Vishal Wilde 10/01/2015 Vishal Wilde 10/01/2015

Unemployment, home-ownership and accommodation vouchers outside London

In a much earlier post, Tim Worstall pointed to the findings of Blanchflower & Oswald (2013), which is particularly important when considering that increasing home-ownership is something that the government has been encouraging. They showed “that rises in home ownership lead to three problems: (i) lower levels of labour mobility, (ii) greater commuting times, and (iii) fewer new businesses.” Alarmingly, they found that “rises in the home-ownership rate in a U.S State are a precursor to eventual sharp rises in unemployment in that state… a doubling of the rate of home-ownership in a U.S. State is followed in the long-run by more than a doubling of the later unemployment rate”. They also postulated that since “the time lags are long”, this could explain why “these important patterns are so little-known.” This means that the “negative externalities” felt from housing policy in this time-period may be felt further down the line and that future generations may be in for a nasty unemployment shock. In the UK, we have lots of council housing but still, we supposedly don’t have enough low-cost housing. Milton Friedman famously suggested that, if we want to continue funding education in a way whilst ensuring that it is of a higher quality than what is currently provided by state schools, we should introduce education vouchers. Analogously, if we insist that society should house those who cannot house themselves, why don’t we introduce accommodation vouchers or housing vouchers which people can spend either on an extremely cheap mortgage (though, admittedly, the claim is that we’re short of low-cost housing) or on going towards rent for another place.

If current tenants of council housing are given the choice between vouchers and their current unit, we may see enough people move out for the council housing itself to be sold to real-estate developers which would, therefore, enable development of more accommodation over and above pre-existing units. This would help plug some of the government’s budget deficit, possibly increase the amount of low-cost housing and ensure dispersion rather than concentration of relative poverty (this last possibility would enable effective local, communal altruism).

Of course, such a policy may not be feasible in London where rents are already very high (due to the government’s ridiculous land-use policies) since accommodation vouchers may only serve to increase them further. However, in the rest of the country, rents are far more reasonable and haven’t grown as quickly as they have in London.

Ultimately, the provision of accommodation vouchers in regions outside of London and the sale of council houses could raise some much-needed revenue and lead to reduced house cost and increased labour mobility at the cost of higher rents.

Tim Worstall 10/01/2015 Tim Worstall 10/01/2015

The joys of food rationing, the perils of obesity

Yes, we've again got someone telling us how lovely it was that the government decided what we could all eat:

Yet by most measures, food rationing was a good thing. The startling truth about this 75th anniversary of national privation is, that, as Driver insists, “for three prime reasons – scientific knowledge, efficient administration, and a newly discovered national sense of equity – Britain as a whole was more healthily fed during the 1940s than ever before (or since, some might add).” He published these prophetic words in 1983, when our current national obesity plague was just puppy fat. There is universal agreement that Britain was better nourished after the imposition of rationing than before it; last year we discovered that obesity is responsible for more than 12,000 cases of cancer every year.

What joy that the prodnoses should salivate over us all being told what to ingest, eh? Except, except, no one ever quite manages to grasp the point made by Chris Snowdon:

I have picked 1948 as a reference point here because it falls in a period covered by a British Medical Journal study that I briefly mentioned in The Fat Lie. Published in 1953, the study looked at calorie intake and weight changes amongst the British population during the years of rationing. It shows not only how much people were eating, but how much they needed to eat.

Comparison of the relation between the food-consumption levels and the body weight changes recorded in this paper and the calorie value of total supplies of food moving into civilian consumption (Ministry of Food, 1949, 1951a) shows that during 1944, when the calorie value of the total food supply was just over 3,000 per head per day, adult men and women gained weight; that during 1945, when the calorie value was over 2,900, weight was roughly constant; that during 1946 and the early part of 1947, when the calorie level fell below 2,900 and dissatisfaction over the food supply was voiced publicly, adults lost weight. In 1948, when the calorie level had again risen above 2,900, the trend of 1946 and 1947 was reversed.

