Economics and similar, for the sleep-deprived

A subtle change has been made to the comments links, so they no longer pop up. Does this in any way help with the problem about comments not appearing on permalinked posts, readers?

Update: seemingly not

Update: Oh yeah!


Wednesday, March 05, 2003

 
Insurable and Uninsurable Risks

This is a post which isn't really going to go anywhere, for which apologies in advance. But it's just that I wanted to comment on this post on Mark Kleiman's site, on the subject of the position of insurance companies with respect to health problems caused by alcohol. But as I was drafting an email to Mark, I realised that I was going wildly off onto tangents, and it really needed to be a post of my own. Then I had a few more thoughts about the generalisation of the problem of insurable and uninsurable risks, and how it could be used to make a few arguments I've been wanting to make anyway with respect to economic reasoning. And then this one came up on Brad DeLong's site about the equity premium puzzle, which is all about the importance of unisurable shocks if you believe John Quiggin, so it was obviously important to include that, and by now we're looking at a ten thousand word essay which is always a bit daunting to contemplate .... If you're wondering how unplanned month-long hiatuses happen, by the way, that's how they happen. So anyway, I think the best thing to do is to use this post to set out the core concepts of uninsurable risk, and then draw on it in two or three (or, realistically, somewhere between one and none) future posts on the substantial issues.

Basically, "insurability" and its opposite "uninsurability" are vague terms, defined by resemblance to the paradigm case of an insurable risk. A paradigmatically insurable risk is one which is accidental, small and actuarially well-behaved. Taking them in order:

Accidental: This is the category under which the well-known problems of "moral hazard" and "adverse selection" fall. If you're insuring against an utterly random occurrence (paradigmatically, the weather), then you have no better information than the insurer about the likelihood that the insured event will occur in your case. Because of this, the insurer can quote a price for your risk without worrying about the possibility that he is dealing with someone who is trying to rip him off. As we move along the continuum of accidentalness, we reach motor insurance (where there is an asymmetry of information because you have better information than the insurer about whether you're a crap driver or not), then professional negligence insurance (where the fact that you're insured might mean that you take less care than you otherwise would), and finally we reach the provision of fire insurance to a small minority of proprietors of garment warehouses.

(By the way, a good way of testing whether you're dealing with a sharp economist or not is to ask him whether fire insurance is a cyclical or countercyclical business. If he isn't sharp, he'll say that it's neither; fires aren't correlated to the business cycle. If he's a bit more streetwise, he'll realise that it's a trick question and that the prevalence of fires in insured premises is actually quite strongly correlated to the degree of recession.)

There are things you can do as an insurer to try to make sure that you're only exposed to the "accidental" component of the risks that you cover. You can use loss adjustment and claims investigation to cut down on fraud. You can put a hefty excess on your policies to deal with the adverse selection and moral hazard effects. Et cetera, et cetera. But it's a real problem, and a quick glance at the two-and-eight that medical professional negligence has got into is enough to, is enough to make the hardiest of underwriters spend a while thinking about how much they like earthquakes.

Small: An easy one to understand; it's not possible to write insurance against some kinds of events because the amount of the potential claim is too big a financial risk for the insurer. This is not a problem which can be solved by pricing the risk, by the way; remember the Alfred Hitchcock argument I used in the discussion of genetic testing. Just as Hitchcock's hypothetical film about the Titanic could still be suspenseful because people wouldn't know when it was going to sink, most of the variance of an insurance company's profit and loss is related to the timing of claims rather than their size. For any realistic level of premium, if the insured event happens a couple of months after the policy is taken out you're going to make a loss, and if that loss is big, you're bust.

Note that "small" in this context refers to the risk rather than the event itself. Big hurricanes and earthquakes lead to big losses for the insurance industry, and it's only through the careful use of reinsurance that it's possible to manage these risks down to an insurable level. But the insurance industry is not just exposed to the risk of big things happening; things can be just as bad if a lot of small things happen at the same time. For example, if you were an insurer underwriting employers' liability insurance in the 1950s, you'd probably think you were looking at a pretty insurable class of risks; each individual policy you were writing was pretty small relative to the whole. You wouldn't have known that every single one of those policies was on a factory fitted with brown asbestos ... and you certainly wouldn't have written a policy for the general risk of asbestos if you'd known what you were doing. Small risks can become big in this way if they have long "tails"; if the liability extends out into the future. Another example of a risk of this sort was the guaranteed annuity issue that toppled the Equitable Life in the UK (basically, they'd implicitly written insurance against falling interest rates to a lot of policyholders). Each individual risk was small, but they were all related to a common factor, so the outcome was that Equitable was writing a much bigger single risk than would have been prudent given its capital base.

Actuarially well-behaved: Basically the requirement that it be possible for an actuary to say, with a degree of confidence which reflects his professional status, that he has determined both a premium at which the insurer can expect to write this business profitably in the long run and an amount of capital to be held against the insurance written which will provide reasonable confidence that the insurer will be able to meet claims. A risk which is paradigmatically "actuarially well-behaved" is one where there is a lot of data on past experiences of claims and where that data has the property that it can be fitted to a (possibly multivariate) probability distribution, and that this probability distribution remains stable over time. If you're lucky enough to be writing insurance on deaths from horse kicks (the data which Poisson was investigating when he discovered the distribution that bears his name), then because you know that these events have a Poisson distribution over time, and you've got enough data to fit the parameters of that distribution (mean and moments), which will give you a clear picture of exactly what your risk of ruin is, at any given level of premium. If you're dealing with subjects on which there is a patchy or inadequate dataset, then there is often a few statistical tricks you can pull (or educated guesses you can make) to quasi-fit a distribution of losses. Even for some kinds of nonergodic data (basically, those described by power laws), you can find actuaries who will go out on a limb and price a policy, even in the absence of a well-defined measure of central tendency and dispersion. But for some things (for example, the success or failure of a business and other "speculative" risks), the actuarial ill-behaviour of the data is bad enough to make it more or less impossible to write insurance.

More to come in this direction ... in the meantime, an interesting factoid, backing up a few claims I made in the earlier "genetic discrimination" post (I was arguing that since timing is a much more important source of risk than probability, genetic discrimination in insurance premia would not have the effects many pundits have prophesied for it). Even given what we know about the relative importance of smoking habits, heredity, lifestyle and all the other questions you're asked on forms, 95% of all UK life assurance policies are written on standard terms.

0 comments this item posted by the management 3/05/2003 02:29:00 AM

Friday, February 28, 2003

 
The Economics of Pound's Canto 45

It appears that I've procrastinated so long that the post with the text of XLV has fallen off the front page, so here it is again:

Canto XLV -- "With Usura"


With usura hath no man a house of good stone
each block cut smooth and well fitting
that design might cover their face,

with usura

hath no man a painted paradise on his church wall
harpes et luthes
or where virgin receiveth message
and halo projects from incision,

with ursura

seeth no man Gonzaga his heirs and his concubines
no picture is made to endure nor to live with
but it is made to sell and sell quickly

with ursura, sin against nature,
is thy bread ever more of stale rags
is thy bread dry as paper,
with no mountain wheat, no strong flour

with usura the line grows thick

with usura is no clear demarcation
and no man can find site for his dwelling
Stone cutter is kept from his stone
weaver is kept from his loom

WITH USURA

wool comes not to market
sheep bringeth no grain with usura
Usura is a murrain, usura
blunteth the needle in the the maid's hand
and stoppeth the spinner's cunning. Pietro Lombardo
came not by usura
Duccio came not by usura
nor Pier della Francesca; Zuan Bellin' not by usura
nor was "La Callunia" painted.
Came not by usura Angelico; came not Ambrogio Praedis,
Came no church of cut stone signed: Adamo me fecit.

