Professional Liars

What group of people's whole job is lying - hiding their own activities, figuring out other's lies, keeping things concealed? There are a lot of plausible answers - you get a credit for `politicians' - but certainly one reasonable response is `intelligence staff'. Is it really credible to believe that people whose professional lives required them to dissemble and flex the truth will always be honest when dealing with their bosses or overseers? I doubt it, which is why I think that strong, independent oversight of the intelligence agencies is vital. It's too easy for them to play the national security trump card when faced with a difficult question. You need people who can cut through that kind of obfuscation and impose a reasonable level of accountability.

I therefore particularly welcome Barrack Obama's decision to nominate an intelligence outsider, Leon Panetta, to head the CIA. (NYT story here.) We tried that kind of idea once in the UK with Robin Cook: remember `ethical foreign policy'? He was a sad loss to British politics: I hope Mr. Panetta lasts longer.

What works

Sometimes, just sometimes, you read something so good that it makes every other piece of journalism you've read recently seem thin, dull, and without insight. Ross McKibbin's article in the current LRB is that good.

McKibbin cut through the rhetoric admirably. He points out the hollowness of Blair's promise to go with 'what works', indeed to the very antithesis of it:

The culture of the focus group does not, however, lead to an apolitical politics. On the contrary, it reinforces the political status quo and encourages a hard-nosed, ‘realistic’ view of the electorate that denies the voter any political loyalty, except to ‘what works’. ‘What works’, though, is anything but an objective criterion: these days it is what the right-wing press says ‘works’. The war on drugs doesn’t work; nor does building more prisons; nor, one suspects, will many of the anti-terror laws. But that doesn’t stop ministers from pursuing all of them vigorously. New Labour in practice is much more wedded to what-works politics than the Conservatives were under Thatcher, who was openly and self-consciously ideological.

Much of the present malaise in British politics flows from this. Among other things, what-works gives the wrong answers.

He also points out, amusingly, that we do in fact have three parties in parliament. They are just not the three parties whose names appear on the ballot paper. A more accurate arrangement based on ideology rather history would have:

A party of the moderate left, undoubtedly led by Vince Cable, which would include some Labour backbenchers (but no member of the present government), some Lib Dems (but probably not their leader), and perhaps Tories like Kenneth Clarke and Ed Vaizey. There would be a centreish party which would include Brown, some members of the cabinet, most Lib Dems, a large part of the Parliamentary Labour Party, probably William Hague, Theresa May, Alan Duncan and a few other Tories; Cameron and Osborne might be honorary or temporary members. The party of the right would include everyone else (including many members of the government).

There is much else of value in the full article and I would encourage you to read it. But even if you don't, at least rejoice that there is still journalism of this quality going on in this country.

Risk and climate change policy

Just before I went away Paul Krugman posted on the economics of catastrophe, and I have been meaning to follow up for a while. Krugman picks up on some research by Marty Weitzman looking at the distribution of outcomes of climate change. The basic idea is to look at the uncertainties and hence come up not just with a single prediction of the path of global average temperatures, but a path of distributions. There is a lot of model risk in this analysis - it is bad enough predicting financial distributions were we do at least have a lot of high frequency data - however the results are interesting. Krugman says:

Marty surveys the existing climate models, and suggests that they give about a 1% probability to truly catastrophic change, say a 20-degree centigrade rise in average temperature.

Twenty degrees would be game over. Even if it is only 0.01% chance, this is an outcome worth hedging. Clearly then it is not just the expected temperature change that we should be concerned with, it is the variance of that change, or more accurately the upside tail of the distribution. As Krugman says, mobilizing people to protect against low probability but catastrophic outcomes is crucial. Hedging far from the money is cheap, but you do actually have to buy those options.

Run rat run

Labour MPs are, of course, far more concerned for themselves than either the governance of the country or their party. Here's just some of the utter nonsense, the self-serving anti democratic idiocy they and their leaders have been up to recently.

• Spending £3bn on new nuclear warheads despite not providing British troops in a war zone with the right body armour and posturing about Iran's nuclear ambitions.
  
• Umming and ahing over vehicle excise duty despite it being clearly sensible to charge more for the most polluting vehicles. And while we are on carbon issues, why doesn't aircraft fuel attact any duty at all?
  
• Utterly failing to reform the tax system to make it fairer and to prevent the rampant abuses of both corporates and wealthy individuals.
  
• Continuing to pursue the disaster that is PFI despite overwhelming evidence that there is little risk transfer to the private sector and excessive cost. Follow the New Zealand example instead and renationalise.
  
