20 December 2008

Strictly Voting Systems

One striking thing about the successive controversies over Strictly Come Dancing is the apparent lack of attention to detail paid to the technicalities.

When it first occurred to me that John Sergeant was likely to win the competition, I spent a while trying to work out whether the judges would be able to get rid of him somehow. I was handicapped by not knowing what the scoring system was, or how many couples were supposed to get to the final.

A day or two later he announced he was quitting, and, after kicking myself for not seeing that coming, I immediately wondered how they were going to handle being one couple short in the last few rounds.

Neither of the two questions I spent time pondering seemed to occur to the show's organizers. They've now got round to explaining in detail how the scoring works. Even there there are oversights; I think it is an error to give both couples in a tie the higher number of points, although it doesn't matter this late in the competition. Last week's judge points should have been 2.5, 2.5, 1, rather than 3,3,1. That could have made a difference earlier in the competition.

However, I would take a more drastic approach. Collapsing the judges' votes into an ordering of the contestants is throwing away information to begin with. It might be better to keep the actual points awarded by the judges, and then add the popular votes, scaled down to the same maximum. For instance, if there were a million votes, each judge point would be worth 1000000/160 phone votes. (about 6000). Apart from making the actual number of votes more important, that would encourage the judges not to bunch their votes into the 8-10 range all the time.

These type of shows have been going for years and years; I still think the problems appearing now are all because previously they never took the voting seriously, and would just cheat if they didn't like the way it was going. Having people like Undercover Economist Tim Harford discussing it now is a real step forward. Maybe next year's competitions will be designed by people who've heard of Arrow's Theorem.


20:05 - phone voting is currently going on to select the last two.

Scores carried from last week are

Rachel 5 (3 judges + 2 phone)
Tom 4 (1 judges + 3 phone)
Lisa 4 (3 judges + 1 phone)

Tom ranks above Lisa because in a tie phone votes are worth more than judge votes.

The points from the judges this evening were

Lisa 3 (80)
Rachel 2 (79)
Tom 1 (73 or thereabouts, I can't remember)

So the running total is:

Rachel 7 (3+2 judges, 2 phone)
Lisa 7 (3+3 judges, 1 phone)
Tom 5 (1+1 judges, 3 phone)

So Tom needs to win the popular vote to make it to the last 2, while the girls each just need to come second to make it.

Again, the compression of the judges' votes has been very evident - no vote lower than an 8, no vote from 3 of the 4 judges lower than a 9. Len and Arlene, I think, each gave 9 to Tom's first dance and 10 to the other 5 dances. What's the point of being there if they can't say which dance is better?

Tierney on Holdren

John Tierney attacks Obama's science advisor John Holdren.

Dr. Holdren is certainly entitled to his views, but what concerns me is his tendency to conflate the science of climate change with prescriptions to cut greenhouse emissions. Even if most climate scientists agree on the anthropogenic causes of global warming, that doesn’t imply that the best way to deal with the problem is through drastic cuts in greenhouse emissions.

There is some merit on Tierney's criticism, but it is obviously the reverse of what's really happening. Whenever I have talked to a scientifically literate person who accepts the AGW consensus, and I have challenged it, it is never more than a couple of minutes before they something like "well, maybe there is room for doubt, but the things we should do about global warming are all things we should be doing anyway, like reducing fossil fuel use".

It's fair enough to believe both of those things, but each proposition needs to stand on its own without support from the other. Both sides of the debate have a tendency to shift ground when presented with strong arguments - do point me back here if you catch me doing it.

18 December 2008

What matters about oil

Wonderfully deluded slashdot piece on using coffee grounds as a biofuel.

This is a great example of the misapprehension many people have about fossil fuels.

There are two vital facts about fossil fuels:

1. They burn
2. They are very, very, very cheap.

It's the cheapness that makes them hard to replace - there are plenty of other things we could use, but none that are as easy to obtain as drilling a hole and pumping stuff out. One commenter pointed out that the year's supply of coffee grounds would replace less than 3 hours of the USA's gasoline consumption, but the real point is that the insignificance of a few pounds of stuff that still has to be refined or processed in some way should have been completely obvious to everyone.

05 December 2008

Management costs again

Good post from Neil Craig on the cost of Crossrail. It reinforces the point I made last month, that for big or difficult projects, management is the biggest cost. In the private sector there is some pressure to economize on management, though not nearly as much as there should be because the decisions are all made by managers. With public sector funding (and the public-private fairy dust is of zero or negative benefit), there is no pressure.

19 November 2008

Democracy Fails

It's now official. Respected political journalist John Sergeant has agreed with BBC producers that the task of selecting the best celebrity ballroom dancer of the year is too important to be left to the public. If the voters were given a free choice, they would probably choose him, despite his evident lack of ability, and therefore he has felt it necessary to pull out.

What a good job this is the only area where we let the general public decide something by vote!

Best quote: "I know a bit about voting"

Second best quote: Google News
John Sergeant pulls out of Strictly Come Dancing
Times Online - all 1,017 news articles »

15 November 2008

Using encryption

Dan Goodin at The Register has a very timely article recommending that everyone encrypt their email.

If you think that at any point in the next ten years you might want to send or receive an email message that can't be read by your ISP, your government, the US government, or a lawyer, then the time to start using PGP-compatible encryption is now.

The reasons for this are:

  • If you suddenly start using encryption just when you need it, the fact will be obvious to whoever you are trying to hide things from.
  • Setting up encryption is a fiddly business, you should get it done when you have time, not when you need it.
  • You are helping everyone - the more people are set up to use encryption, the more useful and normal it becomes for everyone else.

I came to the conclusion a few days ago, dusted off all my old keys, found that they'd all expired (fortunately, since I'd forgotten passphrases), and created some new ones. I posted a key for sending to this blog, and if you have my personal email address, there is a key for that on the MIT keyserver.

So, if you're using Windows, read the Register article; if you're on Linux, install gnupg and enigmail (I'm on Debian and the packaged Thunderbird comes automatically with Enigmail to integrate with gnupg - just turn it on), even if you use webmail, there is now a firefox extension FireGPG to make it easy to send and receive encrypted messages.

So invest a couple of hours now in being ready.

13 November 2008

Sam Mason

The Sam Mason episode is quite amusing.

There's a strange anomaly in our laws regarding thoughtcrime as they stand today - it's illegal for an employer to choose an employee on the basis of race, but it's quite legal for a consumer to choose a supplier on the basis of race. We are not followed around and audited on the colour of the tradesmen we hire or the shopkeepers we buy from. I would think any such laws are probably still ten years off.

Of course, the main reason why it is still legal is simply the difficulty of detecting it. Once we have a national ID database, and requirements to provide ID when buying most goods (not just obviously terrorist ones, like phones), such audits will become much more practical.

But even today, it is possible, if one is clumsy enough, to leave a paper trail. "We should advise you that this call may be monitored for training purposes, or for the purpose of ratting you out to your employer for political incorrectness, if you're stupid enough to boast about who your employer is in a misplaced attempt to impress us"

The other amusing aspect is that it was all about not alarming the poor little girl. When it comes to protecting our children from any appearance of a threat, mere facts are not, as a general rule, any obstacle. Be it emissions from wifi routers, artificial food colourings, or toys that could possibly be violently dismantled in such a manner as to create small parts, no evidence beyond simple prejudice is ever required to justify keeping children away from such peril. But not all irrational prejudices are good irrational prejudices.

12 November 2008

Bad Timing

Guess I picked the wrong week to complain about the state stealing peoples children.

I stand by what I wrote. The lives being destroyed in the way I described - that is happening all the time. You don't hear about it because, as Camilla Cavendish explained in her award-winning articles, it is illegal to report it.

Cases like "Baby P", and Victoria Climbié are so rare as to be negligible in comparison. One could, rightly, argue that there is no number of murdered children that is "acceptable", but there may be a number that is impossible to reduce. Until vast improvements are made to the care system, we should not be trying to push ever more children into it. One death every few years, against hundreds of lives wrecked in secret by breaking up families - there is no comparison.