Not by usura St. Trophime

Not by usura St. Hilaire,

Usura rusteth the chisel
It rusteth the craft and the craftsman
It gnaweth the thread in the loom
None learneth to weave gold in her pattern;
Azure hath a canker by usura; cramoisi is unbroidered
Emerald findeth no Memling

Usura slayeth the child in the womb
It stayeth the young man's courting
It hath brought palsey to bed, lyeth
between the young bride and her bridegroom

CONTRA NATURAM

They have brought whores for Eleusis
Corpses are set to banquet

at behest of usura.


I promised some thoughts about the economic ideas in this poem, so here they are. I'd note at this point that I am not a Pound scholar, or indeed a scholar of any kind. But I will defend what I'm doing here as being a valid approach to criticism of this poem. Canto 45 is clearly not just an economic argument, but equally clearly it is an economics argument. It makes a difference in one's reading of the poem and its imagery if you know the kind of economic worldview that it is supporting. Furthermore, one doesn't have to be Jacques Derrida to think that you will read this poem differently depending on whether you fundamentally agree with the argument or not; count the number of people who find Ayn Rand's prose style constipated and boring, but are captivated by Richard Wright's Native Son, the entire last third of which is basically one character making a political speech. Anyway, here goes. Thanks to these guys for providing me with enough Pound references to get a handle on what he's saying here, particularly the fact that "Usura" here refers specifically to the practice of charging high interest rates rather than its medieval (and current Islamic) sense of the practice of lending money at interest per se.

It strikes me that there are four separate aspects to Pound's critique of usury here. First, he seems to be arguing that usury is bad for the general provision of basic goods of decent quality (housing made out of stone). Second, it retards or makes impossible the production of works of great art. Third, it has a generally debilitating effect on human life in general, and on sexuality in particular. Fourth (and I found this one difficult to spot, and only noticed it after reading up a bit on Silvio Gesell and the Social Credit school), he has a macroeconomic argument; that in general, "usura" causes underproduction and unemployment of productive resources ("wool comes not to market" and "stonecutter is kept from his stone"). I'll take them in order.

Claim One: Usura is bad for the housing and baking industries

On this claim, as far as I see it, Pound is just flat out wrong. In terms of the provision of houses made out of good stone, the financial industry has performed fantastically well ever since the beginnings of the Building Society movement in the middle of the nineteenth century. If you want to live in something better built than a shack, you need a large sum of capital to pay for the construction of a house. If you don't have that sort of capital lying around and you can't borrow it, then you're going to have to go on living in a shack, and there really isn't any solution to this problem at the level of the whole economy, which doesn't involve something like the practice of lending money for interest.

The point is that the interest rate is at least partly compensation to the lender for the default rate. If you aren't able to charge rates of interest which compensate you for the risk you're taking, then as a lender, you're only going to do business with people familiar to you, which means that the typical working man is not going to find anyone who is prepared to lend to him. This means that the working class is denied one of the principle luxuries of the capitalist class; the ability to make decisions about the timing of purchases of goods independently of the fixed timing of the arrival of one's income. And it turns out that this is a very valuable advantage to enjoy. Usury has been very good in this regard. Pound is possibly in this passage and in the "bread made of good flour", thinking of the obvious association between predatory lending practices and poverty, but it seems to me that if he is, he has confused cause and effect here. Loan sharks seek out poor neighbourhoods; they don't create them, and the fact that extremely poor people are nevertheless prepared to pay extortionate prices for the ability to move consumption around in time just confirms what a great thing it is to have access to debt.

This is a topic I'll come back to lower down, and a genuine weakness of a lot of economic commentary, including Pound's; a fixation on "finance capital" without putting it in the context of a capitalist economy. If you believe that poor people are poor because the system exploits them, then you need to blame the system, not the particular exploiters. George Orwell saw a similar tendency in Dickens; the belief that the only thing wrong with Victorian capitalism was that some employers were cruel people, and if they only changed their hearts, happiness would be universal. Similarly, there is a tendency to believe that if you remove the loan-sharks from a slum, the slum-dwellers will be richer to the tune of their weekly interest bill, and this is poor general equilibrium analysis. If part of the cost of living in a slum is that you end up paying 10% of your wages to the money-lenders, then the wages of the slum-dwellers will reflect that; otherwise, the workers wouldn't be receiving a subsistence wage and there soon wouldn't be any workers. If you take away the loan sharks, then the most likely outcome is that the slum-dwellers get used to a life without credit, and over time, wages in the slum get bid down 10%. But as I say, this fixation on the "contra naturam" nature of money-lending as distinct from other forms of capitalist enterprise is part of a general deficiency in the economic school which Pound followed.

Claim Two: Usura is bad for the production of art

Pound has much more of a point here. The passage beginning "Pietro Lombardo came not by usura" is more or less correct as a description of the state of fine art in the age of mass reproduction. One of the things that makes some of the great works of Rennaissance art so inspiring is the realisation that it is pretty much impossible to conceive of anything of their like being attempted today. You simply couldn't paint a Sistine Chapel in the modern world.

Part of the problem here is that great works of art will systematically tend to be underproduced because there is a missing market. If one considers the market for chapel ceiling paintings in 1512, then ... well, first of all, one is doing an intrinsically ridiculous thing, but put that on one side for the minute. Imagine that you are the Pope, that you face a smooth production function for artistic quality (ranging from two coats of white emulsion to Michalangelo's work), a twice-differentiable utility function with respect to art, and you're deciding how much money to spend. What (economically) is wrong in this picture?

Basically, there's a huge positive consumption externality. Michelangelo's work will be enjoyed not just by the Pope, or by the devout faithful who'll be asked to pay for it, but also by untold numbers of future generations. And it is clear that this externality is unresolvable; as those future generations, we can't send money back in time in order to pay the Pope to choose a more expensive decorating solution. Problems of this sort crop up all the time in environmental economics (note that future generations also don't get a vote on things like the Kyoto summit, so democracy suffers this problem too), and they generally fall under the heading of what's known as the "Social Discount Rate", the rate at which future pains and or pleasures should be regarded as less important than present one's simply because they are in the future. The philosopher Derek Parfit has a decent argument or two to the effect that the Social Discount Rate ought to be zero (as future generations are people just like us). Other people, including most economists, would argue for a positive SDR (on the basis of the by no means rock-solid assumption that each successive generation will, more or less monotonically, be richer than the last). But almost everyone agrees that the SDR is substantially less than market rates of interest on money.

Which creates the real problem, and the one that Pound is correct to identify. Note that the missing market problem in production of great works of art is one which exists under any form of economic organisation; it is not specifically a problem of Usura. The reason why art is specifically more difficult to produce under a modern capitalist economy is that under capitalism, you have to pay the opportunity cost of the artist's time and effort, which is a constant for the economy in the form of the rate of interest (this is quite a difficult one to get your head around, so let's think about it this way; why does a 15-year old bottle of Scotch cost more than a 10-year old? Partly supply and demand, but partly because a 15-year old bottle costs more to produce, to the tune of five years' interest on the money you could have got by selling the 10-year old bottle. I've got an article ready to write about the "Malt Whisky Yield Curve", but I need to crunch some data before doing it).

Under forms of economic organisation before capitalism, the cost of time passing is purely a theoretical opportunity cost; it's what you might have earned if you were doing something else (say, knocking out 100 portraits of noblemen). Under capitalism, there's a lot more reality to the cost of time passing, because for most of us, it's a cash cost that you have to pay. No wonder that in general, art produced these days is made to "sell and sell quickly". Note that this is the counterpart to the way in which usura allows us to shift consumption about; it specifically does so by putting a money price on the passage of time, and a lot of confusion in economics rests on this point (I might even go so far as to say that more or less everyone except Keynes screws it up at some point or other).

But only half a point for Pound on this one, as he still appears to be picking out the financiers (in later broadcasts, specifically Jewish financiers) as the villains of the piece. Marx had a much more systemic approach to the question, which we'll consider next.