The authors concluded that the government of the day's advice that an average British adult should consume 2,800 calories a day was 'probably too low'. They suggested that 2,900 calories a day was closer to what was needed to maintain a healthy weight. This was based on empirical data that showed that people tended to lose weight if they consumed less than that.

By contrast, today the government advises the average Briton to consume 2,250 calories a day to maintain a healthy weight. A diet that would be considered as the bare minimum, or even below the minimum, in the 1940s would be enough to make most modern Britons gain weight.

On average we all consume very much fewer calories than we did when rationing was in place. Thus it's not an increase in calorie consumption that is causing the rise in obesity. It just simply isn't. Indeed, if we all returned to that wartime diet we'd all gain substantial amounts of weight.

The entire thrust of bien pensant opinion (and not for the first time) is thus simply wrong. We might well consume too many calories for our current lifestyles but we don't consume more than we used to.

Kate Andrews 09/01/2015 Kate Andrews 09/01/2015

Hinchingbrooke Hospital isn't an example of bad privatisation; just an example of bad business

The first private healthcare provider to take over an NHS hospital just over three years ago is pulling out of its contract today, claiming it is “‘no longer sustainable under current terms’ because of rising demand and falling funding.” You can picture the foam forming around the mouths of hungry public-sector supporters and Burnhamites; in this ultimate battle to keep UK healthcare not only free at the point of use, but in public sector control, they’ve been craving a golden piece of evidence against the private-sector.

But Circle's contract termination isn't quite that.

Circle’s involvement with Hinchingbrooke Hospital is far from a traditional private sector model. Hinchingbrooke did not become a private hospital, but rather a privately managed hospital, that was still under the jurisdiction of NHS bureaucracy and, more importantly, dependent on public funds for its operations. Furthermore, there was nothing particularly competitive about the market, and while Circle did have an incentive to make some profit if it made a surplus, not much of its own money was at risk.

Circle’s contract with the government dictated that the hospital would be supported with public funds, give or take up to £5m worth of payments from Circle if public funds weren’t sufficient to provide necessary support for Hinchingbrooke.

Within a few years of taking over Hinchingbrooke Hospital, Circle Holdings took a failing hospital that “consistently ranked near the bottom of the 46 trusts for waiting times” – and that would have been shut down if it hadn’t been sold – and turned it into “one of the highest (ranked hospitals) for patient happiness”. Circle also corrected waiting time failures, leading the hospital to “(top) the list for short waiting times, seeing 98.2 per cent of patients within the required window”.

From ASI Fellow, Tim Evans:

Circle massively improved this hospital and the government should now do two things – 1. Recognise what a good job they have done and re-negotiate the contract to keep them on board - barring another company taking it over. 2. The government should announce that is wants more - not less - private and employee ownership of hospitals, clinics and other care facilities.

It is definitely the case that Circle brought to the table a much better management system and improved healthcare significantly for the hospital's patients. But these triumphs for both the hospital and its patients didn’t necessarily reflect a sensible business strategy. In fact, choosing to muddy the waters between public and private care under NHS supervision was a risky decision indeed.

From the ASI’s Dr Eamonn Butler:

I was very surprised that any private firm took on an NHS hospital. I spoke to private providers throughout the 90s and they all rejected the idea. An existing hospital comes with current buildings, equipment, procedures, personnel and above all culture. In schools a new head teacher can turn around a school, though there will be a lot of redundancies and redeployments along the way. In the NHS that is even more unthinkable, given the strength of the employee unions, including the doctors' trade unions, and the ease with which any changes can be dramatised as 'cuts'.

“Hinchingbrooke’s funding has been cut 10.1pc this financial year”, and having already spent £4.84m of the required £5m of its own funds, Circle claims it can no longer run the hospital in a successful, effective way.

