Friday, 31 July 2009

Essential reading

I will post up articles I find particularly enjoyable, well written or insightful at irregular intervals:

Blunt warning about greens under the bed

Thursday, 30 July 2009

The Western world's Great Leap Forward

Students of history will likely be knowledgeable about the Great Leap Forward. This was the great centrally directed plan of Mao Zedong's "government" [read despotic autocracy] to transform the structure of the Chinese economy from one that predominantly produced, consumed and was employed in agricultural industry on a small or individual enterprise basis into one in which consumption, employment and output was more oriented towards heavy industry and employing mass production techniques.

The plan was to simply direct everyone, collective organisations (the Communist equivalent of western companies) and individuals to produce steel predominantly, but also other industrial processes

So how did it pan out? For those of you who don't know, not too well. To say the least. Tens of millions starved to death, the population went into decline. There was homelessness and all round severe deprivation. Not for Mao or his cronies of course, but everyone else.

Fast forward 50 years and the liberal Western world, who always knew such government intervention in economies was stupid to say the least (aren't we clever), seem to have decided that a Great Leap Forward is required for ourselves. I should be more specific about this. It is the environmental lobby and their political partners in crime who have decided that is our required medicine.

Climate change and jobs top priority
House to vote on cap and trade bill

Are just two examples, but pretty much all of Europe and the wider Western world is in on the fun.

Make no mistake, this is our Great Leap Forward. Governments and lobby groups who are convinced that we need and can affect a change in the nature of our economies and improve our welfare. They will follow the same Chinese game plan with some modern liberal economic twists and:

  • Autocratically direct what may or may not be produced. For example, we must produce electricity from anything but coal, we must not use cars, we must use CFL light bulbs etc.
  • Direct us to consume certain things. Examples as above via direct means, but also indirectly by taxing us and spending the money for us on all manner of "green" initiatives through government budgets.
  • The additional twist is that we use markets to help determine prices and so governments will attempt to use that mechanism to further advance the policy via carbon taxes, emissions permit trading etc. The objective being to make "bad" things more expensive so that we consume, produce and draw employment into "good" things.

Of course the results will be the same. The larger the change governments try to affect the more ruinous the affects on our economic welfare will be. And we are not just talking about falling wages and salaries. We are looking at reduced total income across the economy available for the things we like to provide for ourselves centrally, like good education systems, good health systems and decent welfare systems among other things. We will be able to afford less of all this stuff because we will not be as well off.

So go ahead and support your local Green/Left lobby group or NGO. But read a little about the Great Leap Forward. Better still, talk to a Chinese person, ideally someone alive in the 1950s, if you are able. You might find out why China appear less willing to follow the Western lead on this and appear far more economically liberal than us. I suppose they've been there, done that and have the T-shirt.

Tuesday, 28 July 2009

How big a mess is the Irish tax system?

A big one.

A nice exposition of the income tax data over here:

It is also true, as mentioned, that public opinion seems to think that the Irish tax system isn't progressive enough. Mucho tax increases are already in place to address this "problem". It is the high middle income earners getting hammered.

Makes me think more about giving my foreign passport some excercise. I do tend to feel like someone eslse's ATM.

Monday, 27 July 2009

What is it with climate panic?

One of the things that continues to baffle me is the natural propensity, nay the apparent all consuming desire, of climate alarmists to embrace with a passion the worst prognoses for our world. Do they get some sort of extreme buzz from the type of personal panic they appear to impose on themselves?

My confusion is compounded when I read the measured and ridiculously reasonable writings of someone like Richard Lindzen. Here is an article from him that all should read:

Thursday, 23 July 2009

Why you should never buy at an auction

Well, almost never. At the very least you should go in with eyes wide open and a decent understanding of the economics behind what you are doing.

The bottom line is that most auctions are devices used to extract maximum price from buyers. I am talking about the types of auctions you get on eBay or at Sotheby's or most commonly house sales.