Claim Three: Usura is detrimental to the human enjoyment of life

For the purposes of this section, I'll set aside my earlier argument relating to the provision of material goods and pretend that it would be possible to have anything resembling the lifestyle of a First World citizen in the 1920s if there was no banking system. Pound's claim is that usura, in an absolutely memorable line, "lyeth between the young bride and her bridegroom". All I can say about these stanzas of Canto 45 is that if you don't recognise a fundamental truth about them, then the life you have led up to this date has been sheltered to an almost morally culpable degree. It is absolutely horrible to be deep enough in debt that you worry about it, and this simple truth about modern life is one which is not mentioned anything like often enough. One of the consequences of having a social relation of debt is that it creates fear and worry in the lives of debtors, and this is a cost which ought to be set against the benefits of an expanding credit-based economy, and to be minimised as far as possible. Specifically, although loan sharks provide a valuable service to the poor, they often do so in an extremely destructive way, and they should be regulated as tightly as possible; also, the bankruptcy law for individuals should be easy and free of stigma. Score a big one for Pound here.

But again, the copy book is blotted in other works (particularly the infamous broadcasts) by the obsession with "Loan Capital" and specifically, with Jewish people (by the way, big up to all of my Orthodox readers who'll be out and about in Barnet this evening. If you are ever disposed to believe that humanity has evolved past the territorial pissing stage, just check out the history of this local planning clusterfuck over the issue of some people just wanting to stick up a few bits of poles and string). Marx was also guilty of similar confusions in some of his polemic work, but in the analytical works like Capital, he's much clearer about this subject. The misery of debt and exploitation is not something which is inflicted on the poor by Dickensian bastards in the money-lending industry, or even by capitalists at all. It's a part of the system. Particularly, Marx realises the truth that many capitalists are in debt up to the eyeballs themselves, and even if they're not, they are forced by the logic of the system to constantly turn over their inventory in order to pay off their working capital loans. The accumulation system Money -> Capital -> More Money only works if it keeps expanding at a cracking pace, and the capital owners are, in an important sense, stuck on the treadmill with the rest of us. There are genuine idle rentiers, and they do matter as a class, but they should definitely be distinguished from the people at the sharp end, and aren't really the source of the problem in any case. Marx is right on this one; the real issue is the social relation of production of the capitalist economy. It's a social relation whose power to keep people working productively is unparalleled, and as noted above, it's just the ticket if what you want is a stone house and some bread, but it really hurts if you get on the wrong side of it. But I appear to have drifted off the topic of Pound here.

Claim Four: Usura has detrimental macroeconomic effects

Before getting into this, a little bit (just a little) on the background to Pound's economic thinking (props to decent encyclopedia entry here and full text of Clifford Hugh Douglas's "Social Credit" here, by the way). Basically, the importance of the distinction between (white, good) "Industrial capital" and (bad, Jewish) "finance capital" in Pound's writings is due partly to Silvio Gesell and partly to Major Clifford Hugh Douglas, the inventor of the concept of "Social Credit". Social Credit is a whole economic philosophy, put together by an engineer attempting to reconstruct the political world on the basis of sound scientific thinking (yes yes, I know). These days it reads, as do so many tracts from the prewar era, a bit on the nutty side, but it's an important document of its time and there are some fairly interesting ideas in there. I'm only scratching the surface of Social Credit here, but for the time being we need to note that one of Gesell's most important ideas was that paper money was the expression of state power (as in, you are forced to accept legal tender), and one of Douglas' key ideas was that in allowing the private banking sector to create deposit money, the state had sold out a vital common interest to a small group of profiteers.

If one takes it down to operational terms, the practical upshot of this cocktail of views which were the chief influence on Pound's monetary economics, is that the private banking system will tend to set the rate of interest at too high a level, to maximise their own profits, and that what should happen is that the government should take over a monopoly on the provision of credit, setting the interest rate so as to maximise productive output (in fact, a lot of Social Credit is devoted to the belief that this optimal rate of interest might be negative, and the design of measures to penalise "hoarding"). Pound's initial contacts with Mussolini were all motivated by his belief that Mussolini could be persuaded to implement a Social Credit system in Italy; it was about at this time that Piero Sraffa was doing a runner from the fascist carabinieri after having written a few seditious articles about a crisis in the Italian banking system. Right, enough background, on with the show.

The proposition that the rate of interest is too high is not intrinsically a nutty one, and taken with reasonable interpretative charity, the passage:
[...] Stone cutter is kept from his stone
weaver is kept from his loom

WITH USURA

wool comes not to market
sheep bringeth no grain with usura
Usura is a murrain, usura
blunteth the needle in the the maid's hand
[...]

can be seen as a reasonable description of a Keynesian (even better, Kaleckian) recession; usura is too grasping for the current conditions of production and thus the rate at which savers demand to be compensated for delaying consumption is greater than the rate which current consumers and investors are prepared to pay in order to bring their purchases of goods and capital forward in time, and stagnation results.

But the problem is in believing that this is in any meaningful way the fault of the banks. I think that there are three points that the Pound/Gesell/Douglas axis didn't really get their heads around:

  1. Banks are capitalist enterprises, and are subject to exactly the same pressures of the accumulation cycle that Marx identified in the case of industrial concerns. Banks have to make loans or they go bust (they have to pay interest on the money deposited with them), and they have no real economic interest in restricting the supply of their product.
  2. Banks are big creditors, but they are also some of the world's biggest debtors too, through their deposits, so it is not at all clear that they benefit from high interest rates - since high interest rates are associated with shortages of liquidity, they are actively dangerous for banks, which provide the economic function of insuring everyone else against illiquidity. This is a big difference in the world which came about when the business of lending was industrialised. Savers and rentiers can be assumed to have an automatic desire for higher interest rates, but banks in general don't. A lot of what's wrong in Pound's economic thought comes from a confusion when talking about "loan capital" between stereotypical Jewish "money-lenders" and banks.
  3. Gesell is basically wrong in thinking that fiat money is all about state power. Private currencies can and do perform the role of state ones; Scotland is the example that comes to mind. The power of the state to force you to accept legal tender is not really that significant in a normal economy, since there is usually a plethora of widely accepted instruments (bank deposits, bills of exchange, etc) for commercial transactions. If you implemented a Social Credit model, all you'd get would be a lot of periodic inflation and your economic agents would start inventing their own currency to get round your restrictions. It's a version of Goodhart's Law; as soon as you try to control some monetary variable, it ceases to be the monetary variable of interest because you're trying to use it to make people do something that they fundamentally don't want to do.





So at the end of the day, it all comes back to time and uncertainty. Lots of strange things happen in economics, and many of them have a lot to do with the rate of interest; a single price which has to do a lot of work in equilibrating any number of complicated social realities. The real fallacy in Pound's economics is assuming that the horse moves because the cart keeps pushing it; that the productive relations of the present and people's perceptions of the future are all shaped by the shadowy Jews who set the interest rate in their secret committees, when in fact the causation is the other way round.

Pound was an anti-Semite, which has famously been described by Engels as "the socialism of fools". He was also a follower of Social Credit, which could be described reasonably accurately as the Keynesianism of fools. All of which is rather puzzling, since the man clearly wasn't a fool.

2 comments this item posted by the management 2/28/2003 06:09:00 AM

Thursday, February 27, 2003

 
Department of Lights and Bushels

Scott Martens needs to sack his bloody publicist; even I didn't know he had a blog. And it's a rather good one. Scott is the guy in the comments section who lives in Belgium and does so much sterling work in helping to drive Enetation into insolvency while making the comments board the best thing about this site. I will no doubt soon be reciprocating his numerous citations to me, so people who are repulsed by incestuous lefty blog circle jerks might want to visit D-squared Digest a bit less frequently.
0 comments this item posted by the management 2/27/2003 07:23:00 AM
 
SSdB

Today's screed is quite literally Biblical in the extremity of its weirdness:

  • The way for the Arabs to gain self-respect is for them to become provinces of the American Empire


(I wonder if SdB reads Friedman, btw? He also appears to be happy to talk about what "America" is going to do in the region, without pausing to think that "America", a very fine country indeed, with all the virtues SdB sttributes to it, tends to stick within the borders of the USA, and that the actual business of nation-building in Iraq will be carried out by the bunch of untrustworthy clowns currently occupying the White House. The Romans were also highly civilized and virtuous people, but it didn't make them popular, and the wheels rather tended to fall off when the bloke at the top wasn't up to the job. Does Bush own a horse to appoint to the Senate?)