Interrogating the evidence: women in academia

Lots of women have experienced individual instances of discrimination in academic settings. Women are underrepresented, relative to their half of the population, in some academic fields. Most people naturally conclude that one reason women are underrepresented is either (a) direct discrimination or (b) women being dissuaded from entering due to perceptions of an unwelcoming 'culture of discrimination'. A new paper argues that neither is a plausible explanation in philosophy, one of the fields most heavily criticised for its relative dearth of women. Authors Neven Sesardic and Rafael de Clercq, in the paper "Women in Philosophy: Problems with the Discrimination Hypothesis" present a strong case that there may well be bias in favour of women in the academic philosophy hiring process, with institutions going out of their way to try and find qualified women for positions if they can.

They point to a raft of previous work:

[At the University of Western Ontario 1991-1999] On average: 5.4% of female applicants were appointed compared to 2.9% of male applicants; 21.7% of female applicants were interviewed compared to 15% of male applicants; and 24.9% of female applicants who were interviewed were hired whereas 19.2% of men who were interviewed were appointed. Again, the results in each of the years are remarkably consistent. Women had almost twice the chance of being hired as did men.[9]

Similar results were obtained in a recent comprehensive study commissioned by the U.S. Congress to assess gender differences in the careers of science, engineering, and mathematics faculty—the area with the highest underrepresentation of women.[10] Conducted under the auspices of the National Research Council, Gender Differences at Critical Transitions in the Careers of Science, Engineering, and Mathematics Faculty included two surveys of major research universities, focusing on almost five hundred departments and more than eighteen hundred faculty members.

The authors reported that among those interviewed for tenure-track or tenured positions, the percentage of women interviewed was higher than the percentage of women who applied for those positions, and that tenure-track women in all disciplines received a percentage of first offers that was greater than their overall percentage in the interview pool.[11] The situation was the same with tenured positions in all disciplines except biology.

They attack the anecdotal evidence of discrimination presented in popular debate around the issue, and suggest that rather than discrimination either at the university level or perceptions of discrimination, biology and culture are to blame. Women end up, for whatever reason, with skill sets and preferences that don't favour the hard sciences and philosophy.

They document that existing studies showing bias have been overturned:

After re-examining the analyses, Nature has concluded that "[a study finding gender bias in journal acceptance of article submissions] can no longer be said to offer compelling evidence of a role for gender bias in single-blind peer review. In addition, upon closer examination of the papers listed in PubMed on gender bias and peer review, we cannot findother strong studies that support this claim. Thus, we no longer stand by the statement in the fourth paragraph of the Editorial, that double-blind peer review reduces bias against authors with female first names."[32]

It looks at evidence on research grant applications in the UK:

The authors looked at 1,741 grant applications to the Wellcome Trust and 1,126 grant applications to the Medical Research Council (in the UK). They concluded that “this study has shown no evidence of discrimination against women.”[35]

And across the developed world:

More recently, Ulf Sandström and Martin Hällsten investigated 280 grant applications submitted to the Swedish Medical Research Council in 2004.[36] Their conclusion is that “female principal investigators receive a 10% bonus on scores.”[37] More generally, Ceci and Williams report that “the weight of the evidence overwhelmingly points to a gender-fair review process” in grant funding.[38] Their conclusion is based on a number of smaller studies from different countries (including the abovementioned study by Grant et al.) as well as on six large-scale studies, including one by Herbert W. Marsh et al. that “found no significant gender differences in peer reviews of grant applications.”[39]

There is a huge amount more by way of evidence for their conclusion that neither (a) nor (b) is substantially true. Men and women sometimes want different things, and that's OK.

Tim Worstall 09/01/2015 Tim Worstall 09/01/2015

These people are crazy you know

We do, of course, believe in free speech around here. However, that also includes the right to point out when one thinks that someone is wrong. Or misguided, or off dancing with the fairies or possibly just even crazy. And so it is with this group, Transforming Finance. They've just released their suggestions for how the financial and banking markets might be improved in the UK. Two of which seem worthy of note. The first being this:

DIVERSITY Ensure the new Competition and Markets Authority investigation into retail banking is tasked to specifically promote greater diversity in the finance sector including more mutuals, local banks, credit unions, peer to peer finance, community finance institutions and opening up the payment system.