Now, the one every few years that we see are in spite of the efforts of social workers. Since I am arguing for them to do less, I have to admit that the result could be more Baby Ps. Again, I think that more children would be protected by helping those already without their families than by taking more children away from their families.

Evidence? Well, it's hard to know, isn't it? But there's an "eyes closed" argument here: children who are harmed by their parents in spite of social workers end up on the front of newspapers for weeks. Children wrongly taken from their families are never heard of because it is illegal to talk about it. Which of the two problems are going to happen more often?

09 November 2008

Another voting conundrum

Voting theory has a new mystery to explain. In what may turn out to be his greatest contribution to an understanding of electoral politics, journalist John Sergeant has made it onto week 9 of Strictly Come Dancing.

Let no one be under any illusions about this - he could end up winning the whole thing. The presenters tell us that half the contestants' marks come from the four judges, and the other half from the phone-in vote. The final will be on phone-in votes only. Sergeant always gets the lowest votes from the judges, and yet never finishes in the bottom two once the viewers' votes are added.

This could not have happened in the past. In years gone by, if telephone votes looked to undermine a program, the vote would simply be rigged. These practices were exposed last year, and they would certainly not be able to get away with it for Strictly this year.

An obviously similar event was the MTV Europe "Best Act Ever" award - won on Thursday by Rick Astley.

The key fact is that people cannot be assumed to vote for the "right" reason. Why vote for the best dancer, when annoying the judges is more fun? Why vote for the best Mayor of London, when Ken Livingstone or Boris Johnson will be far more entertaining?

If Sergeant does win, the TV producers will have to find a way in future to make the show workable despite perverse phone votes. The things they try may turn out to have relevance for politics.

Contacting Me

I wish I got more comments, but if readers want to contact me some other way, there is an email address on my profile.

Note the GnuPG key I published (below) has expired: here is a new one:

Version: GnuPG v1.4.9 (GNU/Linux)


As before, a little confirmation that the owner of the key is able to post here:

Version: GnuPG v1.4.6 (GNU/Linux)


What follows is the expired key:

If you prefer to use encryption, here is an openPGP key relating to that email

Version: GnuPG v1.4.6 (GNU/Linux)


That key has been used to sign the following message (as a sort of check):

Version: GnuPG v1.4.6 (GNU/Linux)


08 November 2008

Nappies and Religion

A bit of fun here - the department of food and rural affairs commissioned a report into the environmental effects of disposable nappies, and found that they were better for the environment than washable cloth nappies.

Why, then, did they hush it up?

Partly it was because they would feel stupid, having pushed the opposite line on the basis of no facts, as, for instance, in this from Westminster Council?

But there's not that much disgrace, surely, in changing policy in response to new information? The real problem is that the environmental movement has nothing to do with the environment. It is entirely driven by the age-old myth that being rich and happy is morally wrong and punishable. It is based on the religious belief that austerity is a virtue. If science weren't to tell people that, of two choices, the one that was more work was better for the environment, so much the worse for science.

To be fair, if we could actually see this report there might be problems with it. The Times accounts only for kg of CO2 emissions - CO2 is not the only pollutant, nor, in my opinion, is it even the most important. Of course it is likely to correlate well with other forms of pollution.

Here we go again - now for the bit I write after finding the facts.

The report has been "hushed up" in that, according to documents The Times claims to have seen, there has been a decision not to publicise it. But it is on DEFRA's website

The study does look at environmental impact beyond CO2 emission, and the results are similar (which is not very surprising). In fact, the Times article is surprisingly accurate, except for the claim the report was hushed up, when in fact it was published in 2007.

I also found a speech by Ben Bradshaw, from 2006, where he referred to the study, saying he "feared" that the new study (the 2007 one we're talking about) would not be able to give any "more clarity" (meaning, the desired answer) on the nappy question. Why is one answer desired and the other not? Religion.

The speech also mentions the Great Crusade of our time - the war on carrier bags - mentioning in passing that cutting down on plastic carrier bags is bad for the environment, as anyone with a brain would expect.

An important point in the nappy report was that, in the interval since the previous study, disposable nappies had become less bad for the environment. How could this be? They were 10% lighter than before, due to manufacturers cutting costs by improving design. Exactly the same thing has happened to other hate objects of the religious environmentalists - drink cans, for example, and our friend the carrier bag.

The supermarket carrier bag is a masterpiece of environmental design. It weighs less than 10 grammes, and can be reused afterwards. But its most beneficial aspect - its lightness and flimsiness - is what so outrages the pompous snobbish environmentalists. They say they are against harming the environment, but really they are against things that are cheap and tacky. But the cheaper and tackier a piece of packaging gets, the better for the environment.

The Child Catchers

I see that this year's Paul Foot award has gone to Camilla Cavendish, for a series of articles in The Times about the way government takes peoples' children away from them.

I hadn't seen the articles, and while I will probably go back and read them, I don't need to, because I've seen the hideous process in operation, over five years ago.

Two things struck me. The first was the vicious cycle. As a young mother was slowly deprived of the baby son who was the only thing she cared about, she became gradually unhinged. Of course, the effect it had on her was used as a reason why she couldn't be allowed to keep her child, as if most women wouldn't have reacted in the same way.

But the second thing that really affected me was the sheer stupidity of the officials involved. They were people who I wouldn't have trusted with responsibility for my cats, and they were given the job of deciding whether a baby boy should be allowed to stay with his mother. That's one reason why I wasn't really frightened, only horrified - like floods in Bangladesh, the events could only possibly happen to other people. Someone with an education and educated friends and money to pay lawyers could have run rings round them. However, the pauperised underclass are helpless.

It's actually related to what I wrote this morning. When the framework and laws were being drawn up, the cost of management of the system was not considered. The civil servants and MPs knew perfectly well that their children could never be taken away by low-level council functionaries with room-temperature IQs, because Britain simply doesn't work that way, and they didn't understand what they were inflicting on those less privileged.

For the urban poor today, it is a constant threat. Cavendish's articles are not news to them - they know that if they piss off the council, they can lose their kids. They are not outraged by this, because every other aspect of their lives are run by the state, too. They don't know any other way of life.

Seizure of Intellectual Property

There have been two stories recently involving governments seizing intellectual property.

In one, the US government was seeking to take ownership of the trademark rights over certain symbols or logos used by motorcycle gangs.

The problem with this, for me, is that it's an abuse of trademark rights, albeit a familiar one. The purpose of trademark law is to protect consumers from being deceived about goods or services they are buying. There is no welfare justification in preventing me from painting a Nike whoosh on my own T-shirt, unless I attempt to sell the T-shirt to a mug who thinks it is made by Nike.

Therefore having trademarks would not allow the government to do anything useful (i.e. stopping gang members from wearing their gang colours) without abusing the trademark rights.

The second case is the State of Kentucky seeking to seize internet domain names used by gambling operators, as "gambling devices". Now the question of whether a domain name is a device is very debatable, but aside form that, the rights to a domain name are assets, and can be seized by government if the law permits.

That does seem rather odd, but it really isn't. The reason it seems odd is that a domain name is essentially an entry in a directory, and it seems odd that a directory entry can be controlled in that way. But, to get all Aristotelian for a bit, while it is essentially an entry in a directory, there is also accidentally something associated with it that is an owned, tradable right - the right to specify which IP address the name in the directory will be listed against. Since the domain name owner could, voluntarily, sell or hand over his rights to the domain name to the government, then, given appropriate legal power, the government can perfectly well take it.

If the domain name system were not accidentally based on tradable rights - if names were allocated arbitrarily and finally by a central domain authority, then there would be no basis for the State of Kentucky to order the domain authority to change the use of that domain name. The system could work that way, but as a matter of fact it doesn't (at least, not for .com domains), and the State can order a body subject to its law to hand over the contractual rights to it, as it could order it to hand over physical property or assign other assignable contractual rights.

Whee - I was wrong again.

My argument would apply if the State proceeded against the owners of the domain names themselves. It appears, looking at the details, that they went directly to the internet registries, and demanded ownership of the domains, without reference to who actually owned them or used them.

