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!

Tuesday, December 31, 2002

Look to the future now, 'cos something has begun

A couple of short thorts because nobody can be bothered reading or writing anything longer today! Actually, I've realised that at the moment, the bottleneck in this blog is writing rather than ideas, so this partly represents a dump of the "must write a longer piece on that one" file.

  • Some fridges have magnetic doors and some don't. Try getting that information out of the fridge magnet industry.

  • I have no idea what this is all about, by the way.

  • A lot of people have been worrying unduly about what will happen to "free TV" in a world in which digital video recorders allow you to automatically skip the ads. How about ... having a regressive flat rate tax on television ownership and using it to fund five state-owned television channels and a radio network? Nah, couldn't possibly work. Only the free market can provide high quality entertainment. And anyway, a government-owned network would surely degenerate into propaganda.

  • I mentioned the last time we did one of these, that if Shania Twain was so fucking popular, how come I don't know anyone who likes her. It is instructive to think these things the other way too ... everyone I know online seems to care a hell of a lot about Andrew Sullivan. Does that mean he's important? No, because we've already established through the Shania Twain thing that the people I know are utterly unrepresentative of the general population.

  • Just a few facts about how things got how they are in Zimbabwe:

    Before 1979: Mugabe leads his ZANU freedom fighters in guerilla war against the Rhodesians. They dream of freedom and land reform.
    1979-1981: Mugabe, Nkomo, the Rhodesians and the British lay the foundations of the New Zimbabwe at Lancaster House. The key issue is land reform. The British promise that they will finance the transfer of land from the white population to the black population on an equitable basis.
    1982-1997: It becomes gradually clear that the British don't like Mugabe and have absolutely no intention of keeping their promise (note: the Tories were in power throughout this period). The black Zimbabwean population waits patiently, then less patiently, for land reform. The white Zimbabweans hang around on their farms -- they know that land reform is coming, but they can't afford to leave without the compensation the British promised. Gradually, the white Zimbabweans forget that land reform was ever agreed.
    1997- shortly before the present: The current fucking mess kicks off in earnest.
    shortly before the present - present And then just to put a cap on it, a drought strikes the region.

    Alright. First things first. I do not mean to exonerate Mugabe. There is always the option of not acting like a bastard and it is his fault he didn't choose it. Although the proximate cause of the problems in Zimbabwe is the drought, things are much worse in that country than they are in Malawi or Zambia, and this is probably Mugabe's fault. I am not going to comment on the question of him starving his political opponents, because I haven't seen that claim substantiated, but I suspect that it's the sort of thing he might do. But ... the question that really has to be asked is what the fucking fuck did Her Majesty's Foreign and Commonwealth Office think they were playing at? If you encourage a populist Third World revolutionary leader to make expensive promises about land reform, and then create a situation in which it is impossible for him to keep them, how the hell do you expect things to end up? Badly. It is very hard to avoid the suspicion that something like the current mess in Zimbabwe was planned or at least expected.

  • A longer article will be forthcoming on how the ball was dropped in Malawi. Meanwhile I note that the current President of Brazil has been elected on the basis of substantial promises to the dispossessed, and is being denied the financing to keep them. How does this game end? Badly, usually.

  • Another way of putting the point of my previous essay is that, on the old "No Blacks, No Irish, No Dogs" principle, that if it weren't for a crew of politicians a lot worse than Al Sharpton (the Kennedys, Daleys, Tammany etc), you wouldn't even be able to rent a room if you had a surname like Hannity, Coulter or O'Reilly.

  • Speaking of which, Ms Coulter has a new book out. I fear for its sales, given that her core readership is a bit wiped out by Christmas, the Michael Moore book & film, subscription renewal time at the Nation, soccer boots for the kids, the price of granola, plus we've still not really got round to finishing getting annoyed at the Hannity book. This thing's never going to eran out it's advance if it's dependent on conservatives to buy it!

  • People seem to be faintly drawn to the idea that there might be more political dimensions than just "left" and "right". Bullshit. Being in favour of allowing other people to take drugs, shag each other or read what they want isn't a political position; it's what we call "manners", "civilisation" or "humanity", depending on the calibre of yokel you're trying to educate. The political question of interest splits fair and square down a Left/Right axis: either you think that it is more important to provide a decent life for everyone in the world, or you think it is more important to preserve the rights of people who own property. You can hum and haw as much as you like about whether the two are necessarily incompatible, or whether the one is instrumental to the other, or what constitutes a "decent life" anyway, but when you've finished humming and hawing, I'm still gonna be asking you the question, and your answer to it will determine whether or not we're gonna have an argument.

  • JK Galbraith's maxim that "the project of the conservative throughout the ages is the search for a higher moral justification for selfishness" is still worth every word of political philosophy written since the war, as well as being a damn good explanation of why self-styled "Libertarians" and trad conservatives stick together.

  • The singular of "Weetabix" is "Weetabik", and I don't care what anyone else says

  • About a year ago, I told someone that my political position could be summarised as "in favour of more meat in the pies, more booze in the beer and fewer hours in the day, and against more or less everything else". It's still a decent summary.

  • The official position of D-Squared Digest on the subject of Napster, Gnutella and all similar is that copying is theft, theft is sin, sin is forgiven, so get stuck in. In other words, the fact that copyright law means that upstanding citizens are committing theft by sharing their music, is a good thing about theft, not a bad thing about the law. A sensible copyright law could not be drafted in any other way, and nobody should be expected to obey the law that we have. This is only a problem for people who hold the legal code to a standard of consistency and completeness much more stringent than that of elementary number theory. The sky will not fall in, people will not stop creating works of art and the music, film and publishing industries will continue to be roughly as profitable as they are today. How do I know? Because the only argument to the contrary is that "people won't buy music/books/films because they don't need to if they can get them for free". Take a look around you. Do you see people buying only the things that they need? Or do you see a massive goddamn lucrative edifice based on the fact that people can be persuaded to buy a whole lot of shit they don't need? Thorsten Veblen would have had a bit of fun with this one.

  • A Happy New Year to us all.

0 comments this item posted by the management 12/31/2002 04:42:00 AM

Friday, December 27, 2002

The "N-Word" and the "M-Word"

Update, November 2017: This post used to use the full spelled out word.  I don't know whether this was acceptable in 2002 - the post was quite widely shared and didn't get me loads of negative feedback but I don't know what that means. All I know is that it certainly isn't now.  It's clear from the post that it's not used in hate and I think I probably could defend it, but the word itself is just so offensive these days that I don't choose to be associated with it.

I think I've earned a couple of short ones ... this is an opinion I've had for a while, and is reasonably topical given that the world has been buzzing recently with the news that the Republican Party in the USA might be about to re-address its Southern strategy.

I am somewhat less optimistic than, say, Brad DeLong that this will herald a new dawn of racial equality in the USA. Students of history will be aware that the "negro problem" has been around since well before De Tocqueville identified it as such, and the whole history of civil wars and civil rights doesn't appear to have done anything about it. The history of civil wars and civil rights is particularly unfortunate in as much as it tends to a) throw up clouds of partisan bullshit relating to whether it was the Republicans or the Democrats who did this or that, and b) throw up clouds of regionalist bullshit relating to whether the South of the USA is uniquely horrible and "racist" compared to the Northeast or not.

