohabitation or marriage, than less egalitarian societies.
2. The more egalitarian a women, the lower her chance of finding a mate
3. The more egalitarian a man, the higher his chance of coupling up.
What we don’t know is who is the best or worst husband. There is no difference between married and cohabitating males in the survey data, so that claim of relevance to marriage is bunkum.
But we do finally find details on housework, from a survey conducted in 1994 and 2002. Australian respondents (both men and women) stated that women always or usually do the laundry, cooking and shopping, 74%, 66%, and 60% of the time respectively. That seems reasonable to me for a society wide average, when you consider the average man’s ability to shop or cook! And it’s a lot better than Japan, where women apparently do laundry, cooking and shopping 94%, 94% and 80% of the time!
If we weight these chores equally into a housework index, we find Australia is actually 8th out of the 12 countries in the survey. The European countries only beat us because their men do more shopping! And surprisingly (because it makes at least one media report appear legitimate), US men do the most housework when measured this way!
The main results of the study should not surprise anyone. A man finds a woman more attractive when he believes she will contribute more to the household, while a woman finds a man more attractive when she thinks he will contribute more to the household. But is that news? At least the lucky author now has some attention on their work.
UPDATE
Another 24hours of media circulation brings the Google hits up to 1,310,000 for the phrase aussie husband worst. Still the only website that actually reports what the original research actually reveals is this one.
It was also a topic of discussion in '7pm', the new chat show on channel Ten, last night. Must be a slow news day!
Tuesday, July 28, 2009
Random and poorly linked observations
Can Generation Y, those twenty-somethings often labelled by baby-boomers as bludgers who had everything dished out to them, actually take credit for the ‘soft-landing’ of the current recession (can we call it that yet)?
I say this after a weekend catching up with friends. Some had been involuntarily retired from their previous jobs, but being tech savvy, were on the books for temp work within hours, and within days had started new jobs. That friction economists love to talk about when discussing unemployment seems non-existent. So my friends continued to earn and spend just as they had before. I wonder if those older generations (whatever you want to call them) would adjust so quickly.
And what of the healthcare system? Are we stuck with a baby-boomer health system in a Gen Y world?
Recent debates have been streaming in from both Australia and the US about reforming the ‘health care system’. It makes me wonder two things that are rarely discussed:
1. What exactly is the boundary of the system?
2. Wouldn’t a system designed to prevent death always seem to be poorly performing?
There have been great comments from the blogosphere about US health reform. In particular, the fact that much health care actually resides outside ‘the system’ – panadol, vitamins (if you believe they actually have health benefits), bandages, etc – you know, stuff a pharmacy sells. If we had concerns about the widespread, affordable supply of these goods, what we we do about the 'allied health system'.
I think what is clear is that while regulation of quality, labelling, etc. is important, regulation of the distribution of services may be overstepping the mark and lead to poor services.
If you want my opinion, there is nothing wrong with healthcare in this country as far as I can see. We have the option of private health cover, and are penalised for not taking it up if our incomes are particularly high. If we don’t have private cover we should expect a baseline of care and nothing more. Even then, the poor are still looked after. Many of you wouldn’t know this, but you can get a doctor to visit you at home, 24 hours a day, and bulk bill. We’ve used this service a couple of times. To me this is medical utopia!
So, since we’ve now solved the ‘health crisis’ by revealing that, in fact, there is no crisis, we can move on other things. Like child care.
Why is it that government feels the need to subsidise the costs of child care? I took my young son for the first time to child care yesterday and for $50 you can have him looked after and fed for 10 hours. But with the child care subsidies, it works out more like $20! So, when weighing up the alternatives of my wife staying home to look after our son, my mother looking after him, and child care, it gives a huge advantage to the latter. Should I be king for a day, this is one of many subsidies I would scrap that appears to be encouraging fragmented families, and the culture of children being raised by ‘the system’.
Finally, I would like to announce that today 29th July 2009 is the official 1st January 2000 of climate change. That date represents the date that we all realised that the millennium bug, Y2K, was actually just symbol of repressed fears being expressed en masse. I feel that climate change is simply an outlet for our caring side in the apparently uncaring world we live in. While I have spent the past few years examining the mechanisms for action to reduce GHG emissions, I am coming to the conclusion that there are many other immediate problems that should be the focus of attention.
A departing thought (from here):
NYTM: Have you ever seen “American Idol”?
Arlo Guthrie: No, I have never watched it. But I’m thankful we’re living in a world where we can actually afford to waste your time. What a great thing that is.
Until next time.
