Logical Fallacies: 11. False precision

https://www.youtube.com/watch?v=Hj5VcIASCDQ  

The latest in Madsen Pirie's series on logical fallacies: 'False precision'.

You can pre-order the new edition of Dr. Madsen Pirie's How to Win Every Argument here

Keep Politicians out of the NHS

In the run-up to the election, politicians are trying to out-bribe us with our own money to pay for escalating NHS expectations. Democracy has a dark side. Doctors are telling politicians to: “stop messing with NHS to win votes.” (The Times, 17th February, p.15). Demand will always outstrip capacity for a free good such as health. The questions are simply two: how much money should be allocated to the NHS and how should those resources be best managed to maximise welfare?  The former question is essentially political but the latter should not be. The budget should be set annually and not agonised over every day.

As every government IT project demonstrates, government does not do management well. One can blame either politicians or civil servants but it is the combination that is fatal. Apparently the present Secretary of State for Health assembles his entire team every Monday morning to micro-manage NHS issues in Darlington, Taunton or wherever. Or rather to attempt to micro-manage. This may improve media coverage but it builds confusion and disheartenment throughout the NHS.

All the best-run large businesses know that those at the top should lead, not manage. The first level of management should be empowered to deal with the micro-stuff and thereafter the next level of management should deal with matters the lower level cannot sensibly address. Because the NHS is so very large, that lesson is the more important.

How can politicians be removed from NHS management? Simple. We have a relatively new, well experienced, NHS England Chief Executive. He seems excellent and a great improvement on his predecessor. NHS England and the other national NHSs should be converted into public corporations, like the BBC, i.e. a stand alone operations funded and responsible to government but managed, day to day, independently. Whether to close, say, a cottage hospital would be a matter for NHS England. Politicians will still, rightly, lobby but they should not be making the decision.

Our political leaders should lead, not second guess local NHS doctors and managers. In addition to setting the budget, politicians should agree the budget and the strategy, i.e. what, overall, we should expect for our money. Then they should get out of the operating theatre.

A neat solution to the vaccine problem

A bit of free riding is inevitable in a free society. But sometimes you get so much that it ruins things for everyone. To stop the spread of infectious diseases, you need a certain number of the 'herd' to be immune to protect unvaccinated people from the disease's spread. In some parts of the US, after years of (baseless) scaremongering about the MMR vaccine against measles, mumps and rubella, so many parents have now chosen not to vaccinate their children that this herd immunity no longer exists. Until recently they were able to free ride on vaccinated children and avoid the disease, but now measles is staging a comeback.

If it were only the children of these parents who were at risk, we might judge that risking their lives was a price worth paying for parental autonomy, depending on how lethal the disease was. But some children (and adults) cannot be vaccinated for medical reasons or because they are too young, so there is a clear external cost to others.

Because of that, depending on the lethalness of the disease, there is a case for government intervention, but it would still be nice to minimise coercion if possible. KCL academic Nick Cowen suggested one elegant way of doing that:

Modest proposal: pay parents of new borns about £2,000 ($3,000) on completion of all vaccines on a standard schedule, or on submission of a medical exemption certificate (just to be fair to children with genuine vulnerabilities to vaccines).

That should get everyone enrolled apart from the truly rich and stupid, and bring herd immunity (the public good we are looking for) up to scratch. If that doesn't do it, double it. It functions as a good excuse to channel more money to families with young children - think of it as an upfront capital grant. The distribution is so broad that it will have few dead weight losses.

I imagine this would probably work, and it avoids having to put anyone in jail or take anyone's children away from them.

If only the people who rule us actually knew anything

Hayek pointed out that it's impossible for the centre to have enough information to be able to plan the economy. In one sense therefore, to find that our rulers are ill informed is consoling: Hayek was in fact right. In another it's not so good, for they will insist on gabbling on about things they really don't understand. Today's example is Tim Yeo:

Yeo believes fossil fuel companies must prepare themselves for a different kind of low carbon world.

“There may well be national [carbon] performance standards. There may well be caps everywhere. We now have a nuclear non-proliferation treaty, we may have then a coa-fired power station non-proliferation treaty and you can monitor these things externally.

“Or we may have a carbon price at $50 and investors think ahead so they think the world will have to be a low carbon one in the 2030s and pension funds with 25 year time horizons must take this into account. So the oil companies and the gas companies have to recognise this.”

OK. And here is the head of Shell indicating that they know this.

There’s much to do if we are to build a lower-carbon, higher-energy future. For Shell’s part, we wholeheartedly support the World Bank’s recent call for a carbon price to be applied throughout the global economy. Carbon pricing is one vital step, but there’s a long road ahead. To build the energy future we need, government, business and civil society must work together. With the right approach, one characterized by pragmatism, it can be within our reach. And, as CEO, I am determined that through our production of natural gas and our efforts to advance CCS, for example, Shell will continue to play our part.