And another one:
  • America is on a mission to bring democracy to the Arab world and save them from totalitarianism, much along the lines of its similar crusades in Latin America and SouthEast Asia


(It should be pretty clear by now that I have given up all pretence of accurate precis and am just randomly editorialising, What the heck, at least it's short).


0 comments this item posted by the management 2/27/2003 04:16:00 AM

Wednesday, February 26, 2003

 
And another hit and run

I find myself with a few spare minutes and make the mistake of reading Thomas Friedman again. His conclusion after a long, dull and witless ramble about the introduction of "democracy" to Iraq (just what the Gulf region needs, more puppet states) reads "If [it is] done right, the Middle East will never be the same. If done wrong, the world will never be the same". There's not much you can say to that except "shut up you silly man". But it does inspire in me the desire for a competition; can anyone, particularly the rather more Bush-friendly recent arrivals to the board, give me one single example of something with the following three characteristics:
  1. It is a policy initiative of the current Bush administration
  2. It was significant enough in scale that I'd have heard of it (at a pinch, that I should have heard of it)
  3. It wasn't in some important way completely fucked up during the execution.
It's just that I literally can't think what possible evidence Friedman might be going on in his tacit assumption that the introduction of democracy to Iraq (if it is attempted at all) will be executed well rather than badly. Worst piece of counterfactual speculation by Friedman since the day he pondered the question "If I grew a moustache well, I would look distinguished and stylish; if I grew one badly, I'd look like a pillock".
4 comments this item posted by the management 2/26/2003 01:40:00 PM
 
An apology

Sorry and all that; I'm buzzing round like a blue-arsed fly at the moment. Only time for an SSdB, but numerous articles (including the long-promised Ezra Pound one!) are stacked up over Heathrow:

  • The USA has come up with a clever form of words for its resolution which "it would be difficult to disagree with on factual grounds" and has mistaken this for diplomacy. World powers like France often go to war when they don't want to purely because of having been caught in clever syllogisms.

0 comments this item posted by the management 2/26/2003 11:19:00 AM

Tuesday, February 25, 2003

 
Two for the price of one!

What do you mean, slacking off? I happened to know that if I waited a day I'd be able to summarise not one but two posts with one bullet point:
  • How could I be "right wing"? I believe in evolution!


There's also a:
  • Hmmmm, looks like some of those diplomatic masterstrokes weren't so clever after all. Time for unilateral war!


(seasoned SdB watchers will notice that these posts used to end "time to reveal our smoking gun dossier / the evidence that France has been smuggling weapons / the true identity of the Hooded Claw!". Looks like this claim has been dropped, and the rationale is back to "because we can".)

Residents of Berkeley might like to know that there is 1 (one) joke about your town being nuked. In fact, anyone else might like to be aware of this, as it offers useful context for exactly how much of a fuck SdB actually gives about the victims of terrorism when they aren't being wheeled on and off stage to provide a handy moral justification for wars of aggression. Note also in this context that when one says "I'd rather be hated by everyone than have one of our cities nuked", that it's not exactly an either / or situation. Finally note that this paragraph constitutes a roughly 150 word summary of a ten word original; I am still plagued by the philosophical ramifications of Shannon's information theory.
0 comments this item posted by the management 2/25/2003 05:36:00 AM

Thursday, February 20, 2003

 
SSdB
  • Every single op-ed cliche about the European Union is true.

    or alternatively:

  • The Gaullist Jacques Chirac worships Karl Marx





Note: SdB fans who are also engineers will be aware of the problem of "compressing white noise" from Shannon & Wiener's information theory. The point being that (say) a computer file of completely random numbers can't be compressed to a smaller size, because the way that you compress things is by taking advantage of their internal structure to eliminate redundant points. Because a file of completely random data doesn't *have* any internal structure, there is no file that you can create which describes the data fully, which is shorter than the file itself.

That's what writing today's summary was like. Apologies that the two tries above aren't very good; this isn't my fault, it's the Second Law of Thermodynamics.

1 comments this item posted by the management 2/20/2003 11:35:00 PM
 
Of Human Rights and Wrongs

It is now apparently the view that this is all about saving the Iraqis from Saddam Hussein. It's not, of course; as I've pointed out before, in so far as this is about the Iraqis at all, the main benefit from them is the possibility of saving them from us and our insanely, murderously cruel sanctions regime. But apparently, having given up on the bin Laden connection and the Saddam-has-nukes idea, we are now going to be emotionally blackmailed into a war. In my experience, good ideas don't usually need quite so many outright lies told to support them, but what the hey. (parallels here to the accounting treatment of executive stock options, another practice which was once held to be so universally beneficial that it was imperative that the truth about it should never be disclosed).

Of course, the new gambit is a much more difficult one for some people on the left in particular to resist. In general (perhaps because, to generalise, so many of them work for the government), left-wing people are suckers for an argument based on the idea that "We're from the government. We're here to help" is anything other than the punchline to a joke. The idea that the kind of "help" that governments provide using guns and bombs has a record of failure only rivalled by subsidised cinema, tends to go a bit against the grain. As does the important principle that there should be a very strong presumption against intervention, because the examples of Latin America, SouthEast Asia and Africa all tell us that when it comes to justifying interventions in other people's countries on "humanitarian" grounds, great powers tend to take roughly 500,000 hectares for every inch you give them. Even if one points out that the people who have become such humanitarians in the case of Iraq have a truly contemptible record on the issue, you get people like Jonathan Freedland who draw the incorrect conclusion ("maybe they've changed") rather than the correct conclusion ("clearly, they're up to something"). To sharpen up your intuitions in dealing with the "we made Saddam, so we should remove him for the benefit of the Iraqis", imagine that a notorious local thief shows up on your doorstep asking for the keys to your grandmother's house, on the pretext that he wants to repair some of the damage to her guttering that he did during his last break-in. Do you act all pleased at his sudden change of heart with respect to the welfare of old ladies, or do you kick him up the arse and tell him you weren't born yesterday? Put it this way; I wouldn't like to be Christopher Hitchens' granny.

Compounding this, we have the tendency of well-meaning liberals to read a lot of newspapers. Although everyone knows that the press is full of propaganda at war time, it's quite difficult to internalise this to the necessary extent. The objective facts of the matter are that 95% of everything you see in the papers about conditions in Iraq comes to you via Western governments or via the government of Iraq, both of whom are proven liars on the issue, so what you in fact know about Iraq is precisely 95% of bugger all. Any sentence which has as its premise "Saddam Hussein is such a terrible dictator that his regime cannot be tolerated ..." is intrinsically flawed and cannot be used as a premise for a rational (as opposed to rhetorical) argument, because we do not know how bad he is relative to the kind of dictator who we don't mind remaining in power. A good way to clear your mind is to try and formulate all your arguments in such a way that you would be able to defend them without resorting to any factual statements where your only source is a newspaper or a government document. It clears things up wonderfully, and it stops you pretending you have more information than you have.

In support of the above, I would like to present the following links: one, two, three. Amnesty International don't have a position on war against Iraq, because that's a political question outside their remit. But they do appear to be downright pissed off at the selective and tendentious abuse of their human rights files on the subject by the War Party (in particular, they have gone into print objecting to the use of quotes from the 1994 report by Condoleeza Rice on the subject of dissidents having their tongues cut out, in a context where she did not make clear that it was eight years old). Iraq is a horrible place, right enough, from a human rights point of view. But the people pressing for a war there are squatters on this moral high ground, and the actual owners of the real estate (the human rights agencies) do not appear to regard their case as highly as they do themselves. As I say, if this is the right thing to do, why do so many lies need to be told about it?