Before pursuing this line of thought, I'd like to make a quick and controversial assertion about language, which will contain one use of the word update: it doesn't any more now known in polite American circles as the "N-Word". I warn readers of this because it seems, I don't know why, that this "N-Word" has taken the place of the sexual swear words as the Worst Thing You Can Say. I don't actually blame "political correctness" for this, because fear and revulsion for the "N-Word" goes well beyond those who regularly take pains not to cause needless offence. It appears that a much stronger taboo has grown up; everyone in America has agreed that the mere use of this word is beyond the pale, and I am enough of an old Freudian to believe that this taboo is based on the repression of something important. OK, warning over, here's the opinion:

In the opinion of D-Squared Digest, the epithet "n-----" is a much less offensive term when used to refer to an American of African descent, than the more popular word "minority".


Because, in the opinion of D2D, a bluntly stated truth is less offensive than an Orwellian lie. The word "minority" is the clearest and most pernicious example of Newspeak that I can come up with today. "Minority" is a word which means "Black, Southeast Asian, American Indian, Indian and all other non-white", but which is often used in contexts (particularly, university admissions) in which it can only be reasonably interpreted as meaning "Black". I will for the moment pass over the slightly revolting points of etymology whereby the Polish-Americans, Italians, Irish and even Jewish-Americans are no longer considered to be "minorities" and get to the meat of the issue.

The word "Minority" in its modern use, is offensive and pernicious because it aggregates the experience of the USA's immigrant communities with its African community. Uniquely among non-Native American ethnic groups, the majority of Americans of African descent are not descended from immigrants1. They are descended from slaves. I do not feel that I am exaggerating, and do not expect anyone to invoke "Godwin's Law" on me, when I say that the use of the word "minority" to lump together the populations who arrived in America in search of an idea of freedom, with the single population which arrived in America as chattel slaves, is something uncomfortably akin to Holocaust denial.

"N-----", on the other hand, is a blunt diminutive of "Negro", which is powerful in its capacity to offend African Americans precisely because it tells the truth about their status in the social hierarchy of the USA; right at the bottom, reflecting their history as slaves.

When one thinks about the matter in this way, a number of social issues become clear. America does not have a problem with "race"; it is, in all likelihood, the most non-racist society in existence. America is today, as it was in de Tocqueville's day, an open, colourblind, melting-pot society with a Negro problem.

For example, we can talk all day about why it is that Black Americans lack the "social capital" of, say Chinese Americans. Why do they not have strong extended family links and social and business networks? Because they were separated from their families by slave traders and shipped two thousand miles away from their social capital, in chains. They even lost their surnames, for God's sake..

Why is "black culture" so opposed to learning/advancement/success/anything except criminality and music? Why do black children seem to regard doing well in school as "white"? Because culture is history, and the history of black people in America is one which has given them no reason at all to trust white people.

I could go on multiplying examples, but am reluctant to do so because it would look like British America-bashing, and that would be stupid and unfair. The British bear more responsibility for the problems created by the transatlantic slave trade than the USA does, because it was for the main part the British who ran it. I'm only talking about America because it matters, and because this particular problem is located within its borders. But let's just state the main crux of the problem.

What is the Negro Problem in the USA? It is nothing to do with "racism". It has everything to do with the fact that a large minority of the population are the ongoing victims of one of the most monstrous crimes in history.

This is why, in general, I have a sneaking suspicion that the well-spoken people who use the word "minority", while "decrying all kinds of racism, black and white" are a much greater obstacle to progress than the people who use the word "n-----". I think that Martin Luther King Jr agreed.

I happened upon the points above while trying to put together a few ideas of my own in solution of the Negro problem, after reading a few articles on the history of the London Irish. Given that the problem of black people in America seems so bloody intractable, we ought to take heart from the fact that as recently as 1955, the Irish lived three families to a tenement in some of the worst slums in London. Given the hurried and scattershot nature of the Irish Diaspora, they suffered from some of the same problems of broken family networks which characterise the African Diaspora, and it is extremely encouraging to see how quickly the virtuous circle can work when it begins to happen; the Irish would have been fairly and squarely considered as "minorities" fifty years ago; to suggest that they were a systematically underprivileged or even genetically inferior group today would be to make a bad joke.

How did the Irish managed to rebuild their social capital? Basically, through local government corruption.

I'd recommend everyone to read Plunkitt of Tammany Hall, the memoirs of a ward boss in New York City at the turn of the century. It's a cracking read, and it will teach you more than a hundred years of high school civics lessons. Plunkitt describes how the Irish built themselves up in two or three generations from the lowest of the low (apart from the blacks) to the level where one of their number became President. In short, forget about all the outreach programs, "it takes a village", "each one teach one" and all the other crap you can hear on Oprah and every Black History Month. There has been only one case in which a scattered diaspora reached the USA and built itself up to become integrated with the rest of the American class structure, and they did it like this:

  • First, recognise that your vote is worth something.
  • Second, recognise that blocks of votes, if they can be delivered, are worth much more than general sympathies
  • Third, organise your blocks of votes under ward captains. (Tammany Hall often got 99% straight ticket voting and 99% turnout, better than Saddam Hussein)
  • Fourth, the ward capitans must look after their people with government jobs.
  • Repeat election after election, until no longer needed.

After fifty years of machine politics, there was no reason for an Irish youth to want to go into crime, booze or any other of the recreations of the poor and desperate. They were no longer stigmatised. Like it or not, it worked.

This analysis would suggest that the model for the black community in the USA has to be the Reverend Al Sharpton. I am always bewildered at the number of well-meaning, high-school civics types on the internet who profess not to understand "why the Democrats pay court to a race-baiter like Sharpton". It's because he delivers his block of votes, and by doing that, he has done more for his people at a practical level than any other Democrat has even thought about. Sure, he's often crossed over the line into outright racism, but remember: America doesn't have a problem with racism. It has a problem with black people. And when you're attempting to maintain the solidarity of a racial block, racism has to be part of the territory. What I'm saying is, that if every major city in the USA had an Al Sharpton, there would for certain be a hell of a lot more time and effort expended on things that black people care about.

Anyway, this comment has grown to be longer and more rambling than it ought to have been, and has probably lost most of its impact as a result. I'm not certain about my conclusion; I started trying to look into the Plunkitt model of development shortly after giving up hope on slavery reparations. But what I do know is that America is going to be stuck with the Negro Problem for another two hundred years if the best that polite thinking can offer us is to demonise the "Souther Racists" and dress up the problem with weasel words like "minorities".

1This line of thinking comes from Malcom X, who memorably reminded us "We never landed on Plymouth Rock! Plymouth Rock landed on us!"
0 comments this item posted by the management 12/27/2002 08:07:00 AM

Tuesday, December 24, 2002

Oh yeh

I'd like to wish a "Happy Christmas" to all the straight-laced types and a good old "Merry Xmas" to the regular readers of this blog.
1 comments this item posted by the management 12/24/2002 03:38:00 AM
Twll din pob Sais!