My original rationalisation of the process was that the State was effectively forcing the owner of the domain name rights to transfer the rights to the State, under some law that gave them power to do so. To simply announce that the rights now belong to it, without asserting jurisdiction over, or even identifying, the owners, is something else.

With regard to actual devices physically present in the State of Kentucky, it is reasonable that the State might have the power to seize them irrespective of who owned or operated them. But without establishing jurisdiction over the owners of the domain names, it's more difficult. It comes down to my point that the domain name itself (an entry in a register) is not the same thing as the contractual right to control that entry. Only the second is actually property, and therefore only the second can actually be seized. Even if, by a stretch, the domain name itself is classed as some kind of abstract "device" used in gambling, the rights are something else.

Courts generally try to be sensible, even when the formulation of the laws are downright weird. The 44-page PDF of the courts opinion contains justification for considering the domain names as property, and justification for proceeding against them without reference to who actually owns or controls them. It then goes very badly astray (emphasis mine):
As the evidence in the record stands, the Defendants 141 Domain Names transport the virtual premises of an Internet gambling casino inside the houses of Kentucky residents, and are not providing information or advertising only.
The reason for that conclusion is indeed the confusion between the domain name as a name, the domain name as an entry in a directory, and a domain name as a contractual right to control the entry in the directory.

The court reasonably concludes that the right to control the domain name's entry is property. It then observes the name all over every page of the casino website, and concludes that "the presence of ... the internet domain names ... is continuous and systematic". However, only the name itself has a continuous presence; the directory entry is only referenced once, by the name resolver in the user's operating system when they first go to the site. That might be enough to justify seizing the trademark, as in the Mongols case, but not the directory entry.

Implications of a Knowledge Economy

The idea of an "information economy" is such a cliché that I'm bored of this article already, and I haven't written it yet.

But all too often, the key implications are missed.

The central fact of the information economy is this: anything that we know exactly how to do can be done very cheaply.

The bulk of economic activity is now devoted to things that we don't know exactly how to do - things that we have to work out as we go along.

The important implication is that management is now the largest cost. To improve efficiency from here on, the most important thing is to reduce the cost of management.

That's an emphasis that's never been taken before. "Measure twice, cut once" has always been seen as wisdom. But if cutting, and the stuff to be cut, are cheap, and measuring is ten times as expensive, then we need to work out how to get by without measuring twice.

There has been one long-term trend which has improved management efficiency, and that is the trend towards large scale. If a business goes from one steel foundry to ten, the steel foundries don't become any more efficient, but you might spend less on management. It is easy to observe, that at ground level, large organisations seem to be less efficient than small ones, but this may be justified by reduced management costs. However, I think this trend has gone as far as it usefully can (if not further). A merged organisation may spend less on top management than its preexisting components did, but it has more layers of management, and the efficiencies can cancel out.

There is another trend that has to some extent concealed the increased cost of management, and that is the spread of managerial responsibility down the hierarchy. You do not need to have "manager" in your job title these days to be expected to devote a significant proportion of your time to managerial aspects of whatever process your organisation undertakes. Everyone fills in forms.

The important point is that a better managed operation is not necessarily a more efficient one - not if the cost of management outweighs the benefits. The old assumption that scrimping on planning will always cost more in the long run has to go.

This is not completely new - there is perhaps a parallel to the blitzkrieg or auftragstaktik innovations in the German army in the 1930's. As I understand it (and military history is not my field), the old principle was that, on encountering an enemy, an advancing force would stop, gather as much intelligence as possible, make a plan, and then attempt to take on the enemy. The new doctrine was, on encountering the enemy, to immediately attempt to outflank. Sometimes the lack of planning and knowledge would leave the advancing force stranded in a blind alley, but war is a dangerous business at the best of times, and the benefits in speed and surprise of skipping the planning stage outweighed the costs.

I was triggered to write this by Simon Jenkins' account of the 2012 Olympics (spit!). The budget for management of the Olympics has now hit £654 million, more than the cost of building the main stadium. This is partly the plain fact of the knowledge economy, and mostly the result of not recognising that doing something more efficiently, in today's world, means managing it more efficiently.

There is a secondary point, which is that managers have greater political and social power than non-managers, and that therefore there is stronger pressure to cut non-management than to cut management. But I won't be able to make that point better than chris dillow does, so I'll leave it to him.

04 November 2008

Uncontroversial Measures

The Landsbanki affair exposed the fact that the government can, under the anti-terrorism, crime, and security act 2001, seize the assets of any foreigner or foreign government, if it reasonably believes them to be likely to take action to the detriment of the United Kingdom's economy.

Since I found this very startling, I've been digging around to see what was said about it at the time the bill was debated and passed.

This won't be a long post...

While debating an amendment to add a sunset clause to the bill, Douglas Hogg said:

The plain truth is that, because of time constraints, we are not going to discuss the substance of any of the clauses in the group whose consideration terminates at 6 o'clock. We have reached only the first line in the marshalled list. At least new clause 6 would apply a sunset provision to all the other measures that feature in the marshalled list, but which will not be discussed at all. Some of them, such as the power of the Treasury to freeze people's cash, the power of Customs to go to the magistrates to get a seizure order in respect of "terrorist cash" and the extension of disclosure obligations are of great importance.

I shall not seek to debate the merits of those issues as you, Sir Michael, would call me to order if I did so. I point out only that, from any viewpoint, they are extremely important obligations and powers that are backed by penal sanctions. Furthermore, they apply to people's property and may also affect the property of innocent third parties. However, we are not going to discuss them at all. That is one of the arguments in favour of sunset clauses, which are a very imperfect way of dealing with the problem that we face. We should not be in this position, but as we are, we must do something to provide a remedy. A sunset clause is one way of at least expressing our dismay about the position.

That's it. That's the only mention that was made of the power that the government later used against Landsbanki.

Ah, but what about the committee stage. Surely the Home Affairs Select Committee at least discussed it?

Have a look

Why did they debate detention of suspected international terrorists, Asylum, Judicial Review, Religious Hatred, hoaxes involving noxious substances, and the EU third pillar, but not the abolition of property rights for foreigners? Chris Mullin explained:

it is not our intention to trawl through every detail of this Bill, much of which is uncontroversial, but to home in, in the limited time we have, on the three or four obvious issues that are likely to be more controversial

There we have it. It was an uncontroversial measure.

Voting - altruism and other motives

Voting once again seems to be under general discussion for some reason.

Alex Tabarrok at MR links to an article by Gelman and Kaplan, which points out that while the benefits of voting are small (because of the very tiny probability of one vote changing the result), they affect millions of people. If I am a little bit altruistic - say, if it is worth 10 dollars to me to make some other person 100 dollars better off - then the actual benefit of changing the result can easily be bumped up into the billions, which could make it worth heading off to the voting booth even with a one-in-ten-million or so chance of changing the outcome.

The fact that so many people make charitable donations - where doing 100 dollars of benefit costs 100 dollars plus some overhead - implies that the 10% coefficient I use above is very plausible.

(To be clear, we're not just talking about cash benefits here. I might consider it a benefit worth $100 to me to have someone else sent to university, or treated for a disease)

The Gelman and Kaplan argument is so obviously correct - not just logically sound but the real reason why people do actually vote - that I'm embarrassed to have spent so much time looking for alternatives.

Is everything rosy with democracy then? Unfortunately, I think G & K stopped a bit too soon. After all, altruism is real, but it's not the only motive out there on top of selfishness.

Let's say I have a particular hatred of muslims. It might be worth $10000 to me to cause the death of a muslim. By changing government, I might kill thousands of them! That would be worth a lot more to me than a cut in sugar tariffs.

But is $10,000 realistic? It's surely not that hard to get someone killed if you have a few grand to spend on it - we'd be up to our knees in corpses. But in normal life, the main cost of killing someone is the risk of being caught and punished. And plenty of people get killed anyway. Democracy isn't just a way of having an effect (good or bad) on millions of people; it's a way of doing so with total impunity.