We believe that this means more Crystal Methodists should be allowed to run banks. Amusing but possibly not quite what would constitute good public policy. However, this is simply crazed lunacy:

RESPONSIBILITY The UK should immediately sign up to the European Financial Transaction Tax, in order to help reduce some of the unnecessary speculative trading of financial assets. The dominant culture of short termism in financial markets is one of the root causes behind the misallocation of capital, whether it is overvaluation of fossil fuel stocks, periodic asset and property price bubbles or instability caused by high frequency trading. Given the City of London’s dominant position in European markets, participation of the UK in the FTT would make it a more effective global policy and give confidence to other markets such as the US to introduce similar measures. The FTT would also be in the interests of pension investors, as it would mean more attention paid by asset managers to long term prospects of their holdings and reduce costly, often hidden, fees for excessive trading.

The one and only peer reviewed academic paper by your humble author is on this very subject. The desirability or not of the FTT. And one of the points made in that paper is that the incidence of such a transactions tax (as it is with Stamp Duty on share purchases, a finding from the IFS) is upon pensions and pensioners. A transactions tax on investing reduces the returns to investing and thus to lower pensions for pensioners. So our mad gabblers are in fact proposing a tax which would reduce pensions as a way of increasing pensions.

They're mad, crazed or, to be fair about it, simply ignorant.

Ben Southwood 08/01/2015 Ben Southwood 08/01/2015

The genetics of political views

Why do we have the political views we have? It's always an interesting question. One angle which is less regularly explored is the influence of genetics on political views. Most people seem to have similar views to their parents, but there are usually convenient and intuitively plausible just-so stories as to why that is down to nurture, rather than nature.

I came across a paper from 2012 which lays out some of the results that psychologists and behavioural geneticists have come to in a clear and intuitive way. By Peter Hatemi and Rose McDermott and entitled "The Genetics of Politics: discovery, challenges and progress" it summarises findings in the literature most cleanly in its two diagrams.

We find that political knowledge is about 60% genetic, and 35% down to 'non-shared environment' (the environment people create for themselves rather than upbringing and schooling and so on), with only 5% identifiably down to upbringing. At the other end of the spectrum the specific party one identifies with is barely genetic at all, and comes overwhelmingly down to 'shared environmental influences' like schooling and parental nurture.

This is despite the fact that lots of traits you might think affected party affiliation (traditionalism, authoritarianism, foreign policy preferences and so on) are highly genetic.

Just how similar people with the same genes are politically is displayed below. Monozygotic, i.e. identical, twins are the pink bars and once they reach late adolescence, their political ideology correlates together with a coefficient of about 0.7 through their life! By contrast dizygotic, i.e. non-identical, twins are similarly close together politically while they live together with their parents and twin, but their correlation falls to about 0.4 as adults.

If it sometimes seems like no one ever changes their mind, and stays stuck to their guns, thinking up new arguments to defend their prejudices—well the science seems to agree with you.

Sam Bowman 08/01/2015 Sam Bowman 08/01/2015

Why we stand up to bullies

mohammed-cartoons-charlie-hebdo-muhammed-cartoons-2012-21.jpg

Bullies succeed by making their victims fear them. The bully may be stronger than the victim, but he does not constantly use force against them. It is the fear of violence or humiliation that makes victims act in the way the bully wants them to. Once it has been established that the bully can hurt the victim, the threat is enough. Maintaining that threat is relatively cheap for the bully and for a sadist this may seem like a good deal. This might also seem cheaper for the victim, because the costs of direct confrontation may be very high.

When we tell children to stand up to bullies we do not expect that they will turn out to be stronger or more popular than them, though this is what usually happens in fiction. We assume that standing up to a bully will cause the victim to be hurt or humiliated. But it does make it more expensive for the bully to maintain his power over the victim.