A massive "Llongyfarchiadau!" to the Rev. Bodvan Anwyl, R J Thomas, Gareth A Bevan and Patrick J Donovan, the progenitors of the "Geiriadur Prifysgol Cymru" (Dictionary of the University of Wales), the final volume of which has now been published after 82 years' work. Anyone who cares about the preservation of minority languages should applaud this magnificent work of scholarship, the definitive historical dictionary of the Welsh language. Welsh nationalists should be particularly proud that the entirety of the work was carried out under the auspices of the University of Wales; it has been a minor scandal of British educational funding over the last few years that Oxford University for a long time had a higher-rated Celtic Studies department than Aberystwyth. Well done to all. I was going to buy myself a copy for Christmas but the fourth volume sold out on the first day of publication.

Anyway, the fact which interests me, from some of the press coverage in the FT, is that the next step for the tireless researchers and harmless drudges of the dictionary team, is a seven year plan to redraft the A and B sections. Apparently, these are now roughly fifty years out of date ... which set me to thinking. Read on for some musings on economists and the way in which we think. While you're reading, keep at the back of your mind your own experiences with management consultants, the last time you had a few round your place of work.

What is the optimal way to go about writing a dictionary? Since dictionaries take a very long time to write (the Welsh one was actually comparatively speedy at 82 years; the French version took 300 years, albeit that given that it was produced by the Academie Francaise, there were most likely a few egos involved), you really ought to take into account the fact that the dictionary will need to be used while it is being written. To write a dictionary by just starting with the A's and ploughing straight on until you reach Z (see quiz below), means that people who want to know about words at the end of the alphabet are going to have to wait a bloody long time for your help. Which is not all that great even with a language like English, where most of the important words are in the front end of the dictionary, but is pretty disastrous for a language like Welsh, where the "Y" section is onle of the longest in the whole book.

Similarly, a bit of thought about the theory of optimal scheduling would suggest that revising a dictionary in the same manner -- from start to finish -- is unlikely to be the best way to go about it. In most commercial contexts, you prioritise maintenance of the machines which are most important to the overall production process, or those which are most often used. Not only is alphabetical order an arbitrary ranking which does not match up at all well with the needs of language users for different words, but a policy of revising the dictionary from start to finish means that the average time between revisions will be the same for all words, despite the fact that some words are used much more frequently than others, and some words will have their meanings drift much quicker than others.

Thinking like an economist, I'd start attacking the problem of developing an optimal algorithm for writing a dictionary by first tackling the easier problem of updating an already existing dictionary. After a cup of coffee's worth of thinking, I've come up with the following pointers to a solution of that problem:

  1. First, we need to replace alphabetical order by some way of scheduling revisions which recognises their use in the language. The obvious (to an economist) way to achieve this would be to use "frequency-weighted random sampling" (FWRS).
  2. By FWRS, I mean that one should first get hold of a large representative sample of written Welsh, and then construct a frequency table of the words contained in it. Then, one should assign positive integers to each word in the table in proportion to their frequency. Then, instead of progressing through the words one by one, one should set up a random number generator to select a positive integer, then update the word which corresponds to that integer. In this way, over time, the frequency of updating of every word would correspond to the frequency of its appearance in the Welsh language.
  3. Two immediate refinements to this algorithm spring to mind. First, one could take into account differing speeds of meaning drift between words, by using a function which, every time one updated a word, compared the size of the revision (measured in some heuristic manner) to the length of time since the word had been last updated. Words which appeared to be subject to rapid meaning drift could have their "frequency" adjusted upward in the distribution.
  4. Second, one would presumably need to have an updating algorithm for the frequency table itself, to take account of changes in the popularity of different words.
  5. This algorithm can obviously be adapted to the problem of writing a dictionary from scratch. Just read widely in the Welsh language and choose words at random from the ones on the page before you.

I came up with the thoughts above while drinking a cup of coffee and reading a 200 word article in the FT, so I think that they're pretty representative of the way in which an economist might think of this sort of problem. And (although I am obviously poorly placed to judge this matter), I think I make a pretty plausible case for my suggested algorithm. Which is interesting and worrying because ... it's a really stupid suggestion. I'm not trying to make a self-deprecating point here; those really were my first thoughts on reading about the University of Wales team's approach to the scheduling algorithm. And it took me a couple of weeks to realise what is wrong with my approach:

Who needs a dictionary to look up common words that they use and read every day?

Of course. Words that are common in a sample of written language, are words that everyone knows the meaning of. You get the dictionary out for words that you don't see all the time.

This isn't actually a particularly fatal objection to my algorithm, although it is interesting that it took me so long to realise it. All you have to do is to construct a frequency table not of appearances in written language, but of words as they are looked up in the dictionary (if you put your dictionary online, this frequency information can be collected automatically for you). Of course, this makes the frequency table much more difficult practically to construct, and it does mean that the updating algorithm can no longer be used as a dictionary construction algorithm, but it still feels like we're making progress.

We're not. There's a real killer objection to this whole approach to the problem.

Random sampling of the kind described is a really terrible way to update a dictionary which is meant to be complete and authoritative

Given that we now know that the main usefulness of the dictionary is in the infrequent cases, a lot of the implicit assumptions in my "optimal" updating algorithm fell apart. Like the economist I am, I made considerable use of the asymptotic, large-sample properties of the statistical measures I used. Put into plain language, I made the assumption that if something is optimal on average, probabilistically, then it will work out to be optimal for certain, in the long run. But now we know that we need to be dealing with the infrequent cases at the end of the frequency distribution, that assumption looks much less valid. It's quite probable that, under a random selection algorithm, some words will get updated several times, and some will never get updated at all. (NB at this point that, unlike my usual objections to misuse of probability theory by economists, this one has nothing to do with nonergodicity. It's purely to do with sampling theory, and the number of draws you would need in order to make the sampling distribution of something as massive as a language coincide with the underlying distribution).

This problem is disastrous for the manufacturers of a scholarly dictionary. If you have some words that never get updated at all (or even worse, if we try to design a construction algorithm based on this one, never get included at all), then a researcher who is using your dictionary can't be sure if the particular word he is looking for is one of these unlucky words. If he can't be sure that your dictionary isn't going to give him a bum steer, then your dictionary is no use at all. The alphabetical algorithm has the distinct advantage that if someone knows the alphabet, and knows what the most recent volume of updates was, then he has a good estimate of where you are in the update cycle and thus, what parts of your dictionary will be of use to him. So in fact, score one for the lexicographers and minus a million for me. In actual fact, my algorithm above would not be all that bad for constructing an adbridged dictionary for the mass market, when the only thing you care about is to trade off cost the probability that a given word looked for will be in the subset of the dictionary included. But we're talking about a reference work here.

[An engineer would at this point argue that there are low-discrepancy deterministic series which could be used instead of a random number generator to pick from the frequency table, and that using one of these would in principle ensure that all words got updated on a constant cycle, and would allow someone to determine the time to last revision by running the calculation. Perhaps so, but it seems like a hell of an inconvenience to put languages scholars to, in return for not that much gain.]

So how the hell did I come up with this lexicographer's nightmare of a plan? Well, attempting to self-diagnose, I come up with two common pathologies of economic thinking.

