While I might be happy that the second letter supports my party, and is signed by more ‘leading’ economists than the first one, I don’t think it means anything.  I would not be greatly surprised to find a letter to the Daily Star next week, signed by 300 more from the apparently limitless supply of experts who have yet another opinion.

Surely the only real impact any of this can have is on the credibility of economics as a science.

Unfortunately I was disappointed, partly through having expectations raised so high they would have been difficult to satisfy, but also through real shortcomings in the book itself.There is a lot of media attention on the book, mostly a result of an iconoclastic chapter on climate change.  It is hard to summarise a lengthy chapter in a few lines so, shorn of any subtleties, it will be presented as either a declaration that climate change can be fixed so there is no need to think green, or twisted to support claims that climate change is a myth.

I’ll happily admit that the science involved is beyond me, but I’ll also hazard a guess that it is beyond the authors too.  They are two people much smarter than me who visited a group of people even smarter than them.  I don’t think they were significantly better equipped than me to query what they were told and so I reckon they mostly just repeated what they were told, but putting it in a more narrative form.

That is not to say it is not interesting, but just that it doesn’t belong in this book: it would be better in a book by Nathan Myhrvold and his associates themselves, making their own case.  In any case, it involves theories and assertions that are going to cause a lot of friction with environmentalists, whether true or not.

For what it is worth, regardless of the soundness of the theories, there are reasons other than climate change to think about limiting certain types of energy use,  like direct health impacts of exhaust fumes or over-reliance of economies on diminishing and un-renewable energy sources.

The IV proposals smack of a Deus ex Machina solution to climate change, falling into the too-good-to-be-true category, but I would really like it if they are right.  It would offer some hope for the future, albeit with the danger of appearing to offer encouragement for habits which can be bad in themselves.

Anyway, that is an argument that is likely to rumble on for a long time. For now, here is what I said about the actual book:

While I found this book to be every bit as readable as Freakonomics, I didn’t find it nearly as satisfying.

In the first book it felt like Levitt was taking lots of data and results from other researchers and then making his own synthesis of them, usually finding some counter-intuitive conclusion out of it all. In large chunkc of this book it just felt like the other work was being re-hashed, especially in the increasingly notorious and attention-grabbing chapter on climate change.

Really it is just a description of theories coming out of Nathan Myhrvold’s labs.  While they might be interesting, and I am in no way qualified to say whether they are plausible or not, this whole chapter was a piece of straightforward journalism which could have been done by Dubner on his own – and maybe it was.  The only sort of economic twist to it was the tacking-on of the idea of externalities.

I know that chapter is the one that will attract most headlines and controversy, but it was more about physical science than economics and any ‘freakiness’ was in the original work rather than being applied by Levitt & Dubner.

The other headline-courting chapter (the one about the economics of prostitution) is more in the spirit of the first book, and is fascinating in its way, although again there doesn’t appear to be as much processing of the information by Levitt.

The parts of the book touching on drunk driving (and walking), car safety and child seats is truer to the spirit of Freakonomics with some juggling of data and statistics to come up with unexpected consequences, and original research by the authors.

Before the end I was getting a suspicion that topics were chosen to be deliberately provocative and controversial with conclusions guaranteed to get the maximum shock value: prostitutes are better off with pimps, child safety seats don’t save lives, and climate change can be fixed without the need to reduce polluting behaviour.

This is not a bad book, but it just doesn’t compare well to the first one. It is as if the authors were trying too hard with this one.  There is less emphasis on behaviour and incentives, but still something on nearly every page to make you realise how you shouldn’t just take everything at face value, and some fascinating material about knowledge management in hospitals – really: it is more interesting than it sounds.

In conclusion, a thought-provoking read, but fans of the original Freakonomics should be prepared to be underwhelmed.

Looking back, that all sounds very negative, but really there are some of the wacky conclusions you want from this pair – the unexpected negative impact on education of greater freedom of opportunity for women for example.  Also some things you odd bits of information like how blowjobs have gone from being top of prostitutes’ tarriffs in the past to being an entry-level activity now, with some explanation of why that might be.