Standing up to the bully means that his actions may not have the long-term effects that make them profitable. And it is good to have a general social agreement that bullies are bad, and should be stood up to. It discourages people from trying the tactic in the first place.

Terrorism often operates in the same way. Very few terrorists could ever hope to win in a full-scale war against their victims, so instead they do shocking, frightening things. Yesterday’s attack on the Charlie Hebdo offices was a very significant example of this, because the terrorists’ apparent goals (‘avenging the Prophet’ for blasphemous cartoons) seem ridiculously trivial compared to the lengths they were willing to go to to achieve them.

It is now clear that Western journalists who blaspheme against Islam may be murdered where they work. And most Western journalists don’t really want to blaspheme against Islam anyway. It’s rude, and it’s rude against a group that does not have much power in the West.

What’s more, that kind of wilful rudeness may drive moderate Muslims away from Western liberalism towards Islamic extremism. On the other hand, I’m not sure a person whose respect for free speech ends at a blasphemous cartoon was much of a moderate to begin with.

But if a bully tells you not to do something, sometimes you should do it even if you didn’t really want to do it anyway. Defiance of the bully is very important to rob him of his power over you, and – just as important – to show to others that bullying is not effective.

Simply talking about how unafraid we are of terrorism is an empty, weak reaction. Cartoons that show the power of pencils are worthless. No Jihadi is disturbed by any of this. What disturbs them is to show in our actions that they do not have the bully's power over us. The cost of rudeness is real, but it is insignificant compared to the cost of letting bullying work.

Charlotte Bowyer 08/01/2015 Charlotte Bowyer 08/01/2015

Marijuana legalization in Colorado: One year on

It's been a year since Colorado became the first US state to permit the commercial sale of marijuana for non-medicinal purposes, and statistics which hint at the impact of legalization have just started to emerge. With these come two conflicting reports— one from the pro-legalization Drug Policy Alliance (DPA), and another from the anti-legalization Smart Approaches to Marijuana (SAM). The two together make for an interesting read. Unsurprisingly, there’s been an increase in the amount of cannabis consumed in Colorado, as well as in Washington, where it has also been legalized.

Both states already had a higher than the US average use of marijuana, but between 2011/12 to 2012/13 the percentage of over-18s who had used marijuana in the past year rose from 16.1% to 18.9% in Colorado, and from 15.3% to 17.6% in Washington, compared to a national increase from 11.6% to 12.2%. Past monthly use of marijuana by 18-25 year olds in 2012/13 was 29.1% in Colorado and 25.6% in Washington, compared with a 18.9% US average.

Of course, an increase in marijuana use isn't in and of itself a bad thing; what matters are the other costs and benefits to society and individuals that legal and increased use creates. Predictably, the two reports paint very different pictures of these.

The DPA point out that Marijuana possession rates in Colorado have fallen 84% since 2010, from over 9,000 arrests a year to under 1,500. However, SAM's report claims that citations for the public display of marijuana have rocketed - from 183 in 2013 to 668 in 2014 in Denver alone.

Both violent crime and property crime fell in Denver in 2014. Violent crime was down by 2.2% in the first 11 months of 2014, compared with a 1.1% decline the year before. Burglaries were down 9.5%, and overall property crime 8.9%. This, the DPA say, is evidence of legalization’s success. However, at the same time, SAM report that drug violations in Denver are up 12%, disorderly conduct up 51%, and public drunkenness up 53%.

SAM also report that the number of citations given for driving under the influence of marijuana in Colorado have risen markedly between 2013 and 2014. However, despite concerns that marijuana legalization would result in an increase in traffic fatalities, the DPA point out that Colorado saw a 3% fall in the number of fatal accidents in 2014, continuing a 12-year downward trend.