  • Over-reliance on asymptotic properties. This is the problem with respect to sampling distributions which I identified above. This goes straight back to introductory game theory; von Neumann and Morgenstern showed that there is always a mixed strategy which is as good as any other strategy for a large and useful class of problems, so my first reaction on seeing the problem was to look for a solution based on a randomised mixed strategy. A common source of economic mistakes is to treat a solution which gives an ex ante optimal solution in static one-period games as being the definition of optimality, and ignore the genuine dynamics of a problem. This is an organisational pathology of the "risk management" profession, and is similarly endemic to discussions of the "risk premia" paid by developing countries and the "moral hazard" implicit in official sector lending to them. I strongly believe that the decision to let Argentina go bust in order to convince the markets that the IMF was serious about bailouts was based on this kind of thinking. Certainly, any discussion of social equality based on "equality of opportunity" is rotten with it.
  • Uncritical use of frequency as a substitute for importance. Obviously, for the most part, popular things are popular because they want them. But the fact that I missed such an obvious property of dictionaries suggests that one has to guard against the overuse of this assumption. One thing that I missed almost completely was the fact that dictionary entries have group properties as well as individual properties; you could have, on average, the best individual entries in the world, but if they were mixed randomly with a few truly terrible ones, your dictionary would be unusable. An example of this sort of thinking at work might be the current proposal in the UK for the staffing of fire stations, whereby it is suggested that firemen change from a military-like "watch" system, under which stations are staffed by three crews who rotate at eight-hourly intervals, to a shift-based system under which staffing levels are calibrated to coincide with the frequency of fires. All very sensible, as long as one ignores the obvious benefits of keeping the coherency of the watches; as long as one ignores that, in complicated group physical activities, stability of the teams involved is a huge benefit in and of itself.

But the real error was just a pure and simple case of economists' arrogance, the belief that as a clear-thinking outsider with a training in constrained optimisation, I would be able to design a much better way of going about things than the people actually doing the job. This is the sort of "blackboard economics" that Ronald Coase always railed against, which is why he's a bit of a hero of mine and it's genuinely saddening to me that he blotted his copybook so badly over the lighthouse business.

The root of this counter-strand of economic thinking is in Hayek's political philosophy. Like Coase, Hayek is often really badly abused by people on the political Right who believe that he was nothing more than a yah-boo cheerleader for free markets (and woefully neglected by people on the Left for the same reason). In actual fact, Hayek, and a few of the other Austrian economists sit very uncomfortably with the Libertarian thinkers which they are usually lumped with, for the decent reason that Hayek is actually a conservative.

Hayek's arguments for free markets, as expressed in The Road to Serfdom and other works, don't come from the Lockean natural rights tradition. Hayek believes in market liberalism because he is against liberalism, and he thinks that the only non-tyrannical way in which one can organise society is a market-liberal way, because this form of social organisation is the only one in which it is possible to make use of "tacit knowledge".

Tacit knowledge is the wisdom of the lexicographers, who don't go around looking for optimised scheduling algorithms for writing their dictionaries, but instead follow their own values of diligence, thoroughness and alphabetisation; by following these goals, they end up producing something much more suited to its needs than any blackboard economist is ever likely to come up with. And we can see from this example that tacit knowledge is an inherently conservative concept. Hayek might not go quite so far as Roger Scruton, who famously stated that "prejudice", meaning "pre-judgement", or the assembled judgements of past generations, was an excellent way in which to acquire the majority of one's beliefs, but it's clear that he'd go some of the way down that same track. What isn't emphasised enough in most modern libertarian use of Hayek is that, although he in the main addressed his arguments against socialist planning, as the great evil of his day, he was not so much opposed to it because it was socialist as because it was planning. In other situations, one could easily imagine him a man of the left, railing against the similar blackboard-economics tendency of the Right.

Which is quite a revealing thing to notice. Hayek was a keen advocate of privatisation, but this should be seen as a contrast to nationalisation, not to public ownership per se. In many cases, tacit knowledge is best made use of by the market, but that's just because most human activity has been mediated through market goods for the last few centuries. There are plenty of professions -- teachers, firemen, lexicographers -- who have a huge store of tacit knowledge of their own, and to introduce the "free market" into some of these areas is just as much an instance of blackboard economics, and just as stupid, as nationalising agriculture.

Edit: Oor Brad has a bit up at the moment where an Actual Economist avows his belief that introducing competition and bankruptcy into the school system would make education better. That's exactly the sort of thing I'm talking about. Maybe it would, maybe it wouldn't. But to assert it either way without incredibly detailed analysis of the tacit knowledge of the teaching profession is pure blackboard economics.

Second edit: Despite appearances, this is not an invitation for anyone to start telling me things I already know about the "Milwaukee experiment".

0 comments this item posted by the management 12/24/2002 03:33:00 AM
And after all that, won't you give me a smile?

I may or may not finish the now massively oversold "longer piece" today, depending on lunch, but here's my shot at a Christmas quiz. Prizes will be awarded, although not necessarily given, and not necessarily to the people who do best at the quiz.

  1. The McVities Jaffa Cake. Is it a cake, or is it really a biscuit? And honestly, who cares?
  2. When Christina Aquilera sang "Voulez vous couchez avec moi?" in the song "Lady Marmalade", was she using the French word "vous" as the formal second person singular, or as the second person plural?
  3. Given that the Welsh language does not use the letter "Z", how many words are there in the "Z" section of the official Welsh dictionary?
  4. How do you know if your bagpipes are out of tune?
  5. Why do they have Braille on the buttons at drive-in ATMs? Why do you never see baby pigeons? Why aren't these questions obvious?
  6. "No two nations with a McDonalds have ever fought a war". True or false? How about "No American has ever died in space"?
  7. Sweden and Denmark -- only a long time ago, Germany -- most recently. France -- incessantly, but Portugal -- never. Given that the context is EU Member states, what?
  8. The principle that everybody's vote should count equally was enacted in the UK before the USA - true or false? Give dates for both.
  9. How much bigger than London is Los Angeles, in terms of population?
  10. Cunt, fuck, shit, piss - which Anglo-Saxon epithet is the odd one out?

Answers in the comments section ...

0 comments this item posted by the management 12/24/2002 01:24:00 AM

Monday, December 23, 2002

Shine your light on me ...

edit Welcome Brad DeLong readers. Welcome also, to a slightly smaller number of Mark Kleiman and Patrick Neilsen Hayden and Junius readers and thanks for the nice things those guys said about me. I'd just like to point out at the top of this article that I'm having real misgivings about the way in which it's been taken (or to be less mealy-mouthed, they way in which I wrote it). I like Ronald Coase's work, really a lot. My only disagreements with him have to do with lighthouses, and the outraged tone of this article reflects my disappointment at discovering that he had feel of clay. I'll probably feel a lot more equanimous about this subject once I've calmed down in a couple of weeks' time. I'd also like to point out that there is a real difference between direct government provision of services and governments' contracting out services to the private sector, and that if Coase had been making this point, it would have been well made. However, I am pretty sure, and B DeL appears to agree, that Coase wasn't making this point; he was unwisely trying to claim a new province for his theory of Coasian negotiations. You might want to read my contribution to the comments section on Brad's article for a few addenda to this one. Finally, I don't think I'm nearly hard enough on Samuelson in this article; I personally regard his sin of not checking as being far less serious than Coase's of checking and not giving the full story, but he is also pretty culpable in saying some things about lighthouses that weren't true. I have a lot of beefs with Samuelson, some discussed in past articles, and a fair few scheduled for next year. Anyway, on with the fun ...