• Creating massive uncertain long dated liabilities by allowing new nuclear power stations to be built. Oh, and letting the company concerned, with a guarantee on clean up costs of course, be sold to the French.
  
• Failing to stop the free markets are the best thing ever for everything brigade from further ruining our public services. Damn it I'm a derivatives specialist and I'm far less keen on the power of the markets than Alan Milburn is. Maybe that's because I actually know something about them. And as for Hazel 'sum of all fears' Blears - heaven defend us against her kind of 'reform'.
  
• Not dealing with the utter mess that is MP's expenses. Stop spending my money on Lembit Opik. Or a ridiculously grandiose and over budget Olympics.
  
• Enacted the biggest snooping law in British history.
  

Now, I admit it, I cheered for Tony in 1997. I drank a lot of wine and ate pasta and stayed up until Portillo was gone. But now, please, can I have a Labour party back that is actually socialist, or at least has some vague aspirations other than leaving the rich alone, lining their own pockets, and trying to find some tiny chink of public life that has not yet been infected by Thatcherite free market dogma.

Why I like $140 oil

A surprisingly not ill-informed and annoying article by George Monbiot (isn't it nice when someone who is usually foolish says something sensible?) considers the good things about $140 oil. One of them is that it is stopping a lot of unsustainable fishing:

No east Asian government was prepared to conserve the stocks of tuna; now one-third of the tuna boats in Japan, China, Taiwan and South Korea will stay in dock for the next few months because they can't afford to sail. The unsustainable quotas set on the US Pacific seaboard won't be met this year, because the price of oil is rising faster than the price of fish. The indefinite strike called by Spanish fishermen is the best news European fisheries have had for years. Beam trawlermen - who trash the seafloor and scoop up a massive bycatch of unwanted species - warn that their industry could collapse within a year. Hurray to that too.

Let me add to that. Hurray if the oil price ruins the road transport industry. We should be sending much more cargo by rail and river anyway. Hurray if it causes people to drive less and to buy smaller and less polluting cars. Not only should Gordon go ahead with higher vehicle duty on the most polluting cars, he should extend that idea to lorries, planes, and indeed every other source of pollution. The only way to realign the economy to the post carbon age is to get the incentives right. $140 oil helps, but $200 or $250 oil would be even better.

Update. The high oil price appears to be working in Washington. According to a Washington Metro press release:

Twenty of Metrorail’s top 25 highest weekday ridership days have occurred since April of this year.

Plunging rating

What should you do when confidence is being lost, when people are starting not to believe you? Gordon has this problem, and for him it is hard to see a way out. He looks inept after the would-he wouldn't-he election, the climbdown on 10p, and so on. And he hasn't closed down the obvious vulnerabilities: ID cards, 42 day detention, the war.

At times like this it is important to be clear what you stand for, what people can expect, and what they can't. Trying to be all things to everyone is a recipe for disaster. So is failing to understand why people are upset. Stand back, admit to what you think are mistakes and apologise for them, present a clear vision for the future, be clear on where you think the ethical lines are, and wait.

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.

Certainly fair vs. possibly damaged

Alistair Darling almost did a sensible thing, then he lost his nerve. The UK's current treatment of non-dom taxation is embarrassingly regressive and can hardly assist the fight against money laundering. More than that, though, it is simply unjust. People living and working in England should pay for the facilities and services they enjoy. For them to be essentially exempt from tax is certainly unfair. The other side of the argument is that if they were taxed, some of them might leave. But so far all we have is threats and the usual partisan lobbying from the likes of the CBI. Neither Alistair Darling no anyone else knows who would leave or what the impact of their departure would be (although Willem Buiter has a guess). Yet in the face of nothing more than some predictable finger wagging, Darling has given in. Where can I vote for a politician with some guts please? Or at least one who gets some stronger evidence than hearsay before making a decision.

What works replaced by what we believe

The following quote comes from a post on the Guardian website:

What I find most striking about this, as about other items in this government's moralistic agenda, is how opposing arguments simply are not heard. It isn't just closed mindedness, the government and its supporters are in the grip of a kind of exclusivist belief system akin to a fundamentalist religion. Arguments based on individual choice, or the notion of adults making rational decisions, simply "do not compute"; they are here to protect us, like spoilt children, from the bad world out there, and they have our interests at heart, and if you don't agree then clearly you favour exploitation and slavery and oppression.