While we're on the subject of lies and Amnesty International, by the way, I seem to remember from my college days that some people were convinced that Amnesty International was "a political organisation" and "not a registered charity", and thus that it was not a suitable recipient of donations from our college charitable donations fund. Things don't change that much, so I'm sure that someone somewhere is pushing this lie still today. If any of my readers have occasion to need the Amnesty UK's registered charity number, it's available here.
0 comments this item posted by the management 2/20/2003 02:15:00 AM
 
Shorter SdB
  • Turkey has been given genuine defensive assistance rather than the massive Kurd-destroying force de frappe it asked for, and this is a defeat for the French in some way.
  • Reality television is horrible, particularly in its treatment of homophobic murderers


And a quick thought for the day ...

I am absolutely sure that the main reason why the antiwar movement is so popular is that a very great number of people are thinking of their own selfish interest; they do not want the disruption, possible economic damage and general unease associated with a war. "It is not to the benevolence of the butcher or baker that we look ..."
0 comments this item posted by the management 2/20/2003 01:37:00 AM

Wednesday, February 19, 2003

 
Coffee-break length Steven den Beste

Well, SSdB has been quite a success, by the admittedly low standards I set for it. I've lasted long enough to be able to give up at any point with a semblance of self-respect, and it apparently drew a few favourable notices, if my obsessive and constant vanity searches are anything to go by. This isn't a valedictory, by the way; I aim to keep it going for the forseeable future, both as a source of updates and as an incentive to myself to keep coming up with new material to balance things out (I'd also invite any SdB fans who are frustrated by the lack of a comments board to use mine, and perhaps to request that my regular readers don't gang up on them if they choose to do so). But I thought I'd post a few thoughts on what I've learned from the exercise.

1) To be honest, I thought it would be a chore, but I've grown to rather like the daily read of USS Clueless. The posts are still way, way too long, but they are always very well-informed from a factual point of view and in general well written, and I am hardly in a position to complain about sheer length. I've also substantially warmed toward the author over the last two weeks, and I don't think that it's purely a case of Stockholm Syndrome. My only previous experience of reading SdB was when the left wing blogosphere linked to something absolutely outrageous (like the infamous "kill the Palestinians" post), and that's actually a pretty unfair way to judge a body of work. When you read it on a daily basis, you get a sense of the overall Weltanschaung and you can put things in context. I still think that the authorial tone of USS Clueless is extremely cold and lacking in fellow-feeling, but you don't get the overpowering sense of selfishness that jumps out of most right-wing blogs. I now take SdB's claim to be "neither left nor right" a bit more seriously; I think he's someone with right-wing instincts (a little touch of Adorno's f-type personality), but who is intelligent and open to most forms of reasoned argument. I was also pleasantly surprised at the calibre of posters to the comments board which the SdB link attracted, as I mentioned in comments. None of the above should be taken as any assumption on my part that SdB cares more about my opinion than does an elephant about the opinion of a flea, by the way.

2) I found myself ruminating about geek culture, science fiction and right wing politics a lot over the last couple of weeks. One thing I'd note is that the defining characteristic of science fiction is that it's escapist; it invites the reader to imagine himself in the place of the characters in the novel. Compare that to, for example, Jane Austen, where the invitation is to empathise with the reactions and feelings of one of the characters as themselves, rather than imaging how you might react if you were Elizabeth Darcy. This is at the root of my dissatisfaction with even left wing techno-types; they don't seem to have developed the capacity to imagine a scene or way of life without putting themselves in it; to consider what it would be like to see the world through someone else's eyes, rather than being in someone else's situation with their own set of values and judgements. And I think that this failure of imagination, or something like it, is at the root of the problem of what I find bothersome about USS Clueless.

3) Finally, there's the elements of sheer lunacy which crop up with hilarious regularity. Mainly, the wild-eyed speculation about the French conspiracy (not too strong a word), or the painstaking, Zapruderesque reconstruction of what set of bizarre through-the-looking-glass circumstances might turn everything the US Government does into a series of strategic masterstrokes rather than a painful fiasco. I have my own theory about these ... bear with me ...

About five years ago, I happened to be, as I often was, visiting New York on business. Between meetings, a colleague and I popped into a branch of Starbucks (this was a novelty, because, believe it or not, Starbucks had no UK presence before 1999, when they took over the 40-odd outlets of the "Seattle Coffee Company" in what I still regard as the worst abuse of pooling-of-interests accounting ever). I noticed that the sizes of cups went something like "Short, Tall, Grande, Venti". I happen to know that "Venti" isn't another Italian word for "big", so I inquired what size it was. It's a 20-ounce cup (and is thus a pure Americanism; the Italians wouldn't call it "Venti" because they don't measure things in fluid ounces. God this is all getting like Pulp Fiction isn't it?). It was at that time that I idly wondered the following thought:
I wonder whether it is particularly healthy to drink a pint and a quarter of coffeee in one go, particularly when that coffee is the foul-tasting, high-caffeine kind which Starbucks appears to be using? (I was nursing a particularly nasty espresso at the time) Has any real research been done on this subject? I wonder what the effect on American society will be of a few years of this sort of caffeine intake?


And my theory is, not to put to fine a point on it, that USS Clueless might be on the way to providing an answer to my question. Engineers on mobile phone projects drink a lot of coffee, full stop. And a lot of the longer and more barking SdB posts really do have the air of the kind of wild speculations that you find yourself engaging on when you're up against a tight deadline, full of information and with your brain chemistry slightly altered. Even if SdB himself is a Mormon or doesn't drink caffeine for some other reason (I have no information on this score), the point is still there; a lot of the fevered imaginings of the whole blogosphere seem to partake of a somewhat overstimulated hallucinatory-paranoid reverie.

This is quite serious stuff, by the way. Cultures have, as a matter of extermely arguable historical fact, been brought down by overindulgence in their drug of choice. Opium did a lot of damage to Persian and Chinese civilisation, for example. I really worry, on quiet nights with a glass of wine in my hand and looking out at the stars over London ... am I going to be part of the generation that ends up having to deal with the geopolitical consequences of the world's greatest superpower (a superpower which has always had a very problematic relationship with drugs) finally finding a chemical it truly wants to get fucked up on?

1 comments this item posted by the management 2/19/2003 09:24:00 AM
 
Awww ....

This is only big news because it is, quite literally, the first time in ten years of reading (as far as I know and without exaggeration) every single word Krugman has published (web, journal articles, newspaper articles and books; not every interview or media appearance), that I've seen any sign of an inner life not connected to economics. No wonder I'm beginning to warm toward the man.
0 comments this item posted by the management 2/19/2003 08:45:00 AM
 
BIG IMPORTANT NEWS!

Den Beste is a Volvo driver!!!!

Unless anyone knows of another marque where you can't switch the headlights off, I'm going to assume that he's a Volvo Driver, providing a rich further vein of mockery for me to mine, without heed to the environmental consequences. In related news, today's post summarises as "Trivial gestures like boycotting French wine or French fries are stupid!! What we need is War on France!!"

Update:Apparently I have some readers who were fooled by my clever subversion of the convention of reverse chronological order below (I got two emails asking if I was in hiatus because I started posting new SSdBs to the bottom of the SSdB post below as "Updates" rather than as new posts at the top of the page). So I guess I can't take anything for granted. The point I'm making above is that Volvo drivers are notorious for a) being snooty about their superior taste in engineering and design and b) using the fact that they are personally isolated from the consequences of their actions to make the road a complete bloody peril for other users. I'm guessing that regular SdB readers can join the dots on this one.

Further Update: I don't want to get hate mail for the wrong reasons. So before going any further, let me make it quite clear that I do hate Volvos, and that the people who drive them are fools for doing so. I confess to a weakness for the P1800, but even that came in a horrendous estate version, as if Volvo wanted to underline that it was just a fluke. The rest of the Volvo line is just abysmal. I don't really like the look of Saabs either, but I will concede that some rational people like them.