I say this after a weekend catching up with friends. Some had been involuntarily retired from their previous jobs, but being tech savvy, were on the books for temp work within hours, and within days had started new jobs. That friction economists love to talk about when discussing unemployment seems non-existent. So my friends continued to earn and spend just as they had before. I wonder if those older generations (whatever you want to call them) would adjust so quickly.
And what of the healthcare system? Are we stuck with a baby-boomer health system in a Gen Y world?
Recent debates have been streaming in from both Australia and the US about reforming the ‘health care system’. It makes me wonder two things that are rarely discussed:
1. What exactly is the boundary of the system?
2. Wouldn’t a system designed to prevent death always seem to be poorly performing?
There have been great comments from the blogosphere about US health reform. In particular, the fact that much health care actually resides outside ‘the system’ – panadol, vitamins (if you believe they actually have health benefits), bandages, etc – you know, stuff a pharmacy sells. If we had concerns about the widespread, affordable supply of these goods, what we we do about the 'allied health system'.
I think what is clear is that while regulation of quality, labelling, etc. is important, regulation of the distribution of services may be overstepping the mark and lead to poor services.
If you want my opinion, there is nothing wrong with healthcare in this country as far as I can see. We have the option of private health cover, and are penalised for not taking it up if our incomes are particularly high. If we don’t have private cover we should expect a baseline of care and nothing more. Even then, the poor are still looked after. Many of you wouldn’t know this, but you can get a doctor to visit you at home, 24 hours a day, and bulk bill. We’ve used this service a couple of times. To me this is medical utopia!
So, since we’ve now solved the ‘health crisis’ by revealing that, in fact, there is no crisis, we can move on other things. Like child care.
Why is it that government feels the need to subsidise the costs of child care? I took my young son for the first time to child care yesterday and for $50 you can have him looked after and fed for 10 hours. But with the child care subsidies, it works out more like $20! So, when weighing up the alternatives of my wife staying home to look after our son, my mother looking after him, and child care, it gives a huge advantage to the latter. Should I be king for a day, this is one of many subsidies I would scrap that appears to be encouraging fragmented families, and the culture of children being raised by ‘the system’.
Finally, I would like to announce that today 29th July 2009 is the official 1st January 2000 of climate change. That date represents the date that we all realised that the millennium bug, Y2K, was actually just symbol of repressed fears being expressed en masse. I feel that climate change is simply an outlet for our caring side in the apparently uncaring world we live in. While I have spent the past few years examining the mechanisms for action to reduce GHG emissions, I am coming to the conclusion that there are many other immediate problems that should be the focus of attention.
A departing thought (from here):
NYTM: Have you ever seen “American Idol”?
Arlo Guthrie: No, I have never watched it. But I’m thankful we’re living in a world where we can actually afford to waste your time. What a great thing that is.
Until next time.
Thursday, July 23, 2009
Complexity
It's been a long time between discussions on this blog- probably because I am yet to have any unique insights worthy of internet fame since my last post. Instead, I'll direct your attention to the website of Michael Crichton, deceased author, writer of Jurrasic Park and other such things. After spending hours reading his essays and speeches on the website, I feel he must have been a very insightful man, and worthy of mention on this blog. A must read is his speech on complexity.
Tuesday, June 2, 2009
Solar island challenge
The debate about the environmental benefits of solar power is not dead. This short story is intended to raise serious issues about how we can evaluate the environmental degradation attributable to any choice of technological alternatives.
There are two identical islands, untouched my humans. As part of a real life experiment a group of participants is sent to each island and given the following instructions:
You are to produce 1,000kWh of 240v AC power and send it along a copper wire provided at each island. This wire leads to a remote sensing facility where your electricity output will be measured.
You must generate this electricity with the minimum environmental disturbance.
Your island does not produce any other goods, so all resource use will be attributed to the electricity you generate.
The first group, the ‘Nasties’, agreed that using coal to fire turbines, which would in turn drive a shaft through some coiled copper wiring, would be the simplest and quickest way to go.
The other group, the ‘Greenies’, decided that love child of the green movement, solar electricity from photovoltaic panels, was the obvious way to go.
Neither group faced any knowledge barriers. Each group was full of technical experts who understood all the aspects of metallurgy, pottery, mining, engineering, even agriculture and plant breeding.
They both began their plans in earnest while their impact on the environment was observed via satellite from a remote location.
Both groups need to first establish a reliable water supply, build some shelter, search for edible plants that could be farmed, and manufacture some tools. By the end of the first week, both islands saw a striking transformation in a protected cove as the groups built shelter, cleared land, gather food, planted seeds, and diverted springs. Both groups were confident they would use the least resources on the electricity challenge.