The arithmetic I'm throwing around here isn't really rigorous. What does it mean to say that I value a better house for a poor family at $200, or someone else prevented from playing online poker at $100, when I have no way of directly causing these things to happen? It doesn't matter. The original question is: is it worth 30 minutes of my time to have a 1-in-10-million chance of causing a million poor families to get better housing, and to stop five million people from playing poker, and to cause 100,000 muslims to become dead muslims? (etc.) If those are the things I want, it might well be.

Is this good or bad? I think most people are more altruistic than anti-altruistic, at least towards their own countrymen. So voters should be expected to vote mostly for the general benefit as they see it, but perhaps be a bit on the warlike side. The impunity thing, though, has some nasty implications. The large-scale altruism expressed through voting is in some degree in competition with direct small-scale altruism, but the "effectiveness multiplier" of democracy is greater in the case of punishing others, because it detaches the harm from any responsibility.

Anti-altruism isn't always a bad thing. A certain level of vindictiveness benefits society by discouraging anti-social behaviour, even in those circumstances where Homo Economicus would rather cut his losses. But I worry that when detached from the human scale, the natural willingness to punish individual enemies becomes a generalized animus against everyone resembling some enemy.

Finally, none of this contradicts Bryan Caplan's critique of voters. The individual benefits come from the good feelings of believing I have had the influence I desired. I can still have those good feelings without putting in the effort to convince myself that the effects will be what I expect. "I personally stopped a million people from eating trans fats in restaurants". If that gives me the good feelings, it would be silly to put lots of effort into working out whether it actually did anyone any material good. The costs of being wrong are tiny.

01 November 2008

Value of politicians

Here's a little factoid that I think is relevant to my politics as entertainment theme:

Three employees of our government, and their approximate salaries:

Gordon Brown, Prime Minister: £200,000

Mark Thomson, Director-General of the BBC: £816,000

Jonathan Ross, Entertainer: £6,000,000

Where is the power really in our system of government? Jonathan Ross's earning power is the result of a "tournament" effect of the star system in entertainment, so maybe we should leave that out. But what does it mean that the manager of the BBC is worth four times as much as the PM?

Possibly he is better qualified? Wikipedia suggests not. (Brown has a PhD in history from the university of Edinburgh). Hmm, Gordon Brown took a doctorate in history and I never knew. Is there some significance in the lack of public attention given (by me, at least) to that? Isn't it really quite important? Does the fact that the thesis was on a bit of the history of the Labour party make it less important?

Back to the pay, can we explain it away by saying that the mechanics of the different roles means that the director of the BBC needs to have special expertise, whereas the PM doesn't, instead having (highly paid) civil servants to supply the technical expertise?

OK, perhaps this isn't a big deal. Being Prime Minister certainly has perks beyond the salary. But the fact that taxpayers pay 30 times as much for Jonathan Ross than we do for a Prime Minister at least takes some of the ridicule away from my theory that politics provides more value as entertainment than as government.

Legislation - the details

I was planning, in relation to the previous post's subject, to mention the government's classification of an Icelandic bank as a terrorist organisation in order to freeze its assets.

As is so often the case, as I researched to fill in the details of exactly what happened, I found it wasn't what I thought. As is occasionally the case, the truth is more interesting than the falsehood.

The order freezing the assets of Landsbanki, and section 4 of the Anti-terrorism, Crime and Security Act 2001 under which the said order was made, make no reference to terrorism, except in that the section is part of that act.

The government is not "misusing" anti-terrorism law to grab the money, they are doing precisely what they were empowered to do in 2001.

4. Power to make order

(1) The Treasury may make a freezing order if the following two conditions are satisfied.

(2) The first condition is that the Treasury reasonably believe that—

(a) action to the detriment of the United Kingdom’s economy (or part of it) has been or is likely to be taken by a person or persons, or

(b) action constituting a threat to the life or property of one or more nationals of the United Kingdom or residents of the United Kingdom has been or is likely to be taken by a person or persons.

(3) If one person is believed to have taken or to be likely to take the action the second condition is that the person is—

(a) the government of a country or territory outside the United Kingdom, or

(b) a resident of a country or territory outside the United Kingdom.

4.(2)(b) is not relevant since the order cited 4.(2)(a) instead, so no allegation of terrorism of any kind needed to be made. The government has the clear legal power to seize the assets of any foreigner who it believes is likely to take action detrimental to the economy of the United Kingdom.

Holy shit.

How did it get that? Well, the clue is in the act. This was the act that was passed in December of 2001, against the votes of many Labour MPs who objected to the detention-without-trial provisions. The "seizing the assets of foreigners for any economic reason" bit escaped any public debate.

This is the lesson that we have to take from the Landsbanki saga. The anti-liberty measures that get argued about on the 9 o'clock news are the tip of an iceberg of literally unbelievable powers being accumulated by the government, that will be unveiled in a few years when the fuss has died down, and used against people who you would least expect to be the target.

Authoritarian MPs

There are a couple of schemes in progress responding to the breakneck progress of the all-knowing, all-powerful state in Britain.

One is the sending of copies of 1984 to every MP, and another is the stroll that some bloggers have in mind for Wednesday.

Alarmed as I am by the situation, I think these protests are fundamentally misdirected.

I do not believe that the Labour Party is pushing in this direction (ID cards, national childrens databases, national ID databases, detention without charge, ID required for buying mobile telephones, etc. etc. etc.) because the MPs are a bunch of authoritarian bastards, despite appearances. It is not their aim to see all these powers gathered and used. I suspect they actually aren't bothered about it one way or another, and, given the chance to offer their honest opinion, would probably say most of it isn't worth doing.

They are pushing it all because they think it is a vote-winner, and for no other reason.

That being the case, demonstrating that there is a small group of people who are very strongly opposed serves no purpose. They know that, but we only have one vote each, and they don't believe there are enough of us to matter.

The only way to win this is to gain the attention of the ordinary voter, and bring home to them the problems of having the all-powerful state monitoring their every move. The biggest publicity victory we have had so far was the news that local councils were using anti-terror surveillance powers to monitor people putting non-recyclables in recycling bins. That beats the by-election victory of David Davis and the Lords' defeat of 42-day detention.

Even politics doesn't help. It is true that, in the boxing match of electoral politics, the Conservatives have taken very good positions on most of these issues, and therefore, if they win, there should be some relief in the short term. But in the longer term, the fundamentals will reassert themselves. The Tories will find their pro-liberty positions a liability, and, in due course abandon them. Liberty simply isn't what the MPs went into politics to fight for, and if push comes to shove, it will be sacrificed to improve electoral chances and therefore whatever it is that they are aiming for.

More personal information

Further to my last piece, on the unsurprising facts that people with access to others' personal information use that access for any reason, including ordinary curiosity, a topical example has cropped up:

Helen Jones-Kelley, director of the Ohio Department of Job and Family Services, disclosed today that computer inquiries on Samuel Joseph Wurzelbacher were not restricted to a child-support system.

The agency also checked Wurzelbacher in its computer systems to determine whether he was receiving welfare assistance or owed unemployment compensation taxes, she wrote.

(Wurzelbacher, aka "Joe the Plumber" is currently enjoying 15 minutes of fame for asking Obama awkward questions in public)

While the searching of government databases on Joe is less surprising than that it was found out, its ordinariness makes it more significant. You can get away with a lot these days, provided you keep your head down. But stick your head over the parapet, by becoming an activist, or falling out with a government official of some kind, and you know that you will suddenly be subject to a degree of scrutiny that would otherwise be easily avoidable. I think that is a key reason why we do not have the democratic ideal of the "politically involved layman" - the risks involved in politics are too great to be taken on lightly; they're only worth it if you are prepared to devote yourself to activism in a major way. It's a soft barrier, but its one more barrier between the political class and the rest of us.

16 October 2008

Personal Data

Schneier is shocked to find that people whose jobs are to handle other people's personal data, actually take an interest in what they are doing.

Faulk says he and others in his section of the NSA facility at Fort Gordon routinely shared salacious or tantalizing phone calls that had been intercepted, alerting office mates to certain time codes of "cuts" that were available on each operator's computer.