SAM’s report contains a handful negative incidents which can be directly attributed to legalization, including a rise in the number of children in ER from the accidental consumption of marijuana edibles, and an increase in people attempting to make hash oil and setting themselves on fire. However, perhaps the most interesting claim of the report is a quote from a Colorado policeman that legalization has ‘done nothing more than enhance the opportunity for the black market’.

A potential reason for continued underground dealing is that, with taxes, legally-purchased weed is up to twice the price of that on the street. However, the market demand for legal weed has far exceeded earlier estimates, including those of the Department of Revenue’s. Unsurprisingly, there’s also been a huge increase in the amount of marijuana which has been stopped from leaving Colorado for other states — a 400% rise between 2008 and 2013, SAM claim. This has resulted in neighbouring Nebraska and Oklahoma suing Colorado for the flow of marijuana across state lines. However, whilst this might present a nice new business for criminal gangs or college students, it seems unlikely that it would increase the black market's size or power compared to pre-legalization.

Of course, it’s also very difficult to know if other reported stats like falling violent crime can actually be linked to marijuana legislation, and even things like a rise in disorderly behaviour arrests could be down to other factors. But there are a few stats we can be certain about, and these come down to cold hard cash.

Retail marijuana sales raised $40.9m in tax for Colorado between January and October 2014, and that’s not including revenue from medical sales, licenses or fees. Of the revenue collected, $2.5m has been directly set aside to fund more health professionals in Colorado public schools, many of whom will focus on mental health support and drug use education programs.

Legalization has been great for entrepreneurship, too. 16,000 people have been licensed to work in Colorado's marijuana industry so far, and unemployment is at a 6-year low. A study of two marijuana dispensaries by the University of Denver’s economics department found that they generated $30m of economic output and 280 jobs between January and July 2014 – and whilst paying ten times the amount of tax of a typical restaurant or store.

Though we can measure things like tax intake, both the DPA and SAM’s reports highlight the need for much more high-quality data, which can help unravel the effects of legalization, and quantify their impact. This is something which will likely to emerge with time, but without reliable facts and evidence campaigners on both sides will cherry-pick stats to confirm their existing views — which is no good for the policymakers elsewhere who are watching this experiment closely. (It's certainly a shame that Theresa May is not one of them....)

Nevertheless, a year on and we can tell a couple of things. Legalization is obviously a learning curve. To avoid serious backlash, marijuana users should stop lighting up where they shouldn’t (at school, in public places, before driving, etc), whilst the green industry should probably do more to provide information on the strength and dosage of new products, and particularly edibles.

However, it’s also clear that legalization is a major boon to the public coffers, takes millions of dollars of business out of the hands of criminals and into legitimate businesses, and is a major win for liberty.

SAM may be concerned about the 100 kinds of marijuana gummy bears out there, but these THC-ripened snacks are also testament to the creativity and entrepreneurship that flourishes when the state gets out of the business of deciding what peaceful activities adults are allowed to partake in, for recreation and for profit.

Tim Worstall 08/01/2015 Tim Worstall 08/01/2015

It's always a bit risky to critique a Nobel Laureate but here goes....

There's no doubt that the work of Amartya Sen has enriched the human race. His studies of famine, as an example, have led to a general realisation that in the modern era they're not a result of insufficient food, they're a result of insufficient ability to purchase food that is extant (or to attract food from outside the area to the one of earth). The solution is therefore not to ship corn or wheat, but to ship money and simply give it to people. That this idea has so penetrated even the US government sufficiently that both the Bush and Obama Administrations have attempted to change the method of US famine relief in the face of the usual vested interests is evidence of quite how powerful the point is. However, this does not mean that Professor Sen is correct in all things. And this piece on universal health care shows us this:

The usual reason given for not attempting to provide universal healthcare in a country is poverty. The United States, which can certainly afford to provide healthcare at quite a high level for all Americans, is exceptional in terms of the popularity of the view that any kind of public establishment of universal healthcare must somehow involve unacceptable intrusions into private life. There is considerable political complexity in the resistance to UHC in the US, often led by medical business and fed by ideologues who want “the government to be out of our lives”, and also in the systematic cultivation of a deep suspicion of any kind of national health service, as is standard in Europe (“socialised medicine” is now a term of horror in the US).