In keeping with old tradition, I would like to dedicate this post to those men who will be spending Christmas alone, in the lighthouses around our coast, selflessly guarding against wrecks in solitude.

Actually all UK lighthouses have been converted to automatic operation for quite a couple of years now, so instead of that, today�s post is dedicated to Jim Glass, a regular inhabitant of various comments sections who has done an admirable job in keeping me honest over the last week. Post-lunch (that being the only real excuse), I have on various occasions shot my mouth off on the subjects of Adam Smith never mentioning the Physiocrats in �Wealth of Nations� (he did) and of Ronald Coase not having had a really nasty spat with Paul Samuelson on the issue of lighthouses (he did). So well done Jim for picking me up on both of �em, and we�ll ignore the fact that he called Wynne Godley a crank (them�s fightin� words).

In any case, one of the good things to have come out of my little rush of blood to the head is this link: The History of British Lighthouses, provided by the British Lighthouse Society. It�s so interesting that I ended up dropping what I was doing (the threatened �longer piece� from the last post) and decided to instead investigate the Coase-Samuelson controversy on lighthouses. Stick with me, I promise that this is less boring than it sounds.

The Controversy

First up, I�m going to need to make a full disclosure; I haven�t read the full Coase paper on lighthouses in economic history, because it isn�t on the Web and I haven�t had time to get hold of the book. However, a quick google search for "Coase lighthouses" reveals a lot about the subject, and I've looked through those pretty thoroughly. In any case, the use to which an academic article is put, is usually much more important to the generality of the world, than the specifics of what was said in the first place. It is my opinion, (an unpopular one with academics) that academic economics ought to be subject to the same sort of product liability as handguns are; that there is a duty on the manufacturer to go out of his way to make sure that no harmful use is made of his product, and that it is not good enough to simply drop a concept as toxic as "shock therapy privatisations" or "liberalised capital markets" into the world and then blame other people for abusing it.

So anyway, the original Samuelson-Coase controversy. It stems back to a paper by Coase on "The Lighthouse in Economics", which set out as an attack on the typical use made by economists of lighthouses as a public good. Lighthouses make a pretty good example for explaining to undergraduates what a public good is, because they are paradigmatically non-excludable; you can't stop them from shining on people who didn't pay for them. The main thrust of Coase's article was against comments made by Mill, Pigou and others, but he also paused to have a crack at Samuelson, who at that time was author of the most popular economics textbook, and who had used this bog-standard example in the chapter on public goods.

The problem being, unfortunately, and as far as I can see, that like so many well-meaning New Deal liberals of his kind, Samuelson had to have a fucking cherry on top of it. He wrote in his book that, not only did the non-excludability of lighthouse light mean that it was unlikely that yer basic Arrow-Debreu model of competitive equilibrium would converge on the optimal level of lighthouse production, but that he actually had something approaching a mathematical proof that the only possible way in which you could provide lighthouses properly was to pay for them out of general taxation, and then to give their services to the shipping public for free. This was actually not something that Samuelson needed to argue his point; as far as I can tell, he was just trying to hammer home the concept of marginal cost pricing; the marginal cost to a lighthouse of shining on another ship is zero, so the marginal cost to a ship of being shone on ought to be zero in an optimal solution. But in trying to punch home this message to the thick kids, he left what can only be described as a massive bloody great hostage to fortune.

The hostage to fortune being that, as anyone who fancies joining the British Lighthouse Society will tell you, for most of the history of the United Kingdom, a sizeable proportion of its lighthouses have been owned, operated and financed by private individuals and corporations. This revelation was the main theme of Coase's lighthouse paper, and since in general economists are revolted and terrified by anyone who appears to have anything approaching a clue about the facts of a matter, it threw the profession into hysterics Samuelson in particular, appears to have lost his temper a bit.

Of course, neoclassical economists being the chaps they are, this hasn't stopped the profession from continuing to use the lighthouses example as if there was no problem with it. However, as is usually the result when this particular pathology of the profession swings into action (viz, the Cambridge Capital Controversy, a past and future subject of this blog), ignoring the lighthouses problem didn't make it go away. A quick glance at that Google search reveals that there are a lot of people out there on the Internet who believe that orthodox neoclassicism said that only the government could build lighthouses, that Coase showed that free markets provided optimal levels of lighthouses, and that this disproves that there could ever be public goods. Score another victory for the head-in-the-sand faction of the modern economics profession.

But what's the truth about lighthouses?
Looking through the actual history, however, it is hard not to come away with the feeling that Coase materially over-sold his results, and that Samuelson was hard done by. Thanks to Jim Glass for this extract from an interview with Coase in Reason magazine in 1993.

Reason: What can you tell us about lighthouses?

Coase: Economists had always used this as a service that had to be provided by government. How could a private provider ever be paid for it? So without government operation you wouldn't get lighthouses. My usual practice is to look into what actually happens, and if you look into what actually happens you discover that there's a long period in which lighthouses were provided by private enterprise. They were financed by private people, they were built by private people, they were operated by the people who had the rights to the lighthouses, which they could bequeath to others and sell.

Some have said what happened in lighthouses wasn't really private enterprise. The government was involved in some way in setting the rights and so on. I think that's humbug because you could say that there's no private property in houses by that logic, since you can't transfer your rights to a house without the examination of title and registration and without obeying a whole series of regulations, many enforced by government.

Reason: I thought it was interesting that the shippers were the ones that lobbied to get the toll because they wanted the incentive for the private investor to build the lighthouse. What reaction have you had over the years when Paul Samuelson or other economists would use this example of the lighthouse as a necessary government function?

Coase: Samuelson says I was wrong and he was right, and he froths at the mouth when people talk about the lighthouse example. He says Coase is wrong; he doesn't overcome the free rider problem. Who are the free riders? The foreign ships going past the British coast which do not call at a British port. Using Samuelson's approach, what do you do? Do you ask the foreign governments to give you a subsidy? Do you tax people in Britain because the foreign ships are getting help without paying for it? What do you do?

My approach is to compare the alternatives. People like Samuelson like to set up a perfect world and say that the market does not bring us to this point and imply that the government should do something. They stop their analysis at that point.

Reason: Certainly if the government builds the lighthouses and operates them at a zero price to the shippers, there's a huge free rider problem there, free riding on the taxpayer. But you had to go back to the early days to find the private ownership?

Coase: Yes, that's right. From 1838 or some such date, I can't remember it, the lighthouse people were bought out and compensation was given. Samuelson says that no one would build a lighthouse with the idea of making a fortune. Actually, people did build lighthouses and did make a fortune.