"Hey, check this out," Faulk says he would be told, "there's good phone sex or there's some pillow talk, pull up this call, it's really funny, go check it out. It would be some colonel making pillow talk and we would say, 'Wow, this was crazy'," Faulk told ABC News.

I'm sure anyone who's worked for a telephone company, or an ISP, or a retail bank, finds that familiar. The information available is generally less interesting than actually hearing people's phone conversations, but occasionally you get something worth mentioning - look at all the the sex-line calls on this bill, is this Fred Bloggs the Fred Bloggs that was on the telly, and so on.

If the personal information is more obviously sensitive, then there should be rules to limit how it is casually accessed. Of course, those rules will be broken from time to time - tax people are not supposed to investigate celebrities out of curiosity, here is a story from Britain, and one from the US. But in many cases it's very much a grey area. A fraud investigator, say, or a programmer trying to track down a bug, would have more freedom to legitimately poke about where she wanted to than a call centre operator who would have little excuse to look up any information except on the calls received (although accidents can happen).

There will always be people whose access bypasses the checks - it is rare to have an in-house IT system that can work without the support staff being able to access the production system to fix it. The major regulatory/compliance effort within banks over the last five years or so has been restricting access to production data to fewer people, for the sake of Sarbanes-Oxley compliance, but it's really hard to deny access to the people who write the software.

Now, the NSA ought to have very strong controls on access and use of information, with monitoring and spot checks and so on, but if the telephone interceptions are being carried on by the NSA in defiance of the law, it is hardly to be expected that appropriate rules will be applied to the staff.

04 October 2008

Housing Policy

Mr Mouse claims in a comment that widespread home ownership is undesirable. I would not go quite so far; there are benefits to home ownership - primarily the removal of the costly landlord-tenant relationship. Having said that, we are in agreement that the situation where the typical person's investment portfolio consists solely of a highly leveraged bet on his local housing market is undesirable to the point of insanity. The point has been made widely, e.g. by Shiller.

But even if we accept a public policy aim of increasing home ownership, making it easier for people to borrow money is not the obvious way of going about it. If we want more people to own, say, smoke alarms, the way we do it is to make smoke alarms cheaper. Similarly, if a government decided, rightly or wrongly, that it would be better for more people to own houses, the obvious approach would be to make houses cheaper.

Headline of today's London Evening Standard: "Worst House Prices Fall for 18 years". I don't remember reading recently about the "worst oil price fall" or "Worst computer price fall". How is this?

The answer is obvious: once you have started down the road of encouraging home ownership by increasing borrowing, rather than by reducing prices, there is no turning back.

If I buy a computer, I don't care what happens to its market value after I bought it. I will use it for 5-10 years then throw it in the bin. It is a physical asset, not a financial asset. If I borrow money to buy something, however, it is not just a physical asset. It is collateral. If I have been encouraged to get into this position, then undermined by a deliberate policy of devaluing the collateral, I will feel betrayed.

And so the process is continued. Interest rates are held down. The private sector's lending standards are attacked. The supply of housing is deliberately restricted. After a while, it becomes obvious to everyone that a crash must come sooner or later. But even that is not enough to stop it. By that point, not only the government but also a large proportion of the population and a significant proportion of the financial industry is dependent on the bubble continuing - not for ever, as that is obviously impossible, but for long enough for "something to turn up" to save any individual participant. To someone looking to profit from the inevitable, the question is the usual one: "will the market stay irrational for longer than I can stay solvent?", but with a coalition of politicians, swing voters, rich bankers and the construction industry devoted to keeping the market irrational, the question is even more pointed than usual.

02 October 2008

Risk Aversion

In general, the higher the risk of an investment, the higher the expected return demanded by an investor. Readers familiar with the capital asset pricing model will know that there are two types of risk in the economy: systematic and nonsystematic. Nonsystematic risk should not be important to an investor. It can be almost completely eliminated by holding a well-diversified portfolio. An investor should not therefore require an higher expected return for bearing nonsystematic risk. Systematic risk, by contrast, cannot be diversified away. It arises from a correlation between returns from the investment and returns from the stock market as a whole. An investor generally requires a higher expected return than the risk-free interest rate for bearing positive amounts of systematic risk.

John C. Hull, Options, Futures and Other Derivatives, fifth edition, p.61

One quibble I have with a lot of the discussion of mortgage investments (such as this one, which I think is otherwise very good), is that it seems to offer a choice between two possibilities:

1) The current market prices of the securities correctly reflect their expected return

2) The securities are currently undervalued due to panic or other irrationality

I am fairly confident that neither of these positions is correct. Risk aversion is not irrational. If an investor loses more than he can afford to lose on one investment, that loss will itself cause secondary losses — if the investor is an institution, it might lose its credit rating, or go insolvent, causing some of its human and institutional capital to be impaired. Therefore, the expected utility of an risky investment is lower than its expected return.

As alluded to by Hull, in many cases much or all of the risk of an investment can be diversified away, leaving the extra risk premium small or zero. This is clearly not the case for mortgages. There is a possibility of a loss of somewhere on the order of a trillion dollars. No investor can absorb or hedge that. Many large investors — sovereign wealth funds, private equity, etc. -— have taken on stakes. Some are probably still looking for better prices than they've so far been offered. All will be looking for very substantial discounts against the expected return, because they know there are more sellers than buyers.

That is why I believe claims that this is a profit opportunity for the government.

That's not the same as saying the government should be buying up mortgages at above current market value — there are other good arguments against it. But it holds up one piece of the argument, provided we assume that government is in fact better able to absorb the potential losses than private investors, which seems reasonable to me, though I can't quite put my finger on a non-handwavy reason why.

27 September 2008

Mortgages and scale

Arnold Kling, who knows what he's talking about, says that the idea that mortgages will turn out to have a better return than their current market prices indicate is rubbish. In his view, the market prices are likely to accurately reflect the true value.

As far as I can see, that is unlikely. In a simplistic model, underpriced mortgages will be bought by investors who can make profits by holding them. But surely any such model assumes capital is plentiful relative to the assets under discussion. The crucial fact here is that, because of the past hideous underestimate of risk, the size of the mortgages held by institutions who shouldn't be holding them is, apparently, in the high hundreds of billions of dollars. Many other investors have felt they are a good long-term bet. But most of those investors have already bought as much as they can afford, or else are holding on for better bargains, knowing that there is no competition to bid the prices back up in the short term.

On that argument, a buy-up by the US government is indeed a profitable opportunity for it. I think it could be defended on those terms. If I were drawing it up, however, I would want it explicitly to aim at making a profit. I would set a fund of fixed size to buy assets, planned to ensure that some of them are left over, and then spend it over a shortish period buying whatever seemed to be most competitively priced. The aim would be to make profits, and hopefully do some general good in the process; not to save overexposed financial institutions at any cost.

Is this counter to my principles? Yes. I do not consider myself a "naive libertarian", in that I recognise that state intervention can be beneficial in some cases. However, I think that forgoing such benefits, by separation of economy and state, would be a better general policy than allowing fallible politicians to identify allegedly beneficial interventions. This intervention, even if beneficial, sets a horrific precedent, and will terribly undermine all free-market arguments for years to come. It could usher in an era of big government. That's why it should be opposed.

Indeed look at the converse. If it doesn't happen now, and the system survives with less damage than the proponents are claiming, what a valuable example it will be of how markets are able to adjust to the most severe problems.

26 September 2008

Washington Mutual

Since Washington Mutual, like Northern Rock, has now gone bust without owning securitized mortgage derivatives, can we please lose the idea that securitization was the problem. Mortgages were the problem.

Without securitization, the financial system would have been much more exposed, but it would have just been the retail banks, not brokerages like Bear and Lehman.

Also, if securitization has been done properly, and the brokerages had actually sold the securities they created, there would have been much less of a problem. All the loss would be carried by investors who were not leveraged and were risking funds they could afford to lose. I know I said that before, but now Tyler Cowen is saying it too (or at least approvingly quoting others who are).