The problem with this is that the US does have universal health care. What it does not have is universal health care insurance. And that's a vital distinction. We do not think that the US health care financing system is something that anyone should really be desiring to imitate. We most certainly don't suggest that the NHS, or any other of the European health care systems, should be rebuilt upon the American model. But it is the financing of the system, not the actual treatment, health care delivery, system that is the undesirable thing to copy.

Rock up to any emergency room in the US and you will be treated regardless of capacity to pay. Every county runs a health care system for the indigent and those otherwise unable to pay. Medicaid provides treatment to the poor. Everyone, but everyone, in the US has access to medical treatment. What they do not have access to is treatment without the possibility of having to pay for it out of pocket: and pay for it after the treatment has been given of course.

The importance of this distinction is that Sen is discussing how other countries, ones which don't in fact have universal health care, might move to having such. Great, excellent, a subject well worth discussing. It's also true that we wouldn't go around recommending the US system to those poor countries which currently don't have universal healthcare. But if we don't distinguish between healthcare and the method of financing access to it then we're going to get horribly confused as we try to design the appropriate systems.

Tim Worstall 07/01/2015 Tim Worstall 07/01/2015

Paul Mason wants to be an economist

This is ever so slightly strange. Paul Mason has decided that he'd like to be an economist, figure out how the economy works in detail.

If I could rub an empty lager can, and get a genie to appear and grant me one wish for 2015, it would be for something apparently banal but revolutionary: an accurate simulation of the economy.

It would be multilayered: it would model the microeconomics of my home area, allowing me to test the lurid worries of my neighbours about the opening of a second tattoo shop. It would model the real Britain – including the sex work, the cybercrime and the drug deals. And at a macro-level it would model the whole world – from the effects of a factory collapsing on its workers in Bangladesh to those of fast fashion on the consumption habits of teenage girls here.

The reason we need such models is that the ones provided by economics are pretty useless – particularly when modelling instability, complexity and change. Mainstream economic models rely on the 150-year-old assumption that capitalism’s tendency is towards equilibrium, and that everybody acts rationally; they struggle to accommodate sudden shocks. About 20 years ago economists decided to abandon data and go for an ever more abstract series of models that are logically consistent but not tested against facts, and unable to predict real crises.

There's really only one slight problem with that idea. Hayek showed that, in theory, such detailed planning of an economy simply isn't possible. Knowledge is local, the centre cannot possible gather enough of it in apposite time scales to be able to produce such models. We end up with the end result that we can only use the economy itself as the model of the economy.

It's entirely true that not everyone actually believes Hayek on this point. There's always those who think that just a little more computing power, just a little more scientific socialism, will enable us to overcome this wastefulness of capitalism and markets.

But as the socialists themselves found out, this just isn't true. Or, sa this great essay points out, In Soviet Union Optimisation Problem Solves You.

I said before that increasing the number of variables by a factor of 1000 increases the time needed by a factor of about 30 billion. To cancel this out would need a computer about 30 billion times faster, which would need about 35 doublings of computing speed, taking, if Moore's rule-of-thumb continues to hold, another half century. But my factor of 1000 for prices was quite arbitrary; if it's really more like a million, then we're talking about increasing the computation by a factor of 1021 (a more-than-astronomical, rather a chemical, increase), which is just under 70 doublings, or just over a century of Moore's Law.

Now that is talking about planning the economy. But the same is true of modeling it. For if we can model an economy then, as Mason desires, we would be able to plan it. And the reason that we can't plan it is because we can't model it. It is just one of these things that we cannot do.

Anyway, full marks to Mason for wanting to understand more about the economy, limited points for wanting to know more about the effects of policy but really, shouldn't he have known that his desires are impossible before he became an economics editor?

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