I’ll give it 3/5 but still recommend it.

The financial services industry generally thought that the various controls and regulations that turned out to be too light and ineffectual were in fact too strict, and the Tories agreed with them.  You might have thought that everybody had learnt their lesson, but not according to Dale Jannels of AToM Ltd.  He starts by saying:

Nationwide launched a 125% mortgage this week!  Sadly, most reports failed to spot that this scheme is for existing borrowers, in negative equity, looking to move house!  Positive news, but the hype will have teased first time buyers who will have to wait a while longer yet!  In the middle of 2007 there were some 28,000 first time buyer products.  Today there are roughly 1,200.

Is it just me who feels a bit depressed at the suggestion that there is a pent-up demand for people to get their foot on the first rung of the property ladder by borrowing more than their house is worth?   Why is it “positive news” that banks are ready to start getting back into the bad habits that landed us in our current mess – even before the current mess is cleared up?    If these prospective buyers have such short memories, shouldn’t somebody be doing something to save them from themselves before they borrow more they can afford – when interest rates are so low that the only way they can do is up?

Later on there is this scientific-sounding statement on lending:

However, it is borrowers moving from lender to lender which helps to stimulate money movement in the financial markets.  Borrowers leaving a lender release funds for someone else, and so on.

Not sure I follow that.  If an existing borrower moves from one lender to another they will free up funds with their old lender – but use up funds with the new one.  There is no new business; just a bit of a merry-go-round that ultimately just benefits those on a commission to help keep it going round. (Like AToM Ltd?)

But the real  scene-stealer was at the end:

Finally, re-mortgage applications have increased recently.  Borrowers looking to secure long-term fixed rates are applying at the right time.  Some, who are in increasing financial difficulties, are looking for sensible ways to remortgage (not always our recommendation).  Others are releasing equity to acquire Buy to Let properties in the current cheaper climate.

Wasn’t it only a few months ago that the papers were full of stories of buy-to-let landlords coming undone, when they discovered that there really is no such thing as a free lunch?   If you have a house with some equity in it you are secure.  Use that equity as a deposit on a second house, then borrow the rest and you are not secure.  When your fixed rate deal ends and you are suddenly faced with mortgage payments doubling what are you going to do?  Double the rents so that nobody can afford them?

And then what will you do? Blame the government? Blame the banks? Or blame yourself for being greedy?

Suddenly it becomes clear how the whole housing and mortgage market got into their spirals in the first place – it appears that we are all rushing, lemming-like, to make sure we are as close to the edge as possible.

Let’s get some proper regulation in this business while we still can.  If the Tories get into government then, for some reason, I can’t see them putting in any sort of regulation – they thought there was too much to start with – so we should be doing something nw while we still can.  Prospective first-time buyers will be better served by a drop in house prices than by an increased willingness or ability to lend them what they can’t afford.   Preventing irresponsible lending should go hand-in-hand with building more affordable homes suitable for first-time buyers rather than more four-bedroomed houses.

Only on the first chapter so far, but its already gripping stuff, and I am already feeling even more manipulated by marketing types than I was before.   I did take the time to read the author’s biography at the back of the book and notice that he is a founder of the Center for Advanced Hindsight.

How cool is that?  It really does sound like the sort of thing that Douglas Adams would invent in one of his books, and I’m still not 100% sure it is not an imaginary entity.

It is sort of about maths and economics but also about philosophy and science generally.  I think that somebody recommended it to me in a comment on this site, but I can’t remember who that was.  The recommendation was probably based on my enjoyment of books like Freakonomics, Blink and The Wisdom of Crowds.  While it is similar to books like those and The Long Tail, it is a whole lot more idiosyncratic and uncompromising in some respects.Unfortunately it is not one of those books where you can easily absorb the ideas and incorporate them into your own world view: the author really wants his readers to totally accept his ideas and totally change their world view to revolve around them.  That is not something many people are prepared to do.

