The problem with Libertarians!

I ended up in a debate with someone who was clearly a Libertarian (debate is a rather positive interpretation; it was more like a monologue as I didn’t really get a chance to say much). The basic point that was being made was that government interference (regulation) gives advantages to (for example) the big banks and distorts the market. In some sense there is some merit in this and I certainly feel that governments have been unduly influenced by the banking sector so that the system now benefits the banks (and their investors) rather than society, I’m just not convinced that the solution is to reduce government involvement.

The Libertarian view seems to be that if we reduce regulation we will have a level playing field and the markets can reach some kind of equilibrium. In some sense they are probably completely correct; with no external influences the markets would reach some kind of equilibrium, it’s just not clear that the equilibrium would be one that would benefit society as a whole. There is nothing to say that the system couldn’t evolve into one in which a small minority have all the wealth and all (or most) of the income. There’s no guarantee that healthcare will be available to all (look at healthcare in the US). There’s no reason to think the system would evolve to one in which all children could attend a suitable school.

The role of government, in my view at least, is to provide some kind of feedback that attempts to shift the equilibrium back to one that is of maximal benefit to society, rather than to one that benefits a minority. It’s my view that governments do need to regulate the markets but should do so in a way that is optimal. Too much regulation is clearly bad, but too little can lead to a system that benefits the few rather than the many. In some sense it seems like it should be constantly evolving. Regulations should be adapted to optimise the markets. If it seems like regulations are hampering growth, reduce the regulation. If it seems like a minority are benefiting at the expense of the rest of society, increase or change the regulations. I just don’t see how you can have no regulations.

A similar argument is made by climate change deniers. They argue that the Earth will settle into some kind of equilibrium. Clearly correct but, again, there is no guarantee that the equilibrium will be one in which we can survive. Venus is in equilibrium, but the surface temperature is about 500 K. It seems like these people say something that has an element of truth and then use that to justify their worldview. I don’t know if it is because they really believe it or because they just can’t see the big picture. Probably a combination of the two.

We are the 99%

Today the protests that started in Wall Street, New York, have spread to many other cities in the world. The basic idea seems to be to protest in the financial sectors of these various ctities against the banking sector’s excessive salaries (at least for investment bankers) and against their excessive risk taking. Essentially, it is felt that this excessive risk taking is a prime cause of the current financial problems and yet those who are paying the highest price are the lowest earners (who are losing their jobs) while those in the banking sector are carrying on as if nothing has changed.

We were chatting about this at work a few days ago and I mentioned that I really liked that the slogan was “we are the 99%”. I said that this really encapsulates the problem that the top 1% of earners are taking a disproportionate amount of the income. In the US the top 1% take 24% of all the income while in the UK the top 10% (I couldn’t find a number for the top 1%) take 31% of all the income (up from 28% 10 years). What got a an argument going was that one of my older colleagues said that he didn’t see what difference it makes how much the top 1% (or 10%) earn as it all goes back into the economy. My immediate response was that this was essentially bollocks (although I didn’t actually use the word bollocks). The top earners are essentially extracting a large fraction of all the income every year, leaving less for the rest of us to share. Even if it goes back into the economy, it essentially goes back to them and, in fact, for the last few decades the top earners have been extracting an ever increasing fraction of the total income.

My suspicion is that this person was confusing income with wealth. It is possible that a viable economy could exist in which most of the wealth was held by a few people. If this wealth is reinvested in the economy then it would be acting to drive economic growth and would ultimately be paying our salaries. Since these few people essentially owned everything, all the money we spent would go back to them to be reinvested in the economy and the cycle would continue. I’m not suggesting that this would be a good thing, simply that in this scenario the wealth of the few would be driving the economy and my colleague’s argument would have some validity.

Income is, however, different from wealth. The more income the top earners take, the less there is for the rest of us. The question we need to ask is what is the optimal income distribution. If everyone earned the same, there would be no incentive to take risks or to work particularly hard. Similarly, if a few people took all the income how would the rest of us survive and how could an economy flourish if no one has any money to spend. My personal view is that in the US and the UK the income distribution has become so skewed (benefiting the few) as to be detrimental to the health of our economies.