Once water, food and shelter were reliably established, the next major step was to manufacture tools. The island was not short of rich metal ores, and each group began building clay furnaces to extract the metals, which would be used for both tools and later for their own choice of electricity generation.
A few months on, and both islands are occupied by a happy, productive workforce. Each individual member is spending every waking moment contributing to the electricity project. There is no such thing as recreation!
Kilns have been running for some time, and tools have been cast from the metals, such as axe, shovel and pick heads, which are now being used to by the ‘Nasties’ to mine coal. The Nasties feel close to the end of their project. Once they have extracted some more copper for wires, some steel for building pressure vessels and shafts, they will see victory!
The Greenies across the ocean are facing some tough decisions. While they can make fairly impure metals with their furnace, they must be further refined if they are to become part of a photovoltaic panel. Also, the group realises they need a low impact way of growing pure crystal silicon blocks that can be later sawed into wafer thin pieces if they are going to finish their project soon.
The Nasties have cast their pressure vessel, with intake and outlet holes. They have filled the vessel with water, and have joined the inlet and outtake with a long cooling tube. The strands of copper that were roughly beaten and rolled into wire have been built to a crude alternator on the shaft that leads out of the turbine, which itself is a rudimentary contraption on the side of the pressure vessel.
As the winter approaches, the pattern of habitation on the two islands is clearly diverging. The Nasties have a simple network of tracks between their protected domestic dwellings on the lee side of the island, and the coal and ore reserves to the east. A small area of land that was cleared during their first week was yielding native crops that were feeding the group. They have a built their makeshift powerstation just metres from the exposed copper wire that disappears through thick plastic tubing into the ocean. A steady stream of workers brings more coal and ore and they realise that quality of their metals needs to be improved, before the turbine will generate power.
But the Nasties are confident. They had generated some power. A boat had arrived that brought a multimeter so that they could refine their generator to produce the required electricity. After current was detected on the wire, and the device was sent to both islands to assist in the final refinement.
The Greenies thought the delivery of such a device was a little premature. They had been trying to use as little coal as possible, but soon realised that to generate the 2000 degrees Celsius necessary to extract silicon from sand, which is much higher than they need to extract the metals, they would need lots more coal, and a better insulated furnace.
The pattern of habitation on the Greenies island grew rapidly around their original settlement. They were in a period of growth, expanding their abilities to extract metal, and silicon, and expanding their mining to include sand. They worked hard both physically, and intellectually, with their greatest minds devoted to establishing more efficient methods of silicon extraction and growing.
It was exactly 10 months after their first footsteps on the island that the Nasties had met their electricity generating goal. Another boat arrived this time to collect them and observe the environmental conditions on the island. While there was obvious disturbance around the settlement, and cleared tracks leading to ore deposits, as well as smaller tracks that were used when foraging for wild food, most of the island remained untouched. The observers estimated the total consumption of timber, coal, and mineral ores by the Nasties.
We will stop the story there. The point here is that we would need such an experiment if we were ever to really know the environmental impact attributable to single consumption decision. My gut feeling is that the Nasties would have an easy time of outdoing the Greenies at their own game.
Of course, there are plenty of issues with the design of this type of experiment in the first place - what's the major one?
There are two identical islands, untouched my humans. As part of a real life experiment a group of participants is sent to each island and given the following instructions:
You are to produce 1,000kWh of 240v AC power and send it along a copper wire provided at each island. This wire leads to a remote sensing facility where your electricity output will be measured.
You must generate this electricity with the minimum environmental disturbance.
Your island does not produce any other goods, so all resource use will be attributed to the electricity you generate.
The first group, the ‘Nasties’, agreed that using coal to fire turbines, which would in turn drive a shaft through some coiled copper wiring, would be the simplest and quickest way to go.
The other group, the ‘Greenies’, decided that love child of the green movement, solar electricity from photovoltaic panels, was the obvious way to go.
Neither group faced any knowledge barriers. Each group was full of technical experts who understood all the aspects of metallurgy, pottery, mining, engineering, even agriculture and plant breeding.
They both began their plans in earnest while their impact on the environment was observed via satellite from a remote location.
Both groups need to first establish a reliable water supply, build some shelter, search for edible plants that could be farmed, and manufacture some tools. By the end of the first week, both islands saw a striking transformation in a protected cove as the groups built shelter, cleared land, gather food, planted seeds, and diverted springs. Both groups were confident they would use the least resources on the electricity challenge.