The tone of the book is interesting to say the least.  Taleb is not keen on most mathematicians. Or philosophers.  Or statisticians, businessmen, politicians, economists (especially Nobel winners), traders, and experts in general.  Large sections of the book reminded me of two things: one that will be familiar to quite a few people and the second will ring a bell for a much smaller population.

Remember the Christmas special of Father Ted, where Ted was awarded the Golden Cleric award for rescuing a group of priests from Ireland;s largest lingerie department?   His acceptance speech was not the traditional litany of thanks but instead was a multi-hour diatribe against people, subdivided into sections like “liars”, “frauds” and “people who have really fecked me over down the years”.    Well this book reads a bit like that in large parts. And don’t get him started on the Gaussian bell curve!

The other thing it reminds me of is the writings of Hugo Rune, when they are referred to or quoted in Robert Rankin’s books when he takes every opportunity to slag off the ‘greybeards’ and ‘charlatans’ in the scientific establishment.

At times I found that the general tone of score-settling distracted from the ideas, but at other times I found it amusing.   Above all it is thought-provoking as well as just provocative and iconoclastic.  I am going to have to take some time to think about the ideas in there.

For example, Taleb makes a very good case for not bothering to read a newspaper, how all the information you pick up actually impairs rather than improves your decision-making.  I particuarly like that as I find very little time to read the papers now and it helps me to stop feeling bad about that.

The concept of how hard it is to predict the past is especially mind-blowing as it casts doubt on the accuracy of most history books.  I also liked the whole notion of the futility of looking for causes and what he calls the narrative fallacy.

So plenty to enjoy in there, despite my dislike of several aspects – not least the author’s technique of using invented examples to ‘prove’ points.

I have another of  Taleb’s books in the waiting-to-be-read pile, but I think I will give my brain a rest by reading Necrophenia (the new Robert Rankin) and The Time Traveller’s Wife first.  I’m not sure I can take two non-fiction books in a row.

I am rarely in a position to say “told you so” but someone who is in a great position to utter those words is Naseem Nicholas Taleb.  I am nearing the end of his book The Black Swan (published in 2007) and on page 225 he says:

We have never lived before under the threat of a global collapse. Financial institutions have been merging into a smaller number of very large banks. Almost all banks are now interrelated. So the financial ecology is swelling into gigantic, incestuous, bureaucratic banks (often Guassianized in their risk measurement) – when one falls they all fall.  The increased concentration among banks seems to have the effect of making financial crisis less likely, but when they happen they are more global in scale and hit us very hard.  We have moved from a diversified ecology of small banks, with varied lending policies, to a more homogenous framework of firms that all resemble one another.  True we now have fewer failures, but when they occur… I shiver at the thought.

The Tories, of course, paraphrase that by saying it is all Gordon Brown’s fault…  In a footnote to that paragraph Taleb is even more specific when he says:

Likewise, the government-sponsored institution Fanny Mae, when I look at their risks, seems to be sitting on a barrel of dynamite, vulnerable to the slightest hiccup.

As the book was published in April 2007 those words would have been written in 2006 or early 2007 at the latest.  In September 2008 Fanny Mae was rescued/nationalised/taken into conservatorship when the fuse got lit to that barrel of dynamite.

The timing of the programme was spot on, as one of the areas where chaos theory is particularly applicable is economics, and the current world economic situation is a great case study in the futility of trying to predict what markets will do, or to control them in the first place.  One of the talking heads, himself a well-respected figure in finance, said that just about anybody can make predictions about the economy when it is all going smoothly, but nobody can ever predict when it is going to change, which would be a much more valuable ability.

The trouble with chaos theory is that it is not simple and it is not intuitive. The Newtonian model of everything makes sense, is easy to understand and is very comforting: the idea is that, like Hari Seldon in Asimov’s