Wednesday, 5 March 2008

Happy Birthday Blog

On the second birthday of this blog, it is perhaps worth spending a moment on the name. Deus ex Macchiato* is so named for two reasons: the God in the machine is one, as I'm interested in how the rules of a particular situation determine the behaviour. Sometimes simple constraints can have unexpected consequences - a great example is how the Market Abuse Directive prevented the Bank of England from intervening early in the Northern Rock crisis. The 'Macchiato' comes from a system that works really well: coffee in Italy. It's cheap, it's good, and everyone expects it to work. No Italian would expect a local bar to serve anything other than a great coffee, and few would pay more than a euro for it.As I contemplate the brownish steamed milk that the average British coffee shop provides, it interests me how a small change in the rules can provide a big difference in outcomes. Whether you are a finance professional, an engineer, an IT specialist, a regulator or a politician, you might perhaps have reason to be interested in systems engineering seen that way. Your scheduled programme from the frontier resumes shortly.

*απὸ μηχανῆς θεός is a literal translation - a calque - from the Greek. Originally it referred to the actors playing Gods being lowered by a crane onto the stage. That might have spoilt the illusion, but it was the only way to achieve what was needed.

Update. There is an article by Jenni Russell today in the Guardian which gives another good example of how badly written rules and ill-chosen performance metrics can lead to undesirable outcomes.
Just imagine you are part of the government. Among your principal concerns are how to hold society together at a time of rapid change. You worry about social and community cohesion and the practical, psychological and economic isolation of the elderly, the disabled, rural-dwellers and the poor. You set up a Department of Communities and spend billions on initiatives to create thriving, sustainable communities that will offer a sense of community, identity and belonging. Sustainability is another key concern. You care about the planet and exhort people to make fewer car journeys and walk or cycle more.

You inherit, all around the country, a network of local offices which happen to provide many of the functions you seek. They give people access to cash, benefits and government services, as well as connecting them through the post. The majority are combined with a shop, which makes them a social hub and meeting point. The postmasters who run them are an informal source of support and advice on everything from benefit claims to what to do in the event of a death. In cities almost everyone lives within half a mile's walk of one, and frequently their presence is what sustains a small shopping parade. In rural areas they allow people to lead local lives, and are often the last service left in places that have been steadily stripped of buses, shops and schools. So what do you do? In the name of economic efficiency, you take government business out of their hands, and then start closing them down, in their thousands. [...]

The Post Office is not an independent actor. Its strategy is decided by the government which, as its sole shareholder, defines its purpose and the level of financial support. Labour has already shut 4,500 offices and made many more unprofitable by moving key business, such as the payment of pensions or TV licences, to banks or the net. Now it is demanding that the network must close 2,500 of the remaining 14,000 offices because they are making "unsustainable" losses of £200m a year. The government announces that it will carry on subsidising the network, at £3m a week, but only for the next three years. I asked the Post Office press officer what the company's mission was. "To go into profit by 2011," she said. What about community needs? "You'll have to ask the government about that."

What is so outrageous about this strategy is that the government is acting within completely artificial constraints. Separating the Post Office from Royal Mail 20 years ago, removing key functions five years ago, and defining the network as a business, are all political decisions, not a matter of economic fact.

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Blogger Sj said...

Happy birthday blog. Did you get any good presents?

8:41 pm  
Blogger David Murphy said...

A short in gold, long the iTraxx and short the components stock. Long yen, short dollar, and (because even though Bill Ackman is right, the market thinks he's wrong), a modest long MBIA and Ambac stock. And some shortbread. Just the usual really.

11:39 pm  

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