Lots of extremely disingenuous stuff here. Like I say, I haven't actually read the original paper, but assuming that Coase was paraphrasing his side of the controversy accurately, we can straight away make a couple of points:

  • Coase and Samuelson are talking at cross purposes. Samuelson is talking about the optimal level of lighthouse provision, and suggesting that the observed outcome may not have been optimal (presumably what he meant by "he doesn't overcome the free rider problem"). Coase is assuming that Samuelson thought that lighthouses couldn't be provided at all without government intervention
  • Coase is very strongly implying, when he says that "lighthouses were provided by private enterprise", "no one would build a lighthouse with the idea of making a fortune [...] people did build lighthouses and did make a fortune" and poo-poos the extent to which government involvement was a factor, that lighthouses were built in much the same way in which any other entrepreneurial business invests in capital assets. He is implying without saying that the problem of non-excludability of light which gave rise to Samuelson's public good argument, was solved by free negotiation among the parties involved, and that all exchanges of light for money resembled normal market transactions between willing counterparties.

Let's look at the evidence

First a preliminary; people build lighthouses for all sorts of reasons, but there is only an interesting economic problem with respect to one or two kinds. Lighthouses which are built in order to guide ships into a port are not problematic in the slightest. They are a service used only by users of the port, they are paid for by the port authority, and one collects revenue for their upkeep by going round to the ship when it docks and asking for it, bundled with the rest of the services which the port fee buys you. Furthermore, you only make use of this sort of lighthouse if you're going into the port, so the people who use it can be separated from the people who don't and charged accordingly. Samuelson never gave the impression that he thought ports were public goods, so there is no reason to suspect that he thought that port lighthouses should be a particular problem

There is another kind of lighthouse, however, which is much more of a problem. If you want a lighthouse to warn ships away from a hazard of some sort, rather than to draw them toward a port, then you do have a problem in collecting your revenue; if you're manning the lighthouse on Eddystone Rock, then if you're in a position to walk over to a captain to deliver your bill, he's most likely not in a position to pay you, because he's crashed. In this case, it's also much more difficult to establish who used the lighthouse, and next to impossible, with light as it is currently designed, to stop someone from using it if they aren't prepared to pay. Hence the problem. Obviously, some lighthouses perform both functions (think of a port located next to some rocks), but it's worth noting at this point, that "lighthouses" don't form a homogeneous class of capital assets.

But anyway, it seems strange to me that Coase used the date of 1838 in talking about privately owned lighthouses. Assuming he means 1836, when Trinity House began to buy out the privately owned lighthouses, this marked the end of privately built lighthouses, not the beginning. There had actually been privately owned lighthouses for more than five hundred years.

How do we know this? Well, there exists a Royal Patent dated 1261, in which Henry III allowed some private individuals to collect "light duties" from shipping to pay for the upkeep of a light. As Ken Trethewey's excellent history puts it:
These Patents were the ultimate permission of the monarch and given under the 'Divine Right of Kings'. To fail to acknowledge this authority was considered treasonable. The Patent was given to the Barons of the Cinque Port of Winchelsea who were entitled to collect two pence from every ship that entered their port. This is the origin of the entire principle by which lighthouses have been operated for centuries right up to the present: a system of taxation known as 'light dues' based on the rule that the user pays.

To be honest, a system under which the government of the day gives you the authority to demand a payment from every ship that enters a port, and which states that failure to recognise this authority is treason (at the time, punishable by death), does not really look to me to be very much like a free market exchange. In fact, in giving the producer of a product the authority to demand on pain of death or imprisonment that everyone in a particular market has to buy their product, would seem to me to be very much more government involvement indeed, than the current rather light regulation of the housing market. I'm not saying that the analogy Coase used in that Reason magazine interview was completely outrageously misleading. I'm just sayin'.

There are numerous other episodes in Trethewey's history which rather demonstrate that the provision of lighthouses by private individuals was about a million miles away from your classic interpretation of a free market. The debacle of the Isle of Man, on which ships were regularly scuppered between 1771 and 1818 while Trinity House and a group of shipowners wrangled with a Mr Ludwidge over the matter of a poorly located proposed lighthouse which ships passing en route to Liverpool would have to pay for despite being exposed to the risks of the Calf of Man (which remained unlit). There is the case of Sir John Clayton, who obtained patents for five lighthouses, but only ever showed a light in two of them, precisely because his patent did not provide for him to charge a compulsory levy. And there are numerous accounts of "rent-seeking" behaviour in lighthouses, whereby lighthouse entrepreneurs with good political connections sought to build unnecessary lighthouses in anticipation of the stream of light duties they would be allowed to extract.

From all of the above, I draw two conclusions:

  1. Ronald Coase is going straight on the "always check" list, which is a pity, because I've always liked his work. The analogy to house purchases is insanely misleading; the main source of revenue for private lighthouse owners was a compulsory levy, which was backed by full force of statute law and which was even collected by HM Customs and Excise on behalf of the lighthouse owners! This is either horrendous historical scholarship or intentional misrepresentation; subject to the caveat that he may have been misquoted by Reason magazine or misrepresented his own work in the interview, I have to say that the lighthouse study does not prove what Coase and his admirers seem to think it proves (a couple of prominent economists agree on this point)
  2. Second on methodology, while the source of my sympathy for Coase is his methodology; his determination to always look for the real world example rather than the "blackboard economics" proof, this is one area in which he and Samuelson both screwed up, and it was by adopting the arrogance which is the hallmark of the economics profession. Samuelson had a good argument about the optimal provision of lighthouses, and if he'd studied the history, he would have come up with the Isle of Man and Sir John Clayton examples to show that non-excludability of lighthouse services led to real problems, which caused real ships to avoidably crash. But he had to, as I say, put a fucking cherry on top by overextending his sensible blackboard argument into a generalisation about the world. Coase then, correctly and admirably, called him on it by falsifying the generalisation, but then fell into the trap of forcing the pieces to fit into his own grand blackboard generalisation -- that free market negotiation between willing participants could always solve problems of resource allocation so long as property rights were well defined.

We shall conclude this sermon with a hymn:
Eternal Father, strong to save,
Whose arm hath bound the restless wave,
Who biddest the mighty ocean deep
Its own appointed limits keep;
Oh, hear us when we cry to Thee,
For those in peril on the sea!

