Tuesday, 15 November 2011

There is something fundamentally wrong with Economics

From http://www.guardian.co.uk/commentisfree/2011/nov/14/technocrats-europe-bad-politics-economics
And there's plenty of evidence that having an economist run your country's economic policy is no help whatsoever. Last week, Joachim Wehner of the LSE and Mark Hallerberg of the Hertie School of Governance in Berlin published some research that looked at educational backgrounds of political leaders across Europe. Since 1973, 69% of Greek finance ministers and 55% of those in Portugal have had a PhD in economics; a qualification unknown to any British chancellor.
In his book 23 Things They Don't Tell You About Capitalism, the Cambridge economist Ha-Joon Chang points out that in recent history economic policy in Japan, Taiwan, China and South Korea has largely been set by lawyers or engineers. In India and Pakistan on the other hand, many world-class economists have been in charge of the treasury – yet their record have been no match for the Asian tiger economies. 

Thursday, 10 November 2011

The Greek/Italy economic crisis is caused by failure to tackle corruption

From today's FT:

If the crises in Greece and Italy tell us anything, it is that the European Union has tolerated widespread corruption, criminality and malign governance not just in supplicants from eastern Europe but in some of its core western European members. As we Europeans lecture the world on the importance of European values – transparency, good governance and competition – too often we turn a blind eye to Mr Berlusconi’s monopoly on broadcast media, the influence of the Camorra on the politics of Campania and the chronic cronyism of the Greek economy (about which the British and German governments, to name but two, are fully informed).
If anything is to come from the catastrophe facing Europe it is essential these patterns of corruption are broken. Otherwise neither Greece nor Italy will ever be free of the institutional sclerosis that allows these practices to prosper. Before we look lovingly at northern Europe for the answer, let us remember the billions of dollars in bribes of which German companies, like Siemens and Ferrostaal, have been guilty of paying their Greek interlocutors. These were made in order to secure lucrative but overpriced contracts which have been funded by those decent Greeks who earn relatively little but, unlike the country’s super-rich, actually pay their taxes.

Tuesday, 8 November 2011

Daniel Kahneman: How cognitive illusions blind us to reason

An article from Kahneman's forthcoming book Thinking, Fast and Slow (Allen Lane, £25)

1. Most financial advisors are no better (or worse) than random.
2. It's almost impossible to predict good leaders.
3. We think we are good predictors but we are not.


Saturday, 5 November 2011

How to Solve the Economic Crisis - Transaction Taxes AND Flogging Tax Avoiders

What makes the difference between a developed and a developing country? For example, what is the difference between the UK and India? And what can this tell us about the nature of development?

In the UK, the government spends lots of money on schools, hospitals, infrastructure and welfare. The income comes from taxes on people buying things, like VAT. And from people earning salaries – income tax and NI. Almost everywhere that transactions occur, there is a tax. So the model is that governments earn money by skimming it off every time it changes hands. So the government, to keep the economy going, needs to keep the money going round and round. Even paying money out for welfare isn't "losing" the money, because the money gets spent very quickly on other stuff. And if people stick money in a savings bank, about 90% of that is going to be loaned out to someone who WILL spend it. So that's why austerity budgets don't make any sense. That's why Britain's growth is in the toilet. On the other hand, you don't want to overspend because the law of conservation of energy probably operates so you can't spend money you haven't got. Well you can, but you will end up with inflation. However, none of this seems to apply to the purchase of investments. There is no tax on financial transactions. If I buy £5000 of Invesco Perpetual High Growth Rhubarb Fund, I don't pay VAT. Why not? And if I buy some futures, I certainly don't have to pay any tax. So the Tobin Tax makes total sense. If you put just a tiny tax on all derivative transactions, what a windfall that would be! They had some idiot on Newsnight the other night arguing against it, but he was obviously a paid lobbyist paid to lie and couldn’t come up with anything sensible.

The corollary of all this is that probably the highest crime against society is not the odd murder, but cheating on your taxes. Because it strikes at the heart of the financial model of our society. Murders are few and far between and only affect the immediate families. Tax evasion probably occurs partially due to peer affect. Most people I know would happily cheat on their taxes, in part because it's socially acceptable.

Now why is India a developing country? Possibly because the middle class isn’t yet big enough to take enough tax money to build all the hospitals, schools and welfare schemes that a developed country needs. But also because at least half the economy is black, so is not contributing taxes. And because tax avoidance is of course done on a big scale there.

I read recently that if everyone in Greece (and Italy) paid their taxes properly, the Euro wouldn’t have a problem! By the way, in Spain, where my partner owns a house, it’s almost impossible to sell a house without having to pay money into the black economy.

So it could be argued that penalties for non-payment of taxes should be SERIOUSLY strengthened. I’d start off with having the head of HMRC flogged for letting Goldman and Vodafone off the hook for their taxes. (See Private Eye for the full story.)

To summarise: 1. Put a tax on every financial transaction, especially derivative transactions. In fact you might only need to tax derivative transactions. 2. Make stiff penalties for tax avoidance. 3. Shoot the head of HMRC.