It has certainly been argued that one of the reasons for the current financial crisis is that the skewing of the income distribution lead to a problem with consumer spending (most people didn’t have enough disposable income). To solve this, banks started lending money to people. The problem was that this didn’t increase these people’s incomes, it simply allowed them to spend money that wasn’t really theirs. The highest earners initially benefited in two ways. Firstly, people had money to buy products made by companies in which they had invested money. Secondly, these people had to pay interest on their loans, which again provided profit for companies which were primarily owned by the wealthiest. The problems started when people could no longer pay back their loans and many financial products (in which various debts had been bundled together and sold to other financial institutions) became worthless.

I certainly feel that there are both moral (we don’t really want children dying of poverty in the wealthiest countries in the world) and economic (a consumer economy needs people with disposable income) arguments as to why we need to have a more equal income distribution and I sincerely hope that these protest have some impact on the ideology of current government and provides an incentive to start working towards a more equal society, for the benefits of all of us.

Common sense?

Don’t know who wrote this letter to the Guardian a few days ago, but it does make a very good point. It’s along the lines of what I was discussing in an earlier post, although put somewhat more eloquently than I could manage.

Although I certainly wouldn’t be necessarily advocating turning back the clock, trying to simplify the system does seems quite reasonable. A few years ago, one of the things I really liked about working in the UK, when compared with the US, was that money wasn’t a major issue. I don’t mean that money wasn’t important, but simply that Academic researchers weren’t under a great deal of pressure to bring in money. They would still need money to carry out their research, but because the research money primarily covered direct costs, as long as someone was productive the amount of money they brought in didn’t really matter.

With the introduction of Full Economic Costing (fEC) this is all changing. Even a basic grant brings in a lot of money to the university, some of which covers the Principal Investigator’s salary. I think this is a very negative step and could well change the motivation of some researchers and become very divisive if a two-tier system develops – those with money and those without. One of the reasons why I think the UK has punched above it’s weight internationally in the recent past is precisely because academics were relatively free to pursue what they enjoyed, rather than being pressurised to do what is most likely to bring in money.

I certainly think that the system would be much simpler if universities were given enough money to operate, probably determined by the number of students and the quality of research (as determined by the Research Assessment Excercise). Researchers would then apply for funding to cover the direct costs of their research (plus some basic overheads). Together with being simpler, this would be a much more positive environment in which the UK could continue to punch well above its weight.

Gross Domestic Product

I was in the process of writing a post about science becoming an election issue, but have been somewhat distracted by an article in the Guardian by George Monbiot. The basic idea of the article is essentially that we are so fixated on growth that some people now believe that we should consider using all the resources on our planet if it allows us to then explore other worlds. What I found interesting was, however, the discussion of Gross Domestic Product (GDP), in particular the use of GDP growth as a measure of an economy’s success.

I’ve always had a bit of a problem with using GDP as a measure of a country’s wealth. Although I’m not an economist, it seems a little simplistic to just use this, especially since it gives no real indication of how the wealth is distributed. It is simply a measure of a country’s total economic output. I have argued before (here) that we should really use something like the Gini coefficient (indicating wealth distribution) and GDP, in order to optimise a country’s wealth together with how it is distributed. We could consider accepting a lower GDP if the wealth is more evenly distributed, especially since there doesn’t seem to be any strong evidence showing that giving excessive amounts of money to a select few ultimately benefits everyone.

What I found interesting in George Monbiot’s article was the suggestion – which came from a paper published by someone called Sir Parth Dasgupta – that another problem with GDP is that it doesn’t take into account the effect of GDP growth on a country’s resources. A country with a rapid growth in GDP could be doing this by depleting its resources in an unsustainable way so that even though GDP is growing, the total effective wealth is decreasing. Maybe we need to consider total wealth, GDP and how the wealth is distributed when trying to determine the strength of an economy. Maybe we also need to stop being so fixated on growth and start to consider how sustainable our economy’s are. As the current financial crisis has shown us, rapid growth is unsustainable and we would probably have been much better off if the financial sector had been more cautious and accepted a lower growth rate that would have been more sustainable (we probably can’t get rid of boom and bust completely, but we can probably minimise the amplitude of the perturbations).