Once water, food and shelter were reliably established, the next major step was to manufacture tools. The island was not short of rich metal ores, and each group began building clay furnaces to extract the metals, which would be used for both tools and later for their own choice of electricity generation.
A few months on, and both islands are occupied by a happy, productive workforce. Each individual member is spending every waking moment contributing to the electricity project. There is no such thing as recreation!
Kilns have been running for some time, and tools have been cast from the metals, such as axe, shovel and pick heads, which are now being used to by the ‘Nasties’ to mine coal. The Nasties feel close to the end of their project. Once they have extracted some more copper for wires, some steel for building pressure vessels and shafts, they will see victory!
The Greenies across the ocean are facing some tough decisions. While they can make fairly impure metals with their furnace, they must be further refined if they are to become part of a photovoltaic panel. Also, the group realises they need a low impact way of growing pure crystal silicon blocks that can be later sawed into wafer thin pieces if they are going to finish their project soon.
The Nasties have cast their pressure vessel, with intake and outlet holes. They have filled the vessel with water, and have joined the inlet and outtake with a long cooling tube. The strands of copper that were roughly beaten and rolled into wire have been built to a crude alternator on the shaft that leads out of the turbine, which itself is a rudimentary contraption on the side of the pressure vessel.
As the winter approaches, the pattern of habitation on the two islands is clearly diverging. The Nasties have a simple network of tracks between their protected domestic dwellings on the lee side of the island, and the coal and ore reserves to the east. A small area of land that was cleared during their first week was yielding native crops that were feeding the group. They have a built their makeshift powerstation just metres from the exposed copper wire that disappears through thick plastic tubing into the ocean. A steady stream of workers brings more coal and ore and they realise that quality of their metals needs to be improved, before the turbine will generate power.
But the Nasties are confident. They had generated some power. A boat had arrived that brought a multimeter so that they could refine their generator to produce the required electricity. After current was detected on the wire, and the device was sent to both islands to assist in the final refinement.
The Greenies thought the delivery of such a device was a little premature. They had been trying to use as little coal as possible, but soon realised that to generate the 2000 degrees Celsius necessary to extract silicon from sand, which is much higher than they need to extract the metals, they would need lots more coal, and a better insulated furnace.
The pattern of habitation on the Greenies island grew rapidly around their original settlement. They were in a period of growth, expanding their abilities to extract metal, and silicon, and expanding their mining to include sand. They worked hard both physically, and intellectually, with their greatest minds devoted to establishing more efficient methods of silicon extraction and growing.
It was exactly 10 months after their first footsteps on the island that the Nasties had met their electricity generating goal. Another boat arrived this time to collect them and observe the environmental conditions on the island. While there was obvious disturbance around the settlement, and cleared tracks leading to ore deposits, as well as smaller tracks that were used when foraging for wild food, most of the island remained untouched. The observers estimated the total consumption of timber, coal, and mineral ores by the Nasties.
We will stop the story there. The point here is that we would need such an experiment if we were ever to really know the environmental impact attributable to single consumption decision. My gut feeling is that the Nasties would have an easy time of outdoing the Greenies at their own game.
Of course, there are plenty of issues with the design of this type of experiment in the first place - what's the major one?
Friday, May 15, 2009
The joys of politics
I recently wrote about the theoretical arguments surrounding fiscal stimulus by governments (here). Anna Bligh in her election campaign promised to 'create' 100,000 jobs in her next term. We know that these actions and promises are all rubbish, so why to we accept it? Why not vote for the guy who is reasonable? Or is it that reasonable people avoid politics and we have to vote for the best of the worst.
I want to bring your attention to comments by economics super-professor Greg Mankiw about the US stimulus bill. Apparently the US government has promised to monitor the effects of the bill and report periodically on the number of jobs created.
It is an absolute mystery as to what these guys will actually do. My cynical side might suggest they will simply pluck numbers from the air. Then possibly vote on what number would by not too high, not too low, but just right, as far as the public perception of their validity goes. They may even dabble in economic tricks.
These are the joys of politics.
I want to bring your attention to comments by economics super-professor Greg Mankiw about the US stimulus bill. Apparently the US government has promised to monitor the effects of the bill and report periodically on the number of jobs created.
It is an absolute mystery as to what these guys will actually do. My cynical side might suggest they will simply pluck numbers from the air. Then possibly vote on what number would by not too high, not too low, but just right, as far as the public perception of their validity goes. They may even dabble in economic tricks.
These are the joys of politics.