Further, Shell has made it very clear that they already apply a carbon price in their evaluations of future investments (the only place that it's of any importance, sa projects currently producing are of course sunk costs).

So that Yeo ill informed in the specifics. But he's also ill informed in theory as well. He's getting very het up about the idea of "stranded reserves". This is the idea that the reserves that the oil companies are thinking about pumping up in 30 years' time never will be pumped up because of those climate change worries. Therefore those oil companies must recognise that risk on their balance sheets today. Write down the future value of those reserves perhaps. Which is simply an idiot thing to say.

Because we've had that whole dang report from Lord Stern discussing exactly this point. In which he goes on for several chapters pointing out that we shouldn't use market interest rates to measure the costs of something far in the future. OK, so, great, we don't when we talk about the costs of climate change. For if we did then those future costs would be, in he money of today, so small that we'd never do anything about it all. OK, make up your own minds on what you want to think about that.

But look at what that means about the values of those future reserves. We are discounting them to their present value at market interest rates. Because, obviously, we're valuing Shell's shares not at the value of those reserves in 30 years time but at the net present value discounted by market interest rates. Thus the value of those future reserves as contained in today's Shell price is piffle. Near nothing, because as Stern pointed out, discounting at 30 years and more at market rates makes something worth near nothing.

Thank goodness we don't have a planned economy, eh, given then knowledge held by those who would be doing the planning.

Economic Nonsense: 8. The world is running out of scarce resources

Curiously, the opposite is true: so-called 'scarce' resources are actually becoming more plentiful.  Our technical ability to extract resources, including things like copper, zinc, chromium and manganese, is increasing faster than the rate at which we are using up existing 'reserves.'  We use the term 'reserves' to denote the supply which can be extracted economically with current technology.  For most of these resources our reserves are increasing. We can measure the relative availability of these resources by looking at their price.  For many of them it has been going down over several decades, indicating a relative excess of the supply of them over the demand for them.  Julian Simon won a famous public wager with Paul Erlich, predicting lower prices for an agreed basket of resources, and Erlich duly paid up when he lost.

If any resource does become genuinely scarce, the price rises, and this signals to people that they should use less of it, turning to substitutes where they have become more economic to develop.  It also tells people to produce more of the scarce resource, with the higher price making previously marginal sources now more economic to develop.  The price mechanism thus acts to counter their scarcity by reducing demand and augmenting supply.

Oil and gas were long thought to be exceptions to this trend, but even here technology has given us access to new supplies.  Hydraulic fracturing (fracking) has made available sources of oil and gas from places less volatile politically than those we previously depended upon.  Prices have tumbled, and cheap shale gas is enabling us to shut down coal-fired power stations and switch to much cleaner gas-powered ones.  Some estimates put the supply of shale gas as sufficient to supply projected needs for the next 200 years.  Long before then, however, photovoltaic technology will have allowed solar power to overtake gas in its cheapness.  Contrary to what doomsayers claim, we are running out of neither resources nor energy.

Hard-headed misunderstandings

Today I was on BBC World talking about obesity. My opposite number Tam Fry pointed out that the obese cost the rest of us while they are alive through their use of the NHS and other state services. I pointed out that they don't totalled up over the lifetime because the obese die earlier and take much less out in pensions and end-of-life care.

In saying this I was trying to make the point that this doesn't mean we shouldn't care about obesity, or that it's (heaven forbid!) a good thing because they cost the rest of us less. Are people so obsessed with the government's balance sheet that pointing out the obese cost the government less by dying earlier seems equivalent to saying I want them to die earlier?

My point was that most of the costs of obesity are to the individual, not to society. There is no harm principle argument here that we should intervene into their lives because they are hurting others. The case for intervening into the lives of the obese would be to make them better off, because say, obesity shortens their lives, makes them more likely to get diabetes, or makes them less happy.

Now I don't think there's never a case for paternalistic intervention (we can all think of crazy thought experiments) but I do think we should be very careful before we decide we can run someone's life for them. That's because usually the government gets things wrong when it tries to plan on other people's behalves.

Most people would not like to live in a society where people are not at least in some cases free to take the steps that lead to obesity—even if overall they'd prefer there were fewer obese people. Most people would find it rather chilling to have a society where the diets and exercise regimes of the obese were centrally managed and rigidly enforced.

By contrast, the Mexican 'squats for bus tickets' scheme, though very likely to be ineffectual, is probably not such a bad idea.

Economic Nonsense: 7. New technology destroys jobs

This is partly true, but in a misleading way.  New technology has often displaced people from their traditional occupations, but in doing so it has created the wealth that has enabled vastly more jobs to be created than were lost.  Agricultural technology meant far fewer jobs for farm workers, but it also meant cheaper, more abundant food that left people able to afford things sustained by newer jobs.  A similar effect occurred with early textile technology.  Spinners and weavers were displaced, but cheaper, mass-produced textiles enabled people to afford other things that led to other jobs. This is how economic progress is made.  People develop new products and new processes that people prefer over what they were doing before.  Jobs are lost and more are created as part of that churn.