Final Update: Apparently it's a Chevrolet. Rat's cocks.
1 comments this item posted by the management 2/19/2003 08:21:00 AM

Tuesday, February 18, 2003

 
The Greatest Newspaper Market In The World

Paul Krugman's off on one again, good on him. But I think that on this occasion, he's been reading a bit too much of the output of well-meaning American liberals like the inexplicably popular Eric Alterman (no don't tell me how good he is, I don't like Springsteen either). His latest column is doing a big deal on why it is that European media seem, from the perspective of the USA, to be doing a lot more in the way of neutral coverage, and a lot less in the way of mindless warmongering than the domestic US news. The irritating thing is, that Krugman gets within a cuticle's distance of the real answer, then decides to copy a wrong one out of Alterman's book instead. He notes that the cross-Atlantic reality gap is actually not all that wide when one compares newspaper coverage; most US print coverage, while a little bit rightwing for my taste, is still quite clearly sane. But, as PK correctly points out, most people get their news from TV, not print, and the US TV stations are doing their usual diabolical job of informing their customers about the world. So far, so spiffing. But he muffs it right in the final para.

There are two possible explanations for the great trans-Atlantic media divide. One is that European media have a pervasive anti-American bias that leads them to distort the news, even in countries like the U.K. where the leaders of both major parties are pro-Bush and support an attack on Iraq. The other is that some U.S. media outlets � operating in an environment in which anyone who questions the administration's foreign policy is accused of being unpatriotic � have taken it as their assignment to sell the war, not to present a mix of information that might call the justification for war into question.


Whenever someone says that there are two possible explanations, I always find myself thinking of about a dozen more, and this time round is no exception. The real reason is the one that PK identified; that this is a problem of American TV specifically, not one of American "media" in general. It's also, I think, a US versus UK phenomenon rather than a US versus Europe one; as far as I can tell, the French media are as mindlessly anti-war as the US are mindlessly pro-war; I don't read any German blatts other than the English online version of Frankfurter Allgemeine and occasionally that, but it's so dull and predictable on every other issue that I'm pretty sure it will be on this one. But anyway, I digress. This is the question of explaining the difference between the BBC's coverage of the issues with US TV, without getting into utterly moronic beeb-bashing of the sort that even Normal Tebbit can't be bothered with these days (although, obviously, Mark Steyn and Andrew Sullivan can). And the root of the problem is this: in the UK, newspapers set the agenda for TV news, and in the US they don't.

The root cause of this is that the USA doesn't have any really good national newspapers, by which I mean newspapers which have as their readership a really material proportion of the thinking class of the country. The New York Times has a (paid, print) circulation of around a million copies. That's only the same as the Daily Telegraph, and about twice as much as the Guardian, in a national market about five times as big. The largest selling daily in the American market is USA Today, and that only sells about 2.2 million, which would put it a pretty poor fourth in the UK market1.

This is an important difference. In a market where there are a few big newspapers, you have to pay attention to them; you're talking to large groups of people with a worldview, and you can't go around saying things that are going to appear to them to be either false or dotty. Quite apart from anything else, if you're a news editor for the BBC or ITN or even Sky, and the editor of a major newspaper thinks you're a nut, that's going to come back to you in your professional life (or even in your social life). Newspaper editors (those people whose task it is, in the immortal phrase, to publish as many of the proprietor's prejudices as the advertisers will tolerate) are just more important people in a concentrated newspaper market. In a market where the newspaper market is fragmented, each individual newspaper is less important, and furthermore, they tend to cancel each other out. So, there is no Athenian hand of considered, intelligent newspaper opinion to stay the rush of the Romans of broadcast news and counteract their natural tendency to oversimplify everything and go for whatever angle will give them the chance to put a flag, an explosion or a pretty girl on the screen.

On some future date, I will discourse on why the British newspaper market is the Greatest In The World, why British tabloid writers are the best in the world, and why Rupert Murdoch is a substantially greater businessman than Bill Gates, but I suspect that it's a different issue. But for the moment, note that "concentration" is a very complicated concept in industrial economics, highly dependent on how you define your markets, and that there are often positive network externalities in the consumption of the same good by large numbers of people.




1Don't you mean "third", idiot? No, I dont. The "Daily Record" has its figures broken down separately, but it is fundamentally the Scottish edition of the Daily Mirror for commercial purposes and for all editorial purposes not related to Scottish politics. The Sun also publishes a Scottish edition, and has in the past taken an entirely different editorial line in that edition (basically, right wing politics are sales poison North of the border). In many ways, Scotland is an even better newspaper market than England, because you get all the English papers, plus the excellent Scotsman and Glasgow Herald).

Update: See, told you I was right. Even den Beste is getting his news from the Glasgow Herald these days. Today's summary:
  • The French are losing the diplomatic battle, apparently.

1 comments this item posted by the management 2/18/2003 10:08:00 AM

Wednesday, February 12, 2003

 
SSdB

alotofmilitaryhardwareisonthemoveandreutersareshillsforyasserarafat.




Oh yeh, I knew I'd come through the other side of that Wobbly Friday I had and I think I have done.

Update: We must invade Iraq because Saddam's weapons of mass destruction are a threat to us, and we will win because Saddam's weapons of mass destruction are no threat to us.

Update:
  • I don't like someone else's screen name
  • The French will say that "war is the last resort", and they will be wrong.

Sorry for the lack of non-SSdB content, by the way, I've been busy. More coming ...

Update
  • I am in a position to criticise other people for poor English
  • Why do the Iraqis bother, we're going to invade them anyway?

    Update: He thinks he can break me by taking advantage of my weekend break to put up like about a hundred comments. But he can't:
    • If Le Monde don't understand why we want to bomb Iraq, they should take a trip to Southern Manhattan1
    • Oh, they did. What a bunch of patronising bastards they are for saying so.
    • Time to declare war on France!
    • Time to declare war on France!
    • Turkey aren't co-operating ... clearly the French are behind it!
    • We are being diplomatically outmanouevered by the French!
    • Saddam's missiles represent a very real threat because their range is long enough to reach troops stationed extremely close to his borders.
    • Time to declare war on France!


    I haven't included bits that were just two-sentence comments on news stories; perhaps a reader with some Python skills will construct a program that downloads random feeds from Yahoo news, and appends the sentence "Sometimes I read things that just make my blood boil" to the beginning and "Time to declare war on France!" to the end. But I have to post this final summary because I think that, via subtext, den Beste is crying out for help. He doesn't want to continue this dance of death that me and him have got into, so he's begun serving me up short lobs to smack to the boundary.

    • I used to play Go rather heavily. It's an interesting and very complex game, one famous for the fact that the rules of the game are easy to learn but tell you nothing about how you should play. Now here are some of my opinions.


    Update: This can't be accidental. Either he's playing with me or crying for help. I can't believe anyone would just accidentally juxtapose these two:
    • It's incredibly tragic when young men die in easily preventable ways for no good reason.
    • Time to start a war right now!


    In related news, I think I'm going to try to keep count of the number of times SdB uses his favourite analogy to mobile phones; that, just as you sometimes have to ship a really crappy mobile phone product which isn't ready in order to meet a deadline because marketing is on you ass, sometimes you have to start a pre-emptive war of aggression without the support of anyone else in the world and before you have deployed your troops properly because ... sometimes you have to ship a really crappy mobile phone because marketing is on your ass. Or something. There's a particularly good example today.

    In unrelated news, a number of people have requested "links" to the specific posts being summarised. No. I refuse to "dumb down" this service; the kind of person who can't work out which summary refers to which SdB post without being spoonfed a link is, frankly, going to have a hard time mastering the relationship between Ezra Pound, Marxist accumulation theory and endogenous-money economics, and thus should probably go off and read another blog. Furthermore, this is a *summary* service, meant to *replace* USS Clueless. I've never heard of anything so silly as to read a summary and then go and read the full length version "to check if the summary was right". If you want to read USS Clueless, then go ahead. Allow yourself. It's OK. You don't need to make excuses like "checking up on d-squared digest". You're still a good person.