0 comments this item posted by the management 12/23/2002 06:28:00 AM

Wednesday, December 18, 2002

Incoherence theory of truth

Working on a bigger piece, but in the meantime a few random observations:
  • The world and his wife is shouting �why are CONSERVATIVE REPUBLICANS being so much louder in their condemnation of Trent Lott�s racism than LIBERAL DEMOCRATS??? Ever notice that nine times out of ten, the guy who�s making most of the noise about that terrible smell, is the guy who farted?
  • Brits often have a lot of fun at the expense of Americans by mentioning the popularity of the �Mullet� haircut. But I think it�s a British invention. A small prize to anyone who can find a citation for a white-trash American sporting a mullet which predates the Def Leppard album �Hysteria�.
  • If the Cherie Blair story was really as important as the UK press seem to think it is, you�d have thought that I would know somebody who cared about it, wouldn�t you? On the other hand, it does seem mildly scandalous that Tony Blair has �500K to spend on flats for his son; good luck to him for earning the money, but if I wanted a fucking plutocrat, I�d have voted Tory.
  • On a similar tack, if Shania Twain was really as popular as Radio 1 thinks she is, surely I would know someone who doesn�t outright hate her fucking records? God I miss GLR.
  • Needing a good night�s sleep is simply not compatible with snooker on the TV from 11.15 to midnight. Long after golf, polo and even ice hockey are integrated, professional snooker remains a sport for white people only. It�s the amount of time they spend in darkened halls. Even the black players are white.1
  • Apparently, according to the Bain report, being a fireman is a really good job. So fucking what? Surely the task of rescuing people from burning buildings ought to be a good career! The working class needs its aristocracy, and why shouldn�t this be the firemen? Does capitalism actually demand that nothing be better paid or more interesting than a call centre in Glasgow?
  • Wouldn�t the political case for free trade be strengthened if one, just one American university took the opportunity to sack its professor of Economics and replace him with an Indian professor of Economics on half the wages? Just to sort of show willing, really.
  • I am still getting sleepless nights because about two months ago someone suggested that this weblog was making them think of moving in the direction of an economics degree. Just to be clear, the official position of D-Squared Digest is that nobody under the age of 25 is allowed to read this blog unless they promise to consider its contents to be some sort of erudite academic joke. Spouting heterodox economics is a massively career-limiting move, as is arguing the toss with your economics prof instead of getting a grounding in price theory. I�m starting to think this way with the luxury of an undergraduate and business school economics education and a decent job paying the bills. I�d hate to think I�d condemned some young soul to a life of unemployment and frustration.
  • Of course, if your economics prof is of a heterodox temperament, like Rob Schaap (yo Rob), you shouldn�t give him any fucking lip either. Little bastards. Bah.

The season of goodwill starts soon, apparently. I�ll do my best.

1This joke (c) Tess.

0 comments this item posted by the management 12/18/2002 06:06:00 AM

Monday, December 16, 2002

Pensions (too tight to mentions)

Well ... some call it hypocrisy, others call it "balance", me, I'm a neutral arbiter. But despite yesterday's pissy little rant about "deafening silences", there are a few issues where I am always personally unable to believe that nobody cares about the same things as me. The issue which is disturbing my digestion at the moment is that of defined benefit pensions ...

[Do you know, the moment I typed that sentence, I suddenly realised why it was that nobody cared? It is part of the folklore of direct mail advertising that the three words which are most likely to attract readers' attention are "free", "sex" and "chocolate". It is a hunch of mine that the three words most likely to turn off any incipient interest are "tax", "regulation" and "pensions"]

Nonetheless, for all that people don't care about pensions, they ought to care about pensions. I mean the word "ought" here in a normative but non-moral sense; the mass of the world are not bad people for not caring about pensions, but their lives would be better for them if they cared about pensions. Because, with the possible exception of war in Iraq, the current phenomenon which has most potential to effect the aggregate welfare of the developed English-speaking world, is the "reform" of pensions. Another lexicographical note; when I use the word "reform" here, I mean it in its normal sense, the sense in which advocates of reform throughout the ages have used it. In other words, I am using "reform" as shorthand for "a disgraceful attack on the common man by those better off than himself, which is made to look less disgraceful by lying about it".

I'll use scare-quotes to make it clear that by "reform", I mean nothing of the sort.

The "reform" in question is the ongoing replacement of final salary pension schemes by money purchase schemes in the private sectors of the USA and UK. If you've read my mug's guide to the subject (not many people did, possibly because I was a bit patronising to people who hadn't heard of the subject), then you'll know that, whatever the whys and wherefores of your personal beliefs about what you'd like to do in saving toward your retirement, it is impossible to deny that a shift from final salary (also referred to as "defined benefit") pension schemes to money purchase (or "defined contribution") schemes, represents a transfer of risk from the employer to the employees. I'm using "impossible to deny" here in its strict sense; there is a mathematical proof of this proposition.

Now, transfers of risk aren't always one way transactions; when you insure your car (or for that matter, your life), you transfer risk to the insurance company, but in general this is a transaction which benefits both parties. On the other hand, it's also a transaction which is noncoercive and typically takes place in a competitive market between relatively well-informed parties. Changes to pension schemes often lack any or all of these crucial factors. I'm not saying that all (or any particular) instance of pensions "reform" is a hell of a rip-off for the employees. I'm not saying that the fact that employers are mad keen for pension "reform" should probably be considered pretty good evidence that there's something in it for them. I'm not saying any of these things. I am, as they say, just sayin'.

Let's start off with an analogy. Say your cousin Kevin borrows ten pounds from you on Monday, telling you he's going to put it on a horse running on Sunday at ten to one. Then you see him on Wednesday, and he tells you he's made a decision. Instead of paying you back the tenner, he's going to give you half his winnings on the horse if he wins, and nothing if he loses. What would you do?

Yes, right, wring his fucking neck.

Quite. And it is my contention that this is exactly the sort of thing that is being carried out under the name of �pension reform�. I�d hesitate to say at this point that pension law and economics are extremely complicated, and that it is certainly far beyond my ability to pass definitive judgement on any particular actions of any particular pension fund, its sponsor or its trustees. It�s often the case in this field that seemingly innocuous measures can actually be quite deviously awful, while actions which appear prima facie to be unconscionable confiscations are actually perfectly legitimate risk-sharing transfers. I don�t want to get into any specifics. But as to the question of whether the general shape of what is happening to pension provision in the Anglo-Saxon economies passes the ISDTTMIWHFN test (if someone did that to me, I�d wring his fucking neck), my personal assessment is that it doesn�t.

It clarifies matters considerably to think about the question in the following manner. In general, we say that there are two types of funding used by companies; debt and equity. However, Marx and Ricardo, among others, noted that there is a third kind of finance, which is both far less well-defined under common law, and often quite material to a company�s financing, and that is deferred wages. If debt finance is the proportion of a company�s capital assets which are bought out of money advanced by creditors in exchange for a promise of repayment, and equity finance is the proportion of a company�s capital bought out of money advanced by investors in return for a fractional title to those assets, then deferred wages is that proportion of a company�s capital assets which are effectively bought out of the sale proceeds of goods produced by workers who have not yet been paid for producing them, in return for which, those workers get ... what?

Deferred wages finance, like bank loans, comes in short-term and long-term varieties. The short term, �working capital� kind of deferred wages finance is simply generated by the system of paying wages partially in arrears, and having paydays once a month rather than paying workers immediately they produce a piece of work. Although this is often ignored in classical theories of the financing of an enterprise, economic analysis has no real problem in dealing with this; it is simply a short term, working capital loan advanced by the worker to the employer. In some cases (I am thinking particularly of commission salesmen working on annual bonus payments), the sums can be really quite substantial, and ever since Marx and Ricardo�s day, the employees of bankrupt firms have been surprised to discover that without realising it, they have effectively been acting as creditors.

However, once we have carried out this piece of fairly obvious analysis, the conclusion seems inescapable that the pension fund obligations of a company also represent financing claims on it. Although this fact is obscured by the thickets of legal wrangling which surround the ownership and trusteeship of pension fund obligations, the truth of the matter (since about the 1980s) has been evident on the face of the balance sheet of most companies; the pension fund obligations are recorded as a long term liability; a claim on the cashflow and assets of the company which is not debt, not equity, but which nonetheless represents a binding obligation on the firm, one which was provided by someone in anticipation of a future benefit and one for which some present benefit (presumably, a higher cash wage rate) was sacrificed.