The two things that strike me about this quote are firstly how accurate it is, and secondly how many things it might be referring to: Europe; Iraq; PFI; Pensions; Trident; Nuclear Power; 42 day detention; the DNA database; ID cards. Pretty much any part of politics that is in any way controversial in fact. Even if you agree with a particular policy, the monological belief system which nourished it is deeply troubling. No government which scorns alternative views and abuses legislative privilege with deeply partisan, ill-thought out and costly nonsense as Brown's does deserves to survive, let alone win re-election.

A grand to come in

From the Guardian:

Families who sponsor visits by overseas relatives to Britain will first have to pay a bond, expected to be £1,000, under new immigration proposals out this week.

This is a bad idea in so many ways. Firstly I bet the cost of deporting an illegal immigrant is a lot more than £1K: the Guardian says it is £11K. So the scheme won't pay for the downside. It will however cost a fortune to administer. And it will leave the impression that the cost of breaking your visa terms is £1,000, so people will be encouraged to do that if it is worth a grand to them to stay. My guess is that it will increase rather than decrease the number of overstays.

The economic value of a leader

Some tedious blogger who I won't glorify with a link challenged Paul Krugman to admit that Mrs. Thatcher was 'good for the UK economy'. That made me wonder how you would tell. At first it doesn't seem difficult: there are a number of indicators of which perhaps GDP is the most obvious, and Thatcher the Milk Snatcher did indeed have policies which seem to have resulted in faster GDP growth.

However thinking about it for a moment it is obvious how to produce higher GDP growth: don't spend on infrastructure and instead use the money to stimulate the economy. In the long term you reduce growth as the education system, transport and utility infrastructure can't support the needs of the economy and you have to raise taxes high to fix them. But in the short term you get an upswing.



My gut instinct is that that is what happened under Thatcher: her government chronically underspent on the NHS, universities, schools, railways and so on. This allowed her to cut taxes which stimulated the economy for a few years. But because the workforce is undereducated, you can't get around quickly and conveniently, and so on, eventually these constraints start to bite and growth is slower than it would have been if essential services had been maintained and improved. The present value of future earnings is lower without proper investment as any good private equity person knows. Of course measuring this long term decrease in potential GDP is enormously difficult to measure, but the phenomenon is certainly there. So perhaps even on economic grounds history will judge that Thatcher does not score that well.

The rules of trade

Stolen more or less wholesale from Naked Capitalism:

Dani Rodrik has [...] set forth the conditions that have to be in place for trade liberalization to enhance economic performance (short answer, a lot); in another [post], he reviewed the analyses that claimed that our current trading system produced large economic gains and found the logic to be badly flawed.

Rodrik in turn refers to Deconstructing the Argument for Free Trade, an excellent paper by Robert Driskill. In particular Driskill begins by asking what the metric is:

What does it mean for a change in economic circumstances to be "good for the nation as a whole"?

He then goes on to review various possible metrics, and discuss their advantages and disadvantages. Encouragingly, he ends not with a conclusion but a methodological recommendation:

Trade economists should [...] be forthright about the epistemological basis of their policy advocacy of free trade.

In other words, be clear about why you claim something is a good idea, not just that it is one.

Losing my religion

Two comment articles from recent days focus on faith schools. First on Thursday Zoe Williams argued against the state funding of faith schools:

We all [...] have the odd qualm here and there about Islamic schools, and whether they invest proper rigour in the propagation of gender equality, but Christians, we think ... now they're different. They provide a sound education, they don't discriminate on the basis of class, they're not exclusive, they've been doing this for years. They can have as much taxpayer money as they want.

It's balderdash. For a start, they are cherrypicking middle-class children (the Institute of Education at London University just produced this finding, after the most extensive research yet undertaken) and, much more important, in many cases they are prosecuting an agenda that is repugnant. Are we really happy to sit back and pay for this?

Her point is reasonable. If the state gives any organisation money, it is implicitly affirming its values and efficacy. Do faith schools really do what we want? In particular, is it good for children to be exposed to the diet of difference that is faith? Believers think they are somehow privileged, after all (ignoring for a moment a few Buddhists and perhaps the Quakers). In its currently fragmented state, do we really need yet another thing dividing people and encouraging prejudice being taught in schools?

Moreover, all faiths are not equal: atheists and agnostics are not allowed to play at the same table, as this story indicates:

A headteacher who tried to reduce the influence of religion inside the classroom by creating the country's first secular state school had his plans blocked by senior government officials who called it a 'political impossibility'.

Personally I would be perfectly happy to let my taxes go towards faith schools if there was good evidence they lead to better outcomes for children and society. But as they seem to be just another piece of Mr. Tony dogma unsupported by the facts, I tend to view them with some suspicion.