Now it can be argued that, had the risk not been spread out by securitization, the problems of bad loans would have come to a head much sooner, and the total impact would therefore have been smaller. That might be true. It is totally equivalent to saying that if there was no regulation of financial institutions, the problems might have got obvious sooner and therefore have been smaller. True or not, it's a strange way of looking at things. Since nobody is using the John Adams seat-belt argument that regulation is the problem, then blaming securitization should be out of court as well.

24 September 2008

What was the problem?

Since I have claimed that the derivatives involved in the financial system problems were not too complicated, what was the real problem?

There are many candidates, too many to cover right now. The use of irrelevant statistics to justify risky holdings, as I mentioned before, was a large part of the problem. The government pressure to make more and cheaper loans to less creditworthy borrowers has been widely commented on, and may have contributed significantly, but can't excuse the banks' errors.

The actual error made by the banks was very simple - embarrassingly simple, really. They bought mortgages to securitize them. They split the securities into high-risk, medium-risk, and low-risk bits. They valued the bits and found that they were more valuable than the original mortgages, which meant the process was profitable to them. They sold the high-risk bits to speculators and the medium-risk bits to long-term investors. But they kept the low-risk bits. Thats it! That's the error!

Presumably, after they valued the low-risk bits, they found that nobody actually wanted to buy them at that valuation. What they should have done was price them down until people did want them, then re-evaluate the whole business on the basis of the actual market prices that they got for them. I have no idea whether that would have meant that securitization would have carried on or not. But either way, it would not have left the financial system dangerously exposed to the housing crash. At worst, it would have ended up as the "normal" sort of Wall St scandal - clever investment bankers sell a whole load of toxic crap to investors (see auction-rate, internet IPOs, etc. etc. etc.)

Why did the banks hang onto these investments, rather than sell them? I guess that they believed they were "really worth" pretty close to par value, and that buyers didn't want to buy them at that price just because they were uninformed. Also, because they were rated as so safe, the regulators were happy to consider them non-risky for the purposes of capital requirements. That was the regulators' biggest error. Because of course these two justifications contradict each other. If the securities can't be sold at their alleged "real value", then they are tying up the banks' capital, and should be counted as such.

(I'm surprised we haven't heard more about the mezzanine tranches that were sold to fund managers, pensions, insurance, etc. They were never seen as safe, so the bodies holding them could afford to take losses on them.)

It almost seems a shame that this whole crisis is caused by one such straightforward error. It ought to be something like "derivatives are too complex" or "regulators were subverted" or "government forced banks to make bad loans". It's a let-down that it was just "banks held one particular type of investment that it was never their business to hold, just as a by-product of one business line".

22 September 2008

Financial Complexity

I want just to grab one factoid out of the swirl of information and misinformation relevant to the current financial situation - the idea that the problems were caused by fiendishly complicated derivatives (see, e.g., here)

Horribly complex derivatives do exist: a "snowball", for example, "is a structured swap with a funding leg and a coupon stream whereby the coupon paid on a given date is given by the sum of a fraction of the coupon paid in the previous period plus an amount determined by the realization of the rate process in the coupon period itself"

However, while estimating the value of a snowball requires so much computer power that researchers are designing custom hardware and offloading computation onto graphics chips, the difficulty of valuing a derivative does not depend on the derivative itself being complex. The mortgage backed securities which are the most obvious cause of the current problem are actually quite straightforward. That doesn't make them easy to value.

The point of the complexity is in fact to make them easier to value. After all, no amount of differential calculus will tell you whether Mr Bloggs at number 11 will default on his mortgage, if you don't know whether he has a job, and what his credit card balance is, and whether house prices on his street are going up or down. If you have good statistics, however, you might have a decent stab at how much a thousand mortgages are worth, or how much the best 400 out of a thousand are worth.

That was the theory. It failed, not because of the complexity of the derivatives, or because of errors in the mathematics, but because the statistics were crap. Statistics collected over ten years during which house prices only ever went up were not of much use when prices started to fall. Statistics collected on mortgages originated by lenders with their own money cannot be used to accurately model mortgages originated by lenders working only for commission. Et cetera.

The other bugbear instruments in some commentary are the "weapons of financial mass destruction", credit default swaps. These are simpler still; just a guarantee by one party of a debt owed by another. The main problem with them is their very simplicity - rather than selling them on like securities, someone holding one would just create a new one to cancel it out. That's what makes it so difficult to sort things out when a participant like Lehman defaults - its net position is manageable, but that net consists of astronomical credits and debits that almost, but not quite, cancel each other out. If the CDSs were more sophisticated (with central clearing), the problems would be smaller.

I think that this New York Times piece is very good, except for the one point, that the difficulty of valuing a mortgage derivative is not due to its inherent complexity, but mostly just because it's made out of mortgages.

24 August 2008

What are police?

The orthodox view these days is that police are the arm of the state responsible for fulfilling the state's function of preventing crime (to the extent possible).

I think that is a catastrophic error. Preventing crime, as I've written before, is not a separate activity, but is an aspect of almost everything we do - something so inherent in the human condition that we aren't really aware of the extent that it drives our behaviour.

What this means is that there's no way to draw a line around "preventing crime" and thereby delimit the scope of the police. Every issue becomes a police issue. I think that is the real meaning of a "police state" - not one where the state uses the police, but one where the police take control of the state.

If the police are not agents of the state, what are they? I think it is healthier to see them as state-funded helpers of private citizens. We all work to prevent crime, but there are some jobs that come up which we are not able to do because they take to much time or special expertise. Detection of crime is the most obvious of these.

If we take this approach, what really changes is the difference between police and public. The police do not have a separate role, they just have greater capabilities owing to their skills and available time. The most significant implication is that they do not need special legal powers. The only things they should be doing are things that members of the public could do, but don't have time for.

Another way of saying that is that police should be held to the exact same standard as anyone else. Which means that, in a case like this one, if the press reports are accurate, the issue is not about whether Mr Carter gets an apology or compensation, or about administration of police disciplinary procedures, but about why the PC in question is not facing criminal charges. The idea that it might be an internal police matter is quite incompatible with the police being assistants rather than masters of the population.

But the concept goes further. If the police are assisting the public, then whatever they are doing, it should be because someone has asked them to. Management should be a matter of which requests to prioritise, not setting an agenda independent of the public. Valid reasons for not doing something might be that it is too costly for the benefit, but might also be that people are already achieving what can be done without the police.

This is not meant to be an anti-police rant. I think we do need full-time, trained police, and I think there is a better case for them to be state-funded than there is for most branches of the state. I think many of them do a good job and I have sympathy with their difficulties. But I think it would be easier for them, and better for us, if we accepted the principles above.

And what really matters here is what people believe. I have said before that the police usurpation of the right of self defense, has, in the popular mind, actually outrun what the law really says. The police were founded on the principles I have stated, and while bad laws have been passed in the last few decades, they have generally not been controversial, because they are following rather than leading the change in attitudes - for the worse - about the role of the police.

The bad attitudes go beyond this. I was going to use as an example bin men - another arm of the state notable for actually having an important function. Bin men are not The Agents with The Responsibility for disposing of rubbish, which is something the rest of us should not need to think about. On the contrary, they take everybody's refuse to the processing centre in one go because it's a lot more efficient than having everybody chuck black bags into the boots of their cars.

I was going to say that, but even in that state function, the same error is appearing. I remembered this piece from 2004 which mentioned a man getting into trouble for collecting litter and taking it to a dump without a license. This is the real problem - not the idea that some things should be done by the state, but the idea that some things should only be done by the state.

10 August 2008

The Georgian Side

The Georgian side of the Ossetian question is now coming out. Saakashvili is claiming that Georgia didn't move against S. Ossetia until after Russian forces entered it. The cold war warrior element is making the point that S. Ossetia's status for the last fifteen years has rested on Russian support.

I have no confidence in being able to get to the truth of the conflicting views. I dwell on the question because, as unclear as the facts of the matter are, the principles that should guide us are just as unclear too.

We can't really talk about the reasons why South Ossetia might "deserve" to have independence from Georgia, without talking about why Georgia "deserved" to get its independence in 1991. I don't recall any such principles being argued, but of course Croatia and Slovenia were getting all the attention at the time.