Voices are often raised against the change, especially by those affected, with calls for restrictions to be imposed on new technology in the name of protecting jobs.  Sometimes it has led to violence.  The Luddites smashed machinery, while the Saboteurs were named from throwing their wooden shoes (sabots) into the machines to wreck them.  This was done in a vain attempt to halt the march of progress.

New technology can bring hardship upon those affected by it, and some of those displaced can find it hard to secure alternative employment.  Governments, rather than attempting to stop new technology, sometimes try to ameliorate some of its effects by funding schemes that help retrain and if necessary relocate those most affected by it.

Sometimes people will ask where the new jobs will come from if technology displaces traditional ones.  The question cannot be answered because the future is inherently unpredictable.  New technology makes things cheaper, and that leaves people richer, with more money to spend on other things.  We don't know what those other things will be, but we do know that they will involve new types of jobs.  New technology, in making manufactured good cheaper, has left people with more to spend on services industries, and there are more jobs in total than there were.  This is how new technology works.  It destroys some jobs and creates more.

Logical Fallacies: 10. It's worth it if it saves lives

https://www.youtube.com/watch?v=tBuYHSLpbyw  

Madsen Pirie's series of logical fallacies continues with a look at the idea that 'it's worth it if it saves lives'.

You can pre-order the new edition of Dr. Madsen Pirie's How to Win Every Argument here

Economic Nonsense: 6. The rich are growing richer, the poor poorer and the gap is widening

Sometimes this is asserted on a world scale, and sometimes claimed to be true within individual countries.  Not only is this nonsense; it is also false.  The rich have indeed grown richer, and the poor have also grown richer.  It matters more to poor people.  Extra wealth to the rich might mean more luxuries; to the poor it can mean the difference between starvation and survival. The last few decades have witnessed the greatest advance in living standards for the world's poor than ever before in human history.  More than a billion people have been lifted above subsistence.  The poor have not become poorer, they have become richer to a spectacular degree.  India and Chine have made astonishing advances, but it has not been confined to them; other countries have seen their poor become wealthier, and it is still happening.

Within rich countries the poor have become richer.  The yardstick that matters is the one that tells us how much they can buy.  In terms of the hours of work needed to buy goods, they are much better off than they were decades ago.  In some cases what used to take weeks of work to buy now takes less than a day.

Those who make this false claim are concerned with equality rather than wealth.  If the poor gain wealth, but the rich gain more, then under their perverse way of regarding things, they regard the poor as having become poorer.  If achieving twice the spending power is called "becoming poorer," then words have lost their meaning.

On a world scale decades ago there were a handful of rich countries with the rest dirt poor.  Since then many poorer countries have climbed the ladder to wealth, and others are doing so.  Globalization and the spread of market economics have brought an explosion of wealth that has been widespread and beneficial, and promises to continue being so.

Peer effects: they exist but they're not very big

One reason parents try and get their kids into 'good' schools is that they have better teachers, facilities and so on. Another is that the other students are also high achievers and this is believed to feed into their own children's achievement—via less disruptiveness, an environment more conducive to scholarly activity, and so on. A paper newly published in the Oxford Bulletin of Economics and Statistics tests the size of these effects on achievement by looking at the random component of sorting that occurs when most British children transition from primary to secondary school at age 11.

"Peer Effects: Evidence from Secondary School Transition in England" (up-to-date gated version, full working paper pdf), by Stephen Gibbons and Shqiponja Telhaj, finds that although having brighter peers raises someone's grades a bit, the effect size is very small.

Our general finding is that school-level peer effects exist, but they are small in magnitude: a one standard deviation increase in the mean ks2 primary school scores of secondary schoolmates is associated with a 0.03 standard deviation increase in student achievement in secondary school ks3 achievement.

These peer effects originate in characteristics of secondary school peers that were already evident in their achievements at age 7, and family background issues such as low income and English being second language, rather than academic progression during the later years of primary schooling preceding secondary school entry.

This finding suggests a rather limited role for peer effects in amplifying the effects of educational interventions (e.g. social multiplier effects as in Glaeser Sacerdote and Scheinkman 2003), unless these interventions occur very early on in life. Our results show only limited heterogeneity across student demographic types.

But the paper does go on to say that because school has very little impact on student outcomes, we should probably see this as a relatively large effect in that context. And that peer groups might matter for lots of other things besides achievement ("physical safety, emotional security, familiarity, life-time friendship networks, or simply exclusivity") so parents aren't necessarily crazy to aim for 'better' peers for their kids.