Tuesday, May 12, 2009
Political renovation rescue
Economists are often deluded into believing that their years of diligent research into how government intervention can maximise the wellbeing of the populous may one day result in tangible gains to wellbeing. I must apologise. I am about to shatter the one way mirror currently shielding economists from reality.
A workable economic theory, once in the hands of a politician of any significance, stature, or importance, from local councillors to world leaders, will be utilised as a weapon for vote winning amongst a well studied, segregated and predictable bunch of right-wing, left-wing, religious, environmentalist voters who are easily convinced that ‘full of shit’ equates to knowledgeable and caring.
Let me take a Channel 9 reality TV analogy further than it should ever be taken. Imagine your lovable host Damie Jurie is wearing a toolbelt, complete with hammer and tape measure, talking the talk about fixing trusses to A-frames using through-bolts and nail-plates. The public immediately thinks he actually knows how to use those tools on his belt, and when he does so, we would trust that he does it right.
But if the tool is actually cost-benefit analysis, and the Damie Jurie is actually your favourite rhyming Prime Minister, Treasurer, Mayor, Premier, or any such figure, when they apply the economic tool that they are so fond of, the public has no expertise with which to criticise its application. If we saw Jurie using a hammer to drive in a screw we would be alarmed, question his intelligence as well as his sexuality, and change the channel, if not before we have circulated a series of new Damie Jurie jokes by email. But our politicians can get away with nonsensical applications of technical economic tools because we are ignorant about how they are best used - and they know it.
As a public sector economist I have been shocked at the prominent disinterest in economic models that attempt to capture flow-on effects of policy. Politicians like to know the economic benefits of policies to their target group. But if you live across the road from a working family, especially if they are farmers, and worse if they are a vocal minority group, the cost burden you face will be completely ignored in the ‘cost-benefit’ or impact analysis of their proposed policy.
Imagine my surprise when Federal Government documents explaining how to develop a project plan for a water buyback scheme explicitly state the any flow-on effect should be ignored. It may well have said
‘We need to sell this policy to the ignorant public, please use the most confusing economic terminology to make us look like that ever popular Jurie fellow. Please don’t explain how we’re taxing the general public and putting money directly into the pockets of an arbitrarily selected group of vocal farmers. And while you’re at it, make it look like we care about climate change’
Now, that may be a little cynical. Or maybe it’s extremely cynical. But to intentionally ignore these effects makes the whole thing look like a sales pitch. This time it is to the farming communities in the Murray-darling Basin. Who knows who will get the handouts next time (try working mothers), but gee I wish I was a farmer.
How about an example of the distorted analysis expected in the public sector. A recent ABARE report attempted to quantify the loss from a 10% reduction in water available in the Murray-Darling basin. They used an input-output matrix as one tool (that does not consider flow-on effects to any particular degree). They found about a 6% reduction in total production from the MDB region as a whole. But when using a CGE model (which iterates flow-on effects until a new equilibrium is met) they found that national production decreased a mere 0.04%! Given there are no statistical tests on this outputs of this model one has to wonder whether that is actually distinguishable from zero, or whether it is just a rounding error!
This rant has left me no closer to changing the world for the better. I comfort myself knowing that our political system is the best of the worst. We live in an imperfect world, and this type of vote manipulation, pork barrelling and bribery is a small price to pay for the freedoms we take for granted. I also think about the automatic stabiliser inherent in government, knowing that my salary is an important component of containing the excessive fluctuations of markets, and then give myself a pat on the back for being a great stabiliser!
But at least I feel better for getting it all out of my system. I’m off to buy a farm. Can you help me build a shed Damie?
A workable economic theory, once in the hands of a politician of any significance, stature, or importance, from local councillors to world leaders, will be utilised as a weapon for vote winning amongst a well studied, segregated and predictable bunch of right-wing, left-wing, religious, environmentalist voters who are easily convinced that ‘full of shit’ equates to knowledgeable and caring.
Let me take a Channel 9 reality TV analogy further than it should ever be taken. Imagine your lovable host Damie Jurie is wearing a toolbelt, complete with hammer and tape measure, talking the talk about fixing trusses to A-frames using through-bolts and nail-plates. The public immediately thinks he actually knows how to use those tools on his belt, and when he does so, we would trust that he does it right.
But if the tool is actually cost-benefit analysis, and the Damie Jurie is actually your favourite rhyming Prime Minister, Treasurer, Mayor, Premier, or any such figure, when they apply the economic tool that they are so fond of, the public has no expertise with which to criticise its application. If we saw Jurie using a hammer to drive in a screw we would be alarmed, question his intelligence as well as his sexuality, and change the channel, if not before we have circulated a series of new Damie Jurie jokes by email. But our politicians can get away with nonsensical applications of technical economic tools because we are ignorant about how they are best used - and they know it.