TechnoDemo

A few things have made me think about democracy recently.

• First the Olympic Delivery Authority are sticking to the idea that the new Olympic stadium should only be used for athletics - despite a bid from West Ham to use it as a football stadium and athletics use requiring a downsizing of the building from 88,000 to 25,000. This is my money you are spending, people. I am sure most Londoners would prefer a new full size football stadium and a billion quid to spending more money on an athletics venue. So why is the ODA allowed to flaut the wishes of the people who are paying for their project and their salaries?
  
• The West Lothian Question is in the news again. Most politicians seem to think differently from most voters on this one.
  
• Finally I came across a really good article in the LRB (behind a firewall I'm afraid) that points out that political arrangements evolve and that democracy in its current form might be dating fast.
  

The problem is that democracy has little to do with the exercise of political power by the people. The people vote for a party, then the winner does what they want regardless of the people's wishes. In extreme cases (Blair, for instance) the party leader even rides roughshod over the wishes of his own party. The only decision the people get is who to vote for once every five years or so.

Proportional representation makes the problem a little better in that coalitions are likely so governments have to be more moderate, mostly. But there is still the problem that it is politicians making most of the decisions, not the people. The model of having professional government might have made sense in the 18th century when figuring out what the people wanted was difficult and time-consuming but it is not clearly appropriate today. And professional politics encourages decisions that look good or send the right political message rather than reflect the people's wishes - like replacing Trident.

There are alternatives. We could use referendums much more. We could elect different parties for different things - a Lib Dem could be responsible for law and order, for instance; a Green, the environment; a Tory, Defence; and Labour, the economy. There would be coordination issues of course but it isn't obviously necessary to have the same party running every ministry. Or we could have a pre-emption mechanism so that any policy enough people disagreed with was put to a popular vote. If something is not done then respect for the political process will continue to decline. People are sick of their vote not counting. The good news is that it is fixable, especially given the potential to use technology for fast, easy voting. The bad news is that fixing it requires the turkeys to vote for Christmas.

What works? You wish...

'What matters is what works' Tony Blair once declared. I really believe that is true: sadly Tony doesn't, and I suspect never did. As Ann Clwyd is ejected from her position as Chairperson of the parlimentary labour party thanks to her support for Blair, it is worth highlighting five of the worse examples of Labour's doctrine pursuit of policies despite them obviously not working:

• Iraq. No more need be said than that one word.
• PFI. Wow, wouldn't it be really great to pay more for the same public services and lock the NHS, Transport for London and many other bodies into inflexible, long term contracts? Anyone who claims Gordon Brown is an economic genius should be forced to have 'PFI' branded on their forehead so they never forget the disasterous waste caused by this terrible idea.
• Faith Schools. We want a more tolerant society with higher standards of education. So let's set up schools which exclude some faiths, enhance the sense of being special of others, suck up education resources that could be spent on improving ordinary schools, and give their governance to those verging on monomania.
• Replacing Trident. We do not need to spend £25B on nuclear weapons now, honestly we don't. This is all about Labour appearing tough on defense: it has nothing to with what the country actually needs.
• The Internal Market in the NHS. No one who had actually spent any time trading the financial markets would ever suggest they are efficient allocators of resources so why on earth does the government think the market will magically solve the problems of the NHS?

None of these policies was obviously unworkable at the beginning: foolish or misguided perhaps, but not obviously unworkable. They all subsequently have been proved not to work. Yet still the government sticks with them, demonstrating the dominance of ideology over efficacy in their thinking.

The Veiled Rules of this Game called Society

The current furore over the niqab is an interesting test for the methodology suggested in the last post.

Let's start with the facts. There are a significant number of British muslims, some of whom live in communities in our major cities. Relations between these communities and their neighbours are not without issues, with some misunderstanding and hostility on both sides.

Jack Straw suggests that the wearing of the niqab (the full veil for women) is bad for community relations. It is difficult to see how this statement can raise much controversy. While one might argue about whether it is right for some people to be troubled by the niqab, it is certainly the case that they are.

Now for the opinion. Straw goes on to suggest that, for this reason, he asks women to remove their veils during meetings. Clearly here we have to balance a person's right to wear what they choose, their religious sensibilities and so on,--against the impact of such a separate form of dress on community relations. Whatever you think about the answer to that question, it is difficult to argue that there is nothing to debate here. Of course it might be bad for society to have that debate - that's a different question. But at least this way of thinking concentrates on the metric - how we measure the value of the different outcomes - rather than other, less pertinent parts of the debate.