Although I’m pleased to see more discussion about how a country’s economy is measured and would personally be very in favour of us considering how wealth is distributed and how sustainable our economy’s are when determining the wealth of a country, I’m not convinced that we are going to be seeing any paradigm shifting changes in the near future. It’s not really in the interests of today’s business leaders (who probably have a great deal of influence with our political leaders) to change the way in which we measure a country’s economic strength, especially if – in order to have an sustainable economy that would ultimately be of long-term benefit to the country, and possible even the world – this would involve them accepting a smaller fraction of the total wealth.

How to discourage volunteers

We’ve just had a letter from our children’s school about volunteering. It is a very good government school at which parents are very involved in fundraising and managing after school activities. Apparently a lot of parents have shown an interest in volunteering at the school. My understanding is that these are people who would like to help in some way, probably mainly in the classroom. The letter states that this interest “coincides with new guidelines from our Human Resources Department… Accordingly we are now obliged to :

Request that you complete an application form
Invite you for interview
Request completion of a Criminal Conviction Form
Take two references
Put you through Enhanced Disclosure checks if necessary”

I know that we do have to be careful around children, but this just seems ridiculous. These are parents of children at the school who would just like to help. They don’t want a job. They’re not going to get paid. There may be some who could become troublesome but, I suspect, most just want to help with odd jobs at the direction of classroom teachers. I can think of very few, if any, reasons why the school shouldn’t be clamouring for this kind of volunteering rather than making these people jump through hoops as if the school is doing them some kind of favour. I appreciate that these rules are probably not actually coming from the school itself, but we really should be trying to stamp out these ridiculous processes that achieve very little and if anything discourage exactly the type of things that we should be encouraging in our society.

It’s possible that there are very good reasons for these rules and maybe the school (or some other local school) has had a problems with overzealous parents, but I haven’t heard anything to suggest that this is the case. My wife is also quite heavily involved with the parent’s council and apparently these types of processes are creeping in all over the place. It seems likely that it will become harder to get people to help with activities at the school, either because they haven’t completed all the necessary paperwork or because they don’t have the time or can’t be bothered. Since the parents raise quite a substantial amount of money every year, this could be, ultimately, quite damaging.

Accountability – does the end justify the means?

A number of things recently have made me wonder about what I think of as the British desire for accountability. Accountability is probably the wrong word. What I mean is the tendency to have lots of procedures and checks to make sure that everything is being done properly and that money is not being misspent.

As far as I can tell there are two reasons why we do this. One is that we no longer trust people and therefore feel we need to check that everyone is doing their job properly. The other is that an awful lot of money spent in the UK is public money and consequently there is a belief that the taxpayer deserves to know that this money is spent appropriately.

In principle this is all fine. I do, however, have a suspicion that at best this continual checking really does nothing, and at worst actually has a detrimental effect on whatever is being checked. Why do I think this? It is my sense that people work more effectively when there is an element of trust. They will also feel more comfortable making decisions as opposed to continually worrying about whether or not what they are doing will be judged at a later stage to have been the wrong thing to do. This isn’t to say that people shouldn’t follow procedures, but they should feel comfortable using their judgement when they encounter something that doesn’t seem to fit the known procedures. Another factor is the cost of the continual monitoring. I would very much like to know if anyone has worked out how much public money is spent making sure that the rest of the public money is spent properly.

This may seem like I am advocating a completely free and unchecked system, which is not the case. I do think, however, that if a new procedure isn’t going to have a positive effect on the system then in general we shouldn’t introduce it. Also, if we start spending so much money checking a system rather than actually doing something productive with the money, then we should consider changing the procedures. Do I think the end justifies the means? Not quite, but I do think we need to have some sense of what impact the various procedures will have on the end product and we should be willing to modify how we do things to optimise the end result.