As a public sector economist I have been shocked at the prominent disinterest in economic models that attempt to capture flow-on effects of policy. Politicians like to know the economic benefits of policies to their target group. But if you live across the road from a working family, especially if they are farmers, and worse if they are a vocal minority group, the cost burden you face will be completely ignored in the ‘cost-benefit’ or impact analysis of their proposed policy.
Imagine my surprise when Federal Government documents explaining how to develop a project plan for a water buyback scheme explicitly state the any flow-on effect should be ignored. It may well have said
‘We need to sell this policy to the ignorant public, please use the most confusing economic terminology to make us look like that ever popular Jurie fellow. Please don’t explain how we’re taxing the general public and putting money directly into the pockets of an arbitrarily selected group of vocal farmers. And while you’re at it, make it look like we care about climate change’
Now, that may be a little cynical. Or maybe it’s extremely cynical. But to intentionally ignore these effects makes the whole thing look like a sales pitch. This time it is to the farming communities in the Murray-darling Basin. Who knows who will get the handouts next time (try working mothers), but gee I wish I was a farmer.
How about an example of the distorted analysis expected in the public sector. A recent ABARE report attempted to quantify the loss from a 10% reduction in water available in the Murray-Darling basin. They used an input-output matrix as one tool (that does not consider flow-on effects to any particular degree). They found about a 6% reduction in total production from the MDB region as a whole. But when using a CGE model (which iterates flow-on effects until a new equilibrium is met) they found that national production decreased a mere 0.04%! Given there are no statistical tests on this outputs of this model one has to wonder whether that is actually distinguishable from zero, or whether it is just a rounding error!
This rant has left me no closer to changing the world for the better. I comfort myself knowing that our political system is the best of the worst. We live in an imperfect world, and this type of vote manipulation, pork barrelling and bribery is a small price to pay for the freedoms we take for granted. I also think about the automatic stabiliser inherent in government, knowing that my salary is an important component of containing the excessive fluctuations of markets, and then give myself a pat on the back for being a great stabiliser!
But at least I feel better for getting it all out of my system. I’m off to buy a farm. Can you help me build a shed Damie?
Saturday, May 9, 2009
Randomness, risk and uncertainty: How do we know what we don’t know?
Being a habitual sceptic (and an economist), the insights offered by Nassim Nicholas Taleb in The Black Swan have struck a chord. I have never found a receptive audience in academia for my dislike of the assumptions of the characteristics of randomness that determine the probability density function (amongst other assumptions) in most statistical analysis – especially in social phenomenon. But finally I have a wing man.
The general attitude I face is that if we don’t make these (sometime radical) assumptions, we can’t do any analysis of the data, and draw any conclusions. My response is; what use are conclusions based on flawed assumptions?
The book poses the challenge to think rationally about probabilities, and the impact of improbable events. In particular, Taleb challenges us to acknowledge the limits of knowledge. Real risks and randomness come from the unknown unknowns.
He uses an example of casino to explain the difference between known risks that occur in a world he calls mediocrastan, and the wild unknowns and events from the world of extremistan. The mediocristan risks are those involving the gambling itself. Each individual bet has a risk that is essentially Gaussian, so with a large number of bets taking place, and limits on the size of each bet, these risks are eliminated.
Taleb suggests that most of our concerns about risk, and the high impacts of improbable events, are from the world of extremistan, where complex systems result in variations at all scales. The point is that in extremistan, large variations and extreme events WILL HAPPEN, and much more often than we think. Such large complex systems include financial markets, the global economy, and the climate.
While attending a statistical conference at a Las Vegas casino, Taleb discovered that the four largest losses incurred by the casino did not involve the gambling itself (whether cheating or otherwise). The first was when a tiger performing in a stage act maimed one of the performers. The next was when a disgruntled contractor who became injured on job threatened to blow up the casino with dynamite because he was insulted by the settlement offered. The third was when an employee failed to mail paperwork to the Internal Revenue Service for a number of years, which ended in a monstrous fine. And finally, the casino owner’s daughter was kidnapped and held ransom, which forced the owner to dip into casino funds.
These events are Black Swans. Unpredictable, outside the scope of expectations, and have massive consequences.