Conduct an bit of lateral thinking and try do think of the types of things you would do if you were trying to extract a high price for something you are selling.

Well, first of all, the object for sale in an auction must have a decent measure of uncertainty attached to its value, either because there are questions over supply, or maybe it has very heterogeneous qualities that make comparison with alternatives difficult (like a house). In such cases there will always be a wide range of valuations placed on the object by potential buyers, in addition to the estimate of the seller.

If you are the seller in such circumstances, the best way to sell such an object would be to convince everyone to tell you what they would be willing to pay and then strike a deal at the highest price. But try that and see how far you get. Buyers will generally be smart enough to be cagey and pitch a lower number.

So as a seller how do you get around this conundrum. Well, what you want to do is some of the following:

  • Gather as many potential buyers together in the same place
  • Do not provide any real indication of your valuation
  • Have them openly declare their valuations to you and all other potential buyers
  • Make it possible for people to revise their valuation (or there declaration that they make) up
  • Limit the amount of time people have to evaluate information about price competition
  • Retain the right to accept or reject any bid

That pretty much describes an auction. That would pretty much set you up to fleece as much money as you can out of those who would be interested in buying.

Combining these qualities in the sales process:

  • uses competition among the potential buyers to make the person with the highest valuation reveal themselves.
  • uses uncertainty and a lack of information to push up bidder's valuations (bidders can take high levels of bidding competition as "information" that they have underestimated the value of the item - i.e. promote a bidding frenzy)
  • allows new information to increase the price only (if bidder declare they are dropping out of the process, you can't revise you view of the level of interest from competing bidders).
  • prevents a more objective assessment of information (once the gavel falls, the item is sold and you can't renege after thinking about things outside the pressure of the auction).

It is for these reasons that the phrase "Winner's Curse" was coined. To win an auction under such circumstance means you have almost certainly paid too much. The seller has played you as a way of finding out who will pay most (and possibly made you pay more than you thought the object worth) and instantly locking you into a promise to pay that price.

And we haven't even touched on the potential for manipulation by throwing in false signals about bidders' valuations - the sometimes illegal practice of false bidders.

So don't be a mug. Boycott auctions.

Or, if you read this carefully, do it in the right way. Go to lots of auctions for stuff you really want. Ignore whatever is going on around you - there is no information of use in an auction. And one day you will find the very rare combination of:

  • A desperate seller
  • A shortage of bidders

Then you might turn the tables.

Thursday, 2 July 2009

What is science?

I was pondering this question after reading this blog by Roger Pielke Jnr and in particular the excerpt from the article he cites:

And so perhaps we have now discovered the rightful place of science: not on a pedestal, not impossibly insulated from politics and disputes about morality, but nestled within the bosom of the Democratic Party.

and this:

But ownership of a powerful symbol can give rise to demagoguery and self-delusion.



Can "science" be owned, or have a place? Well, maybe if it was a proper noun; Science. So what is it? What is science, or Science? OK, definitions aren't hard to come by and you can probably dig up something along the lines of "scientific method", "hypothesis, experiment, results, conclusions, repeat" etc. but it doesn't help in the context in which that the word is used above; what the word means in everyday usage. So what do I think it means in everyday usage?

I think it means "beliefs founded on evidence".

Evidence is exactly what the majority of people understand it to mean. It is results of experiment, data etc. It is not conjecture, hypothesis nor opinion. And I like this definition because it has the following corollaries:

  • Belief not founded on evidence is "faith" - hence faith is "belief not founded on evidence".
  • There can be no indisputable "Science" (because evidence can never be complete nor infallible). This corollary also puts the phrase "the Science is beyond question" straight in to garbage disposal where it belongs.
  • Science cannot be owned or have any place. Beliefs can be held by anyone, anywhere, anytime.
  • There can be scientific consensus (this is quite controversial in the politics of climate Science). However, this simply means many people hold the same evidence-based belief. It does not make it correct (see the second corollary) and does not preclude others from seeking more evidence.