    1I would just like at this point, to express a certain degree of contempt for anyone who makes political use of a tragedy which happened to other people living a long way away and one from which they personally are more or less isolated. As far as I can tell, Den Beste didn't lose anybody in the WTC disaster (an apology will obviously be placed here if anyone can show otherwise), so I'd like to know where he gets off in appropriating those who did for his own purposes, particularly when he's agitating for an unrelated pre-emptive war. We had people like this crawling all over every single IRA bomb that went off. I don't want to start a competitive grief contest with anybody, so I'll just point out that I live in a major terrorist target and SdB doesn't.

    Non-SSdB content coming soonish.

    0 comments this item posted by the management 2/12/2003 02:36:00 PM
  •  
    Poetry corner

    He was a terrible old fascist, I know, but Ezra Pound did have some bloody good tunes ...

    Canto XLV

    WITH USURA

    With usura hath no man a house of good stone
    each block cut smooth and well fitting
    that design might cover their face,

    with usura

    hath no man a painted paradise on his church wall
    harpes et luthes
    or where virgin receiveth message
    and halo projects from incision,

    with ursura

    seeth no man Gonzaga his heirs and his concubines
    no picture is made to endure nor to live with
    but it is made to sell and sell quickly

    with usura, sin against nature,
    is thy bread ever more of stale rags
    is thy bread dry as paper,
    with no mountain wheat, no strong flour

    with usura the line grows thick

    with usura is no clear demarcation
    and no man can find site for his dwelling
    Stone cutter is kept from his stone
    weaver is kept from his loom

    WITH USURA

    wool comes not to market
    sheep bringeth no grain with usura
    Usura is a murrain, usura
    blunteth the needle in the the maid's hand
    and stoppeth the spinner's cunning.
    Pietro Lombardo came not by usura
    Duccio came not by usura
    nor Pier della Francesca; Zuan Bellin' not by usura
    nor was "La Callunia" painted.
    Came not by usura Angelico; came not Ambrogio Praedis,
    No church of cut stone signed: Adamo me fecit.

    Not by usura St. Trophime

    Not by usura St. Hilaire,

    Usura rusteth the chisel
    It rusteth the craft and the craftsman
    It gnaweth the thread in the loom
    None learneth to weave gold in her pattern;
    Azure hath a canker by usura; cramoisi is unbroidered
    Emerald findeth no Memling

    Usura slayeth the child in the womb
    It stayeth the young man's courting
    It hath brought palsey to bed, lyeth
    between the young bride and her bridegroom

    CONTRA NATURAM

    They have brought whores for Eleusis
    Corpses are set to banquet

    at behest of usura.




    There's a sound file here where you can listen to the man himself reciting this canot with a spittle-blowing passion which in general can only be raised by a certain kind of person when talking about the Jews. But it's interesting to look at the economics of this poem; given time, I'll post a few thoughts on this general area later today.

    1 comments this item posted by the management 2/12/2003 02:16:00 AM

    Tuesday, February 11, 2003

     
    Shorter Stephen den Beste

    The reason Americans don't get on with Europeans is that Europeans are such liars; this is why they haven't accepted some hypothetical self-consistent subset of the Bush administration's case for was on Iraq.
    0 comments this item posted by the management 2/11/2003 01:37:00 PM
     
    Gene pools and risk pools

    or

    Why ignorance might be bliss

    A few thoughts about health care, genetics and (wait for it ...) post-Keynesian economics spurred by an incredibly interesting paper which crossed my desk the other day, sadly not available in electronic form.

    The standard argument about genetic testing an health insurance is well known, and I'm assuming that all my readers have a reasonable intuitive grasp of it. A market for health insurance can't operate if people can have genetic tests but are allowed to keep the results secret from the insurance companies, because if this happens, the only people who will want to buy insurance are the bad risks. Because, at every price of insurance, the people who choose to buy represent an adverse selection from the overall risk pool, no market-clearing price for insurance exists. One can dress this model up with the maths to prove it, but the intuition is there in the old fashioned actuarial distinction between insurable and uninsurable risks. Private information destroys insurance markets.

    So, the debate is usually carried out in terms of the ethical dilemma of forcing people to share their test results with the insurers, and then what happens to the (presumed large) group of people who get priced out of the market? Usually, this is discussed in terms of the subsidy implicitly provided by the genetically healthy to the genetically inferior under current insurance arrangements (note that, for the purposes of this analysis, single payer schemes are also "insurance"), and the debate is more or less unpleasant and uncomfortable depending on how squeamish you are about Social Darwinism, interference with the market, or the disappearance of the health insurance industry. I have a lot of problems with arguments on all sides of this debate, but I'll keep them for another time, or this already huge post will assume elephantine proportions.

    What I want to advance is the cheering thought that things might be even worse than that; given sufficient amounts of genetic information about susceptibility to expensive illnesses, health insurance might become absolutely impossible to provide for anyone at all, no matter how fine their genes. Why? Let me give you a famous Alfred Hitchcock story:

    Hitchcock would occasionally say that what he really wanted to do was to make a film about the Titanic disaster. People would be slightly bemused by this ambition; after all, everybody knows what happened to the Titanic, so what attraction would the story have to the Master of Suspense? "Ahhhhh", Hitchcock replied "but they don't know when it happens!"

    Healthcare costs are like that. Let us say that, genetically, my thyroid gland is a racing certainty to swell to the size of a balloon and require some expensive surgery. It could happen tomorrow, or it could happen in thirty years. Nobody knows what suddenly triggers these dodgy genes into action. But, from a financial point of view, this makes a hell of a difference. For one thing, from a present value point of view, it makes a hell of a difference whether it happens tomorrow or in thirty years' time; specifically it makes the difference of thirty years' investment returns, assuming that the insurance company is being run on an ongoing combined ratio (premiums/costs + claims) of 100%. But more importantly, it means that you can know all that there is to know about my genes -- stronger than that, you can know all that there is to know about the chances attached to every possible health outcome for me, and price insurance to me accordingly -- and still have significant variance in your underwriting profit & loss account. In fact, somebody has done the maths and, on plausible assumptions, even if it were possible to precisely measure every conceivable factor contributing to an individual's health care spending, it would still only be possible to predict about 20% of the variation in annual expenditure. And since insurance companies have to maintain their solvency on a year-to-year basis as well as on an actuarial long term basis, this residual variance in their cashflows matters.

    And it matters a hell of a lot, quite possibly, for two reasons. First, when start refusing to insure or quantity-rationing a particular group (the genetically inferior), the mathematics of risk-pooling start working against you. The dispersion around the mean of your costs and revenues is likely to be greater as a percentage of the mean, and you are more likely to get a "tail" outcome in any particular period. The genetically inferior might be money-losing propositions in the long term at the pooled rate of premiums, but they contribute a lot to the year-on-year stability of costs and revenues through their sheer weight of numbers. Second, if you are selecting particular groups to offer more attractive terms to and therefore sell more insurance, you are most likely increasing the correlation of your risks. If there is a particular genetic type that is over-represented in your portfolio, then you are exposed to the risk of a particular set of environmental conditions which is associated with medical problems in that type (say there was a set of people who were largely genetically invulnerable to everything except melanoma; you're bearing the risk of a hot summer). If you're correlating your risks and reducing the size of your pools, then you need to hold more capital against possible tail outcomes, and this can jack up your costs to the point at which it's uneconomic to provide insurance in the first place. But on the other hand, you can't go back to the old pooled equilibrium where the genetically fit are cross-subsidising the unfit, because that's no longer a stable market; you're open to a competitor taking away your fit customers.