The argument for having clear and explicit rules is the formalist one that if you know in advance what position the most powerful actors are going to take, violent conflict is unlikely.

That is a weaker argument if the rules, clear-cut as they are, depend on facts which are unclear. But even so, I think it would help. One reason the facts are so unclear is that, at the end of the day, the outcome won't depend on the facts. If it did there would be a more concerted attempt to determine what they actually are.

Retreating to what I can say in the absence of clear rules or reliable facts, I was interested that in his interview linked above, Saakashvili did not argue on the basis of Georgian claims to South Ossetia. Instead he emphasised the attacks by Russia on targets outside of Ossetia, and claimed that Ossetia was just a pretext for a Russian attack on the rest of Georgia.

Here, at last, we really do have the Kosovo precedents coming into relevance. If TV stations in Belgrade were legitimate targets in the protection of Kosovan rebels, then what gives the oil pipeline at Poti its immunity?

Another point is the effect of time. If outsiders now want to argue that Ossetia should rightly be controlled by Tbilisi, it's too late. They've been successfully calling for ceasefires for over a decade, and the outcome of any genuine negotiation is never likely to be that one side totally gives in. A ceasfire is always tempting, but sometimes it can mean giving up without noticing. Sometimes the best route to peace is to fight it out. I'm not saying that was or is the case in Georgia - that depends on those pesky facts again.

Just in case you're wondering, the sort of things I would be interested in, if there were any way of reliably establishing them, would be:

  • Why are the South Ossetians more friendly to Russia than to Georgia?
  • Would there be a reasonable way to establish borders for South Ossetia?
  • Are there internal conflicts within Ossetia?
  • What problems does independent South Ossetia cause for the Georgia? Smuggling, organised crime, control of resources?
  • What is the economic situation in Ossetia?
  • What provoked the recent Georgian offensive against S.O.?
  • How does the situation affect other issues in the region?
  • What are Russia's other interests in the region? - I believe there were claims that Chechen terrorists were using parts of Georgia as refuges..
  • All the same questions again with respect to Abkhazia.

08 August 2008

South Ossetia

So, Russia has sent its army into Georgia.

My mental first draft was all about how there was nothing anyone could do about this, because the precedents that had been set in Yugoslavia were all in Russia's favour. Defending a breakaway region from the army of the country which it nominally belongs to is all the rage these days.

But it seems the Ossetians' case is far stronger than that of the Croats or Kosovans. After all, they've never really been ruled by Georgia, except for a few years in the chaos of the Soviet disintegration. They've been de facto independent of Tbilisi for years. The chain of events was an invasion by Georgia last night, followed by Russia joining in today.

After all, we do hear these days that leaders must learn to think beyond borders. Putin & Medvedev seem to have got the idea.

I'm a bit old fashioned - borders are what keep armies apart, which is generally a good thing. The good case which the Ossetians appear to have is mostly the result of the support they have received from Russia all along. Arguably, had Russia always stayed within its borders, Ossetia would by now be a comfortable and stable province of Georgia.

It should be clear that, as with microgeneration yesterday, I'm playing with concepts here rather than real facts. I'm probably more than averagely knowledgeable about the situation out there, but that's setting the bar very damned low. I would be seriously deluded if I thought I could come to sensible conclusions about policy in the region based on the factoids accumulated from a handful of news snippets and Economist articles over a few years, plus the occasional spy novel. The only places I would be less qualified to pontificate on would be somewhere really remote and obscure, like, say, Tibet. Somehow the Ossetians have never quite got the attention of the more distant Tibetans - maybe it's something to do with the romance of a bunch of ancient monks what live on some mountain somewhere, or, to put it another way, that it's much easier to have sympathy for separatist rebels when you're never likely to actually meet them. Separatist rebels are bad news, however justified their cause.

Speaking of Tibet, this all blew up on opening day of the Olympics... coincidence? I would like to think it's just that someone was so pissed off at the thought of the next three weeks of television that they started a war just to avoid the boredom, but the connection may be more serious. The "spirit of international unity" that's supposed to imbue the whole binge makes it less likely that anyone will really make a stink. If nothing else, various world leaders are actually attending the stupid thing, making it that bit harder to make decisions. That would seem to play into the hands of the Russians, however, and my (wholly unreliable) impression is that this was actually triggered by Georgia. Perhaps Saakashvili thought that if he achieved enough fast enough, the Russians would be less likely to respond, what with the Olympics and everything.

06 August 2008


I mentioned microgeneration (of power) in my previous piece, just as a random Tory policy that I didn't give a hoot about either way. But the revival of the concept calls to mind one of the first pieces I wrote here, back in 2005, in one of my rare forays into things I actually know about.
If a 500MW power station could only be built by putting fifty thousand small 10kW generators in racks, with expensive complicated machinery to try to keep as many as possible fueled and running at once, then I don't think the concept of an electricity grid would ever have caught on. But that's what a "computing" power station looks like.

There are some slight economies of scale to computer hardware, mainly in management overhead, but compared to the cost of putting your own computer at the other end of a wide area network, they're negligible.

Now we are being told that central power stations are not, or at least will not be, a good idea even for power.

When I read about this in the Metro (yes, yes, I know), the idea was attributed to "a group of environmental and economics experts", which in fact turn out to be a bunch of lunatic lefties. So it's safe to assume that their facts are all rubbish. But the logic is sound, and just the same as my point about computers. For centralization to be efficient, the economies of scale have to outweigh the cost of having stuff a long way from where you need it.

The economies of scale are threefold: mechanical (a big turbine is more efficient than a small one), organizational (it's easier to keep two big machines fed & maintained than 200 small ones), and pooling (If everyone has their own little resource, they each need enough capacity to meet their own peak demand, which is much more capacity than overall peak demand).

For computing, as I argued, the first is non-existent or negative, the second marginal, and the third not enough to outweigh transmission costs.

Power generation that is based on making things very hot (i.e. all current major methods except hydro, but not photovoltaic solar) have large mechanical economies of scale because capacity varies with volume, and heat loss with surface area. But on the other hand, transmission costs are very high - both in building and maintaining the Grid and in transmission losses.

(I also seem to remember reading that the seasteading people looked at OTEC and found that it couldn't be made effective on a small scale, though it might on a larger scale. It still seems to be turbines and things, so perhaps it's the same fundamental scale effect.)

The management scale issue is questionable.

The pooling is a big deal for power where the cost of production is large compared to the cost of having capacity - that's fuel-burning but not most renewables (or nuclear). They talk about offsetting the pooling problem with small-scale grids, or hydrogen storage, but that brings in a whole lot more management overhead. If microgeneration becomes sensible it will be because generation methods which are all capital costs and no fuel costs take over.

And no, my reader who knows who he is, a national torque grid of spinning axles will never be sensible.

04 August 2008

David Davis

One of the bigger stories I didn't get round to writing about in the last two months was David Davis's little stunt.

I don't call it a stunt to disparage it or him - stunts are what it takes to get attention these days. If the government introduced a policy of sacrificing newborn babies to Beelzebub, the media would spend hundreds of hours of screen time on how it affects any possible leadership challenge by David Milliband, whether Boris Johnson and David Cameron are disagreeing about the best response, and what the effect will be on the voting patterns of Beelzebub-worshipers. Actual substantive discussion of the merits of baby-sacrificing would be left to a few vox pops and rentaquotes from the most ludicrous partisans on both sides. (It might be difficult to find a ludicrous anti-baby-sacrificing position, but they would manage it).

"Opposition spokesman objects to new police powers" is about as far away from being news as it is possible to get. To actually get anyone to notice, there must be a conflict, an election, a resignation. So, Davis gave us all three.

What has he achieved? That will become more obvious now that the fuss has died down. First, he has probably doubled the number of people who remember his name - no small thing for an opposition MP. I would assume the only Conservative MPs with any name recognition are Cameron, former leaders Howard, Hague and Duncan-Smith, and a few former ministers such as Redwood. The only other thing that would have got Davis as much publicity would have been a sex scandal.