Right now, we can see that an important and politically significant truth is concealed by the very language of pensions-speak. Pensions are not �employee benefits� any more than dividends are �shareholder benefits� or coupon payments and principal redemptions are �creditor benefits�. Pension fund members are suppliers of investment capital to the firm, not vassals or serfs of it, and the payments made to retirees are not tokens of gratitude for long service, but the redemption of investments made over time. I only hesitate to publicise this fact more as I fear that it would make the retired persons� associations of the self-titled �Greatest Generation� even more insufferably self-righteous than they already are.

But the analysis I want to make right now is a comparative one of the legal rights and protections afforded to the three classes of investors. Debt investors are, of course, protected by the full apparatus of the common law; though it be ever so complicated in its development and specifics, the law relating to debt investments stems from the tort of breach of contract, and most of its judgements can be reasonably predicted by the consideration of the nature of that tort. The law relating to equity investors is somewhat more modern as it only came into being with the creation of the joint stock corporation in the eighteenth century, but by the Companies Act 1824, it was quite recognisable in its modern form; the protection of equity investors stems from a fiduciary duty of the directors and officers.

The law relating to investors through deferred wages, however, is much less clear; much of it is implicit rather than explicit and all of it is much more recent and less settled. For short term wage creditors, things are reasonably clear; unpaid salaries rank (under UK law; yours may vary, but not too much) just above floating charge-holders; behind mortgagors, bankruptcy practitioners� fees, excise duties and PAYE, but ahead of corporation tax and outside unsecured creditors. Things become much more murky when one gets into the matter of bonuses and deferred commissions, but this murk is as the sparkling waters of Lake Treviso when compared to the law relating to pension funds.

The trouble with pension funds is that for too long, they have been treated as if they were benefits provided by a benevolent employer, rather than as a long-dated financial claim. Pension fund claimants have few rights; they have the right that the employer keep sufficient financial asset holdings to reassure an actuary that the claims can be paid, and that these asset holdings be held in a trust legally separate from the company. They have the right to appoint a minority of the trustees of that trust. And that is about it.

Which brings us back to the ISDTTMIWHFN issue above. Although there is no contract between us, I had provided �10 sterling of finance to my cousin Kevin on the understanding that we had a debt-like contract in which he was bearing the risk that the underlying investment (the horse) would fail to produce its expected returns. When he chooses to take advantage of the ambiguity of the contractual relationship between us to unilaterally alter our contract to an equity-like one, in which I share the risks and rewards of being a bettor on the 3.30 at Kempton Park, then, whatever my personal beliefs regarding the likely investment performance of Lucky Boy, I would consider myself to be in a WHFN situation.

Add on top of this the fact that according to the last survey, the shift from final salary to money purchase pension schemes in the UK has resulted in, on average, a halving of the cost of provision to the companies who run the schemes (which however way you cut it up, has to be considered equivalent to a c5% cut in wages!), and the fact that nobody seems to care about this becomes even more curious. All in all, it�s a shame that pension fund economics isn�t as interesting as horse racing.

0 comments this item posted by the management 12/16/2002 11:33:00 AM

Wednesday, December 11, 2002

Deafening silence

Time for a crusade against this damnably idiotic phrase, beloved of journalists who ought to know better and bloggers who don�t. It appears that I alone among men have been vouchsafed a fundamental truth about the universe, which Great Truth I propose to share with you know.

Not everyone cares about the same things that you do

Attached to this fundamental truth is a Great Moral Principle, with which I will also enlighten the world. Call me Bodhisattva if you must:

There is no moral obligation on anyone to care about something just because you do

This is true whether you�re a warblogger talking about the "deafening silence" of moderate Islamists condemning Osama bin Laden, a Democrat talking about the "deafening silence" of Senate Republicans on the subject of what Trent Lott said about segregation or Andrew Sullivan talking about the "deafening silence" of the New York Times about whatever bee is in his bonnet that day. Sullivan in particular seems to spend so much of his day hearing the sound of deafening silence that I begin to fear he has actually gone deaf.

In general, if somebody hasn't said anything about something, it's probably because they don't find it interesting, or it doesn't touch their lives, or they don't think anyone else will find it interesting. That (rather than insidious PC bias) is almost always what determines which murders end up on the front pages. Another good reason for not saying anything about a subject is that you aren't in posession of all the facts, and you don't want to just randomly shoot your mouth off and say something for the hell of it. We'd all be better off (and would have a much lower cost base) if more people remembered that.

And finally a damn good reason for not saying something is that the same bunch of ideologues who are screaming for you to say something, are most usually preparing to crucify you pretty much no matter what you say, and they will not scruple to twist your words in order to do so.

I commend the following passage from Joseph Heller's "Catch-22" to anyone who has used the phrase "deafening silence" in the last six months, as a vivid example of what happens when the mentality which supposes itself to have a right to decide how others express their views gets any sort of power:

Almost overnight the Glorious Loyalty Oath Crusade was in full flower, and Captain Black was enraptured to discover himself spearheading it. He had really hit on something. All the enlisted men and officers on combat duty had to sign a loyalty oath to get their map cases from the intelligence tent, a second loyalty oath to receive their flak suits and parachutes from the parachute tent, a third loyalty oath for Lieutenant Balkington, the motor vehicle officer, to be allowed to ride from the squadron to the airfield in one of the trucks. Every time they turned around there was another loyalty oath to be signed.They signed a loyalty oath to get their pay from the finance officer, to obtain their PX supplies, to have their hair cut by the Italian barbers.

To Captain Black, every officer who supported his Glorious Loyalty Oath Crusade was a competitor, and he planned and plotted twnety-four hours a day to keep one step ahead. He would stand second to none in his devotion to country. When other officers had followed his urging and introduced loyalty oaths of their own, he went them one better by making every son of a bitch who came to his intelligence tent sign two loyalty oaths, then three, then four; then he introduced the pledge of allegiance, and after that "The Star-Spangled Banner," one chorus, two choruses, three choruses, four choruses. Each time Captain Black forged ahead of his competitors, he swung upon them scornfully for their failure to follow his example. Each time they followed his example, he retreated with concern and racked his brain for some new strategem that would enable him to turn upon them scornfully again.

Without realizing how it had come about, the combat men in the squandron discovered themselves dominated by the administrators appointed to serve them. They were bullied, insulted, harassed and shoved about all day long by one after the other. When they voiced objection, Captain Black replied that people who were loyal would not mind signing all the loyalty oaths they had to. To anyone who questioned the effectiveness of the loyalty oaths, he replied that people who really did owe allegiance to their country would be proud to pledge it as often as he forced them to. And to anyone who questioned the morality, he replied that "The Star-Spangled Banner" was the greatest piece of music ever composed. The more loyalty oaths a person signed, the more loyal he was; to Captain Black it was as simple as that, and he had Corporal Kolodny sign hundreds with his name each day so that he could always prove he was more loyal than anyone else.

Alright, bollocking over. Gan forth and sin nae more. And anyone who refers to the "deafening silence" from this blog over the last month gets a slap in the mouth.

0 comments this item posted by the management 12/11/2002 10:22:00 AM

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