    It's a genuine problem, and it comes about, not as the result of anything intrinsic to do with genetics or health, but because of the fact that there is time and uncertainty in the model (which is the only real connection to post-Keynesian economics; note that this was all worked out in a completely ergodic framework). It's as well to remember that a model which works fine in static time on an actuarial mean-variance basis, will have to be implemented in historical time, and one in which liquidity in the short term matters (liquidity is present as a constraint in this model through the need of the insurance firm to maintain short-term accounting solvency as well as long-term economic solvency).

    Solutions? Sorry, don't really have one, unless one seriously thinks that the genie of genetic screening can be pushed back in the bottle. I'd note, however, that the engine of most of these "problems of asymmetric information" (in this case, the adverse selection problem which makes the pooled equilibrium solution with private information untenable) is usually an embedded option. In this case, it's the option of the insured party to choose whether or not to buy insurance. Since you can't force them to buy the product, they will only do so when it's to their advantage, and this turns out to be enough to knock down the existence of the market. I speak as a member of a health insurance scheme (the National Health Service) which doesn't have the property that you can refuse to buy it if you don't want it, and would humbly suggest that something along these lines might help the insurance industry out of what might turn out to be a nasty hole.

    After all, shallow pools are the safest for swimming, but the most dangerous for diving into.

    0 comments this item posted by the management 2/11/2003 06:36:00 AM

    Monday, February 10, 2003

     
    Shorter and more Postmodern Stephen den Beste

    Europe has no existence besides its status as a figurative Other, forming the other half of a binary opposition to the USA. Nothing in the world truly exists except the prospect of war in Iraq, a phenomenon wholly defined by the policy of the USA, so any attempt at forming European consensus is mere deferance of the final choice. But even if the French are "with us", they are also, by essence "against us", so the final contradiction is never resolved.

    Update Two more: a massive "I literally cannot understand why anyone might possibly object to the idea of a major war in the Middle East", and "People have more complicated views than simply for-us or against-us and it's Reuters' fault".

    Update Rereading, I think I haven't done the long post justice. It's not just monumentally obtuse about the possible motivations of France and Germany. It's also actively barking. I believe (and certainly do not propose to check) that this marks the first description of France and Germany as "active cobelligerents" of Iraq and "our enemies". Also, SdB appears to have blurred the line between his suspicion that France and Germany have been secretly helping Saddam build weapons of mass destruction, and the real world. So I retract the summary above and substitute:

    "The administration which couldn't produce a smoking gun in the case of Iraq is now going to produce one for France and Germany".
    1 comments this item posted by the management 2/10/2003 02:29:00 PM
     
    Scattered shots

    • In general, I'm in favour of pirate radio. It's exactly the sort of antinomian behaviour I like; taking a damnably stupid and bureaucratic practice (the current cartel for allocation of the FM spectrum) and dealing with the problem simply by ignoring it and banking on the fact that the law enforcement authorities only have the funding necessary to do what they ought to be doing rather than what they think they ought to be doing. A few pirates get raided every year, which stops the problem from getting absolutely out of control, but most of them are able to continue more or less unmolested, meaning that musical innovation isn't stifled. On the other hand, some bunch of bastards have set up shop at or near 97.3FM in the North London area, and that means that I get cross-talk between their mega monsta jungle experience and Charlie Gibson's excellent early slot (LBC had the smart idea of realising that the only people who are up between 5-6am in London work in the financial markets, so we get an hour of trader talk interspersed with the traffic news and a few records). I am at this moment composing a strongly worded letter to the Ministry of Truth, or whoever it is responsible for shutting down dissidents in this country, instructing them to go round Tottenham or wherever and take a large fireaxe to this bugger's stereo.

    • Time to break a New Year's resolution ... earlier in the year, under the heading "Department of the Bleeding Obvious", I put up a list of things that I had decided were no longer up for argument in 2003 because I'd lost patience with everyone who disagreed with me. Most of them are still valid, but I've kind of reconsidered on one of the bullets, specifically "That it is the proper function of civil society to provide a decent standard of living for its members, and that the definition of "a decent standard of living" has nothing to do with caloric survival requirements"

      Don't get me wrong; I don't think that I'm no longer correct on this, I just think that the second clause bears a bit more argument and that there is still probably some useful conversation on the subject between me and those unfortunate enough to disagree with me. Somebody asked in comments "Does a 'decent living' include a cable modem?", and on reflection, I think it's a serious question which deserves an answer.

      My view on the subject of what constitutes a decent living goes right back to Adam Smith, whose views on the subject are not so well known, but exemplify the strand of humanity and sound common sense which has been so thoroughly ignored in his writing ever since he coined that phrase about the Invisible Hand. Smith asked the question in Wealth of Nations, in respect of the minimum standard of living, whether it was part of that standard for a man to own a clean linen shirt (at the time, linen and the laundry thereof were just making the transition from a luxury of the upper class to a mass market product). Smith's answer was that, although a linen shirt was clearly not a necessity for survival, and had not been part of the basic standard of living even ten years earlier, it was at the time of writing. His reason for so concluding was that things had advanced to the point at which any industrious tradesman could afford to wear linen and keep it laundered, so any tradesman not able to afford his linen shirt would be thought lazy or inferior; even if he had happened into that state of penury by bad luck, he would find it very difficult to get employed and get out of it once he was in it.

      That seems like, adjusted for technological advance, a good rule of thumb for today. Taking out clue from the fact that the senses of "decent" which refer to the display of taboo body parts, and the senses which refer to material standards of living, must have some common origin, I'd define "a decent standard of living" as "the lowest level of material possessions in a society which allows one to escape shame and prejudice". So for example, while the phrase "trailer trash" is in common usage, a decent standard of living implies not living in a trailer. If it is impossible to get a job without an email address, then maybe a modem of some sort (not necessarily ADSL) is a part of that standard. And so on.

    • The Benson & Hedges Masters finished last night, and I was watching it, naturally. It was a classic; Steven Hendry displayed all the characteristics of the sport which make it such a draw for me (ie: despite being probably a better player than his opponent, he suffered a few early losses and consequent gradual psychological collapse). But the thing that really interested me were the teary-eyed eulogies made by presenters and players alike; due to European Union legislation relating to tobacco sponsorship of "sports", this will be the last ever Benson & Hedges Masters. Everyone seemed genuinely affected by this milestone, which confused me somewhat; they were all saying that it was the greatest of all the snooker tournaments, which it transparently isn't; the World Championships at Sheffield's Crucible Theatre are much more prestigious.

      The penny dropped when I realised that it wasn't so much the demise of an individual snooker tournament that everyone was mourning, as the fact that, in the era post-tobacco sponsorship, prize money for all tournaments is likely to be much, much lower. Already, snooker professionals outside the top ten struggle to make a living at their sport; going forward, it is going to be next to impossible to scratch a living as a full-time player on prize money and appearance money alone. Most of the current pros are going to either need "regular" jobs, or to make their living hustling; playing exhibition matches in snooker clubs and playing the game for money in local halls, as they in general did before turning pro.

      I have to say that I have mixed feelings about this. Part of me says that it's more in keeping with the spirit of the game for snooker players to be entrepreneurial hustlers, gambling for a living. There's something fundamentally aesthetically wrong about a disreputable pastime like billiards having a career structure and a tenure system. But on the other hand, a few of the more marginal pros seemed, underneath their platitudes about "the great players to have appeared at Wembley Conference Centre and how proud they were to have taken part", to be genuinely worried about their income going forward; after all, most of these guys have mortgages. The fact that people were reduced to waxing elegiac about the sponsorship of ciggie merchants, rather brought it home to me what a terrible thing it is to be insecure about one's income. Whenever we talk about "flexible labour markets" and the "efficiency" thereof, we ought to remember that we are talking about a subsidy to employment brought about by making the working class bear the risks of the business cycle, and that at times, this risk can be a cross that is rather difficult to bear.

    1226 words, eat yer heart out den Beste!

    0 comments this item posted by the management 2/10/2003 08:42:00 AM


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