Friday, 21 October 2011

Steve Jobs

I have often asked myself what difference Steve Jobs has made to the human condition. None, as far as I can tell. Making toys is all very well, but at the end of they day, they are still toys. My iPod is less clunky than the Dansette record player of my youth, but it hasn't changed my life at all. Here is an excerpt from today's Guardian about Steve Jobs' disregard for the human rights of the Chinese workers building his machines:
Daisey stood outside the gates of the Foxconn Technology plant, which employs 430,000 people, and asked workers to tell him stories about the conditions inside. He heard stories of a hand crippled by a decade on the assembly line, workers threatened with life in prison for joining a union and 13-year-old girls doing 13-hour shifts. The factory was briefly in the news last year, when it installed nets under the top floor windows, following a rash of suicides, but otherwise it may as well operate in a black hole. Chances are your phone was made there, but most people know nothing about the place. It came as a revelation to me that most electronic devices are assembled by hand, rather than by robots.

Saturday, 17 September 2011

How to save millions of lives in one policy change - use bribery

China cuts childbirth mortality rate by promoting hospital births


China has slashed the death rate of newborn babies by almost two-thirds in 12 years by promoting hospital births, research has shown.

Monday, 12 September 2011


During the recent UK riots, it became apparent that most pundits had forgotten their Freakonomics. I reproduce a piece of their wisdom here. It applies to the US, of course, but still....

We spent an entire chapter in Freakonomics exploring the factors that do and do not seem to have brought down the rate of violent crime in the U.S. In short, factors that matter include: number of police; number of prisoners; changes in drug markets; and the availability of abortion. And those that don’t seem to much matter: the economy; innovative policing strategies; most gun laws; capital punishment; and demographics.

For the full link, see

Surprise! eLearning students in secondary schools like to entertain and socialize

Education Technology Debate is an interesting newsletter about the use of computerised learning in developing countries.  In a recent post, a chap from Kenya relates a project to set up eLearning in a secondary school there. I have excerpted part of the conclusion:

This clearly demonstrated that, students when left on their own to use the Internet will only engage in areas that seem to entertain and socialize. Proper supervision, control and guidance will help the students unlock their potential in looking for information that will have direct impact on their academic life. Further when 2 or more students share a computer, they are more creative in terms of the information that they look search for in the net.

You can read the full article here:

Wednesday, 13 July 2011

Why doesn’t everyone want counselling?

Given that at least 5% or thereabouts of the population has serious depression and/or anxiety and/or stress, and in a recent survey 20+% of the UK population said their lives were unhappy, then why aren’t hoards of people beating a door to their local therapist demanding they get “fixed”?

Is this because
a) You can get a fixed price for fixing your root canal, but no one will give you a fixed price for fixing your depression?
b) You don’t have any confidence that your therapist will get a result?
c) Talk therapy is just too expensive?
d) You don’t know where to find a decent therapist?
e) No one has ever offered to cure your depression?
f) You have to have pills to cure depression and you don’t like pills?
g) You have to have pills to cure depression but they didn’t work for you?
h) It takes forever and there might not be a result?
i) I might get worse?
j) All of the above?

In my humble opinion, Metapsychology counselling works extremely effectively on depression, anxiety and stress. But that’s not the point of this blog. The point is – why aren’t people demanding a cure? Is it because they are too depressed to do anything about it? (That’s only half a joke.)

It is my intention to solve this problem of why people don’t demand counselling by putting 50 different adverts in the media to see which one brings people in.
Each ad will say” come to our centre manned by fully qualified experts in a totally safe environment” yada yada.
But it’s the hook that needs exploring.

Here are some examples of messages to be used in different combinations:
1. We get results or your money back.
2. Fixed price - £5000. No result, no fee.
3. This isn’t therapy, this is life coaching.
4. Come every day for a week. If you are no better at the end of the week, don’t pay us a penny.

Whatever the answer, trial and error will be the order of the day.

I just need to gather a few thousand quid to get started.

If you are wondering what we do with the clients who do show up – we give them counselling! No problem.  Good little business.

Sunday, 19 June 2011

Gather around you an advisory board of female elders who meet in a soothing spa

There is an article in the Observer newspaper today indicating over-30 females should be better at investment decisions (or any risk-related enterprise decisions for that matter) than men.
Testosterone and high finance do not mix: so bring on the women
I have excerpted the bullet points below.

And here is an article in Business Week that seems to confirm that.
Women Hedge Fund Managers Outperform Men

Here is the excerpt:

Neuroeconomics: Six things that the science of decision-making reveals

■ If groups of young men are shown pornographic pictures of women and then asked to choose between safe and risky investments, compared with men shown non-pornographic pictures they choose far riskier portfolios.

■ Our brains are designed to seek out novelty, but too much information can overwhelm them; we are generally better at assessing risk when listening to Bach than with the chatter of TV news.

■ Men's brains tend to shut down after they have proposed a deal, waiting for the response. Scans show that women brains continue to be active, analysing whether they have done the right thing.

■ Humans are the only animals that can delay gratification, a function of the prefrontal cortex. However, the prefrontal cortex only matures after the age of 30, and later in men than women. Before that, we are more likely to seek immediate gratification.

■ Our brains reward social interaction with the release of a chemical called oxytocin. It makes us feel good when we follow the herd. Stock market bubbles are one likely result of this.

■ Our brains are wired for human oxytocin-mediated empathy (or HOME). We are biologically stimulated to love (or hate) what is most familiar to us. We are built to form attachments, to value what we own more than what we do not own. This fact skews the rationality of all our investment decisions.