He makes a number of interesting points that I want to share. These are particularly relevant in current environmental debates. For example, where I work we try to estimate the environmental impacts from changes to stream flow in rivers. The number of assumptions in unbelievable, and any output from this type of modelling has to be taken with a grain of salt. It is merely some background information that either confirms or challenges the experiences on the ground. When I write about the economic impacts of changing water regimes I repeatedly make the point of acknowledging the unknowns and the limitations of my analysis. Can you imagine the complexity of climate models, and the staggering number of assumption built into them? One wonders whether climate scientists understand statistics at all.
The first point of interest may be familiar for those who are statistically inclined. It is the statistical regress argument and it is a cause for concern. It goes as follows:
Say you need past data to discover whether the probability distribution is Gaussian, fractal, or something else. You will need to establish whether you have enough data to back up your claim. How do we know when we have enough data? From the distribution – a distribution tells you whether you have enough data to “build confidence” about what you are inferring. If it is a Gaussian bell curve, then a few points will suffice. And how do you know if the distribution is Gaussian? Well, from the data. So we need the data to tells us what the probability distribution is, and a probability distribution to tell us how much data we need. This causes a severe regress argument.
Given that our data samples for global temperatures are extremely limited, climate scientists face this problem at the outset.
Another interesting point is how the nature of Black Swan events, and the resulting silent evidence distort our interpretation of history. Any act that aims to prevent a Black Swan event goes unnoticed because its success can never be observed. Imagine there is a bureaucrat who decides to implement aviation rules in August 2001 that would have prevented the September 11 events in New York. We could never judge the success of these measures in preventing terrorist attacks, and the bureaucrat would never gained any credit for the measures. Possibly, due to the complexity, cost and frustration of travellers, he would have had to overturn the rules in 2002. He would be labelled as someone whose best skill is to waste time and money. Learning from history is very, very distorted due to silent evidence. I can imagine in the not too distant future that the history book will explain how we should have seen an event like September 11 coming, due to such things as ‘rising tensions between terrorist groups and the US’, but they would simply be wrong. The crashing planes were the sign of rising tension!
Another great insight is the problem of induction. He uses an analogy of a melting ice cube. If we know the shape of the ice-cube, we can fairly well predict the size of the puddle of water when it melts. But, if we have the puddle of water as our source of information, there is not much we can say about the shape of the ice-cube. In economics we constantly go about measuring puddles of water, and through flawed statistics, try and make outrageous claims about the shape of the ice-cube. The herd mentality of the global economics profession and media seem to have induced that overzealous lending in a few sub-prime locations in the US has led the whole world into a massive recession. My question is, the given how many other more significant events were happening around the globe during this time, how can anyone be so sure of that the ice-cube was shaped like a few bad loans, and not like a oil shock? Or why was the cause not simply a unique combination of unforeseeable events? This same question can be applied to climate change. If we agree that the climate is changing (which itself is questionable due to the previous two reasons), how can we isolate a single cause in a complex system?
I will stop now because I don’t really think I can do justice to the ideas of Taleb and his philosophical predecessors here. I just want to reiterate that we know a lot less than we think we know.
My main concern is that for someone who preaches a precautionary approach to making claims of knowledge, Taleb is a devoutly religious man who has used arguments such as ‘religion has not killed so many people as the concept of the nation state’. So, if religion is the root cause of, say, 10 million premature deaths, while fighting for or defending a nation state (which coincidently have often been religious states) has killed, say, 20million people prematurely, does this mean that religion is good for society? Taking this argument elsewhere and we get such things as ‘murder kills 100 people annually, but motor vehicle accidents kill 300 people’. For a guy who we are meant to believe has a solid grasp of logic, reason, argument, and science, this seems a rather appalling justification for his beliefs. But of course, nobody is perfect, and we need to judge each argument on its merits.
The general attitude I face is that if we don’t make these (sometime radical) assumptions, we can’t do any analysis of the data, and draw any conclusions. My response is; what use are conclusions based on flawed assumptions?
The book poses the challenge to think rationally about probabilities, and the impact of improbable events. In particular, Taleb challenges us to acknowledge the limits of knowledge. Real risks and randomness come from the unknown unknowns.
He uses an example of casino to explain the difference between known risks that occur in a world he calls mediocrastan, and the wild unknowns and events from the world of extremistan. The mediocristan risks are those involving the gambling itself. Each individual bet has a risk that is essentially Gaussian, so with a large number of bets taking place, and limits on the size of each bet, these risks are eliminated.
Taleb suggests that most of our concerns about risk, and the high impacts of improbable events, are from the world of extremistan, where complex systems result in variations at all scales. The point is that in extremistan, large variations and extreme events WILL HAPPEN, and much more often than we think. Such large complex systems include financial markets, the global economy, and the climate.