That's by the way. The main effect of the escapade has been to nail his colours to the mast. The reason his opposition to 42-day detention was not newsworthy or interesting was that oppositions always object to the government curtailing freedom, and then always go on to do more of it when they get into power. Nobody cares any more - it is just accepted that politicians are forced to go through the motions.

But nobody forced Davis to go through this. By taking this extraordinary step, Davis has actually succeeded in making a credible commitment. Will a Conservative government continue to generously fund public services as they promise? Buggered if I know - I hope not. Will they follow through their policies on micro-generation? Anyone's guess. Will they push on with expanding the police state and replacing justice with administration? Not if David Davis is in the cabinet, they won't.


That's really something. And that's why the irrelevance of resigning as an MP and then being reelected doesn't matter. The frankly obscure details of the 42-day issue don't matter. All that matters is that one politician said "No further and I really mean it", and we can believe him, not because he is unusually honest, but because he has found a way to make a commitment that, however much he might want to go back on in future, he won't be able to.

03 August 2008


Mencius Moldbug has been on good form while I've been quiet, but one particularly original and interesting idea he came up with was, as a transition to a new form of government, handing power to a member of a particular profession - he suggested pilots.
Let's look at the advantages of this ... I am not myself a pilot - I am neither wealthy enough, nor responsible enough. But everyone I've ever met who was a pilot, whether private, military or commercial, has struck me as not only responsible, but also independent-minded, often even adventurous. This is a particularly rare combination. To be precise, it is an aristocratic combination, and the word aristocracy is after all just Greek for good government. Pilots are a fraternity of intelligent, practical, and careful people who are already trusted on a regular basis with the lives of others. What's not to like?

The reason I was so struck by this idea is not because it's a particularly good one. It's because it rests on one of those claims that is only ever denied, never asserted - the claim that one of the most important things you can say about any person is what they do for a living.

In fact, probably anything we deny as assiduously as we deny that should be assumed to be true.

Of course there is more to every professional than their profession, but few other single things say as much about someone. We all know what we think of Lawyers, Estate Agents, Accountants, Teachers... they are each more homogenous groupings than Lutonians, grandparents or Audi drivers.

Thoughtful people have probably already wondered what it means that Parliament consists overwhelmingly of lawyers, journalists and adminstrators - however they probably nevertheless underestimate the importance of that, by underestimating the significance of profession to a person's habits and outlook.


I'm back! Actually I've been here all along, I just haven't posted for a couple of months. It would be nice to come back with some huge thesis, but I don't have one, just a few things that have been nagging at me that I never seem to have the time, the inclination, and the opportunity to put down all at once.

So let's warm up gently...

29 May 2008


MM is back to form today after a weak outing last week. One point he makes in passing, which I have been meaning to say myself, is that the government of Myanmar would have to be completely nuts to let aid agencies stomp all over their country. It would be as stupid as the government of Iran refraining from supporting and arming its allies in Iraq.

Myanmar Faces Sanctions Unless Democracy Talks Begin, Bush Says - Bloomberg, Dec 2007

Brown calls for more EU sanctions on Myanmar - Reuters, Oct 2007

Now, it could be argued that the needs of the victim of the cyclone should outweigh political considerations. But if those needs should outweigh the desire of the Myanmar authorities not to invite their avowed enemies into their own power structure, then perhaps they should also outweigh the desire of Western governments to get their agents into Myanmar. Money could be given direct to the government, or else given to the Russians or Chinese to pass on. What's that? We don't want to give the money to any of those governments because we don't like them? So much for humanitarianism over politics.

France, Britain and the United States, three of the U.N. Security Council's five veto-wielding members, have indicated they want the council to take action to get Myanmar's leaders to open its borders to more aid.

But China and Russia as well as some other non-veto-wielding members have opposed having the U.N. body that deals with peace and security take up a humanitarian catastrophe.

Now, it may well be that the West has good reasons for wanting to replace the government of Myanmar with one under its own influence. But the unspoken assumption is that this rightness means that the openly-stated aim of overthrowing the government should be ignored by everyone when the subject of disaster relief comes up. This is the exact same error I complained about with Iraq. "Supporting democracy" in a country that has a non-democratic government means being an enemy of that country. That isn't necessarily bad, but it has to be remembered. The government in question is likely to remember even when we don't.

Those people running Myanmar cannot reasonably be expected to overlook the fact that every government offering aid is determined to remove them from office in a process that is likely to end up with them being lynched. The mere fact that they ought to be lynched does not come into their calculations.

(Let's throw this in for luck: ...there is an increasing degree of chatter about the possibility of an American-led invasion of the Irrawaddy River Delta.)

27 May 2008

Child Abuse by Aid Workers

The front page today was about the abuse of children by aid workers. I was going to follow up my 2004 piece, pointing out it was still going on, but the real story is much more interesting - and more positive.

The newspaper stories are based on a report by Save the Children UK, who sent researchers into Sudan, Côte d'Ivoire and Haiti to investigate the problem of sexual abuse of children by aid workers and peacekeepers. That is the real story here - the UN (at the top level) and some aid organizations like Save the Children are taking the realistic approach of assuming it's going on and working out how to get rid of it, rather than waiting for proof that they can't deny.

It's an excellent piece of work - I'm surprised and very impressed. The report concentrates on the underreporting of abuse by the victims. It recommends creating a global watchdog within the UN, which makes sense if they believe that not every charity and UN agency shares their determination to deal with the issue openly. They also recommend setting up local contact points to which victims can report abuse.

If I were to quibble, I'd say they needed to pay more attention to how these complaints will be investigated. The victims will see no benefit in reporting if there is no possibility of their allegations being proved. They cannot be compensated on the basis of unproved allegations, because that will encourage floods of false allegations, and obviously nobody can be punished on the basis of unproved allegations. So there needs to be some mechanism for investigating complaints. From the survey, it appears it is not uncommon for individuals to persistently abuse their positions, in which case it should be possible to catch them in the act after a complaint, provided the complaint goes through a secure alternative channel and the offender is not tipped off.

But that's a minor point; what's most significant is the seriousness and realism being brought to the question, which if it is followed through should be enough, not to eliminate abuse - the huge power asymmetry is bound to create it - but to limit it.


Doc Searls talks about the familiar obsession of technology companies (in this case social-networking providers) for business models with lock-in, and strategies that "kill other companies"

Why do they do this? It's not because it's the only way to make money. Plenty of companies make money by supplying open, competitive markets in which consumers can easily choose one supplier over another.

But those companies don't make vast amounts of money - at least, not unless they are in vast markets. To make huge amounts of money without being the size of Mittal Steel or something, you have to have some degree of immunity from competition. This can come from network effects, patents, state regulation, or some combination.

I can't back this up right now, but I think that most of the private-sector business in the world - most of the salaries, most of the profits - come from socially useful work. But most of the biggest profits come from businesses which have found some way of locking out competition.

The kind of logic here is that behind every great fortune there is a great crime - if you define crime loosely enough to include practices that limit the choices of consumers. (And if you allow one or two exceptions, which are worth looking at in another post). It does not follow that behind every modest fortune there is a modest crime.

This has a huge effect on perception. When you look at the market from outside, the most visible practitioners are the most successful, who are largely those who have managed to extract some form of monopoly rent. And the size of those rents are so large that they do represent significant costs to society. But theyare the exception rather than the rule - the bulk of economic activity takes place in competitive markets by businesses without market power.

It was also one of the factors behind the original internet bubble. Investors were valuing business that used the internet, but were in fact normal businesses, by comparing them with the companies that made internet infrastructure, and therefore had lock-in because of network effects. Amazon is a large and profitable business, but it has little or no lock-in. Cisco, Sun, Intel collect monopoly rents resulting from the network effects of their installed bases. Therefore Amazon's operating profit is 5% of revenue, while Microsoft's is 35%

For the UK, statistics show 60% of business (by no. of employees or by turnover) is carried out by businesses with less than 500 employees - just some vague background to show that it's plausible that I'm talking about the real world.