While attending a statistical conference at a Las Vegas casino, Taleb discovered that the four largest losses incurred by the casino did not involve the gambling itself (whether cheating or otherwise). The first was when a tiger performing in a stage act maimed one of the performers. The next was when a disgruntled contractor who became injured on job threatened to blow up the casino with dynamite because he was insulted by the settlement offered. The third was when an employee failed to mail paperwork to the Internal Revenue Service for a number of years, which ended in a monstrous fine. And finally, the casino owner’s daughter was kidnapped and held ransom, which forced the owner to dip into casino funds.
These events are Black Swans. Unpredictable, outside the scope of expectations, and have massive consequences.
He makes a number of interesting points that I want to share. These are particularly relevant in current environmental debates. For example, where I work we try to estimate the environmental impacts from changes to stream flow in rivers. The number of assumptions in unbelievable, and any output from this type of modelling has to be taken with a grain of salt. It is merely some background information that either confirms or challenges the experiences on the ground. When I write about the economic impacts of changing water regimes I repeatedly make the point of acknowledging the unknowns and the limitations of my analysis. Can you imagine the complexity of climate models, and the staggering number of assumption built into them? One wonders whether climate scientists understand statistics at all.
The first point of interest may be familiar for those who are statistically inclined. It is the statistical regress argument and it is a cause for concern. It goes as follows:
Say you need past data to discover whether the probability distribution is Gaussian, fractal, or something else. You will need to establish whether you have enough data to back up your claim. How do we know when we have enough data? From the distribution – a distribution tells you whether you have enough data to “build confidence” about what you are inferring. If it is a Gaussian bell curve, then a few points will suffice. And how do you know if the distribution is Gaussian? Well, from the data. So we need the data to tells us what the probability distribution is, and a probability distribution to tell us how much data we need. This causes a severe regress argument.
Given that our data samples for global temperatures are extremely limited, climate scientists face this problem at the outset.
Another interesting point is how the nature of Black Swan events, and the resulting silent evidence distort our interpretation of history. Any act that aims to prevent a Black Swan event goes unnoticed because its success can never be observed. Imagine there is a bureaucrat who decides to implement aviation rules in August 2001 that would have prevented the September 11 events in New York. We could never judge the success of these measures in preventing terrorist attacks, and the bureaucrat would never gained any credit for the measures. Possibly, due to the complexity, cost and frustration of travellers, he would have had to overturn the rules in 2002. He would be labelled as someone whose best skill is to waste time and money. Learning from history is very, very distorted due to silent evidence. I can imagine in the not too distant future that the history book will explain how we should have seen an event like September 11 coming, due to such things as ‘rising tensions between terrorist groups and the US’, but they would simply be wrong. The crashing planes were the sign of rising tension!
Another great insight is the problem of induction. He uses an analogy of a melting ice cube. If we know the shape of the ice-cube, we can fairly well predict the size of the puddle of water when it melts. But, if we have the puddle of water as our source of information, there is not much we can say about the shape of the ice-cube. In economics we constantly go about measuring puddles of water, and through flawed statistics, try and make outrageous claims about the shape of the ice-cube. The herd mentality of the global economics profession and media seem to have induced that overzealous lending in a few sub-prime locations in the US has led the whole world into a massive recession. My question is, the given how many other more significant events were happening around the globe during this time, how can anyone be so sure of that the ice-cube was shaped like a few bad loans, and not like a oil shock? Or why was the cause not simply a unique combination of unforeseeable events? This same question can be applied to climate change. If we agree that the climate is changing (which itself is questionable due to the previous two reasons), how can we isolate a single cause in a complex system?
I will stop now because I don’t really think I can do justice to the ideas of Taleb and his philosophical predecessors here. I just want to reiterate that we know a lot less than we think we know.
My main concern is that for someone who preaches a precautionary approach to making claims of knowledge, Taleb is a devoutly religious man who has used arguments such as ‘religion has not killed so many people as the concept of the nation state’. So, if religion is the root cause of, say, 10 million premature deaths, while fighting for or defending a nation state (which coincidently have often been religious states) has killed, say, 20million people prematurely, does this mean that religion is good for society? Taking this argument elsewhere and we get such things as ‘murder kills 100 people annually, but motor vehicle accidents kill 300 people’. For a guy who we are meant to believe has a solid grasp of logic, reason, argument, and science, this seems a rather appalling justification for his beliefs. But of course, nobody is perfect, and we need to judge each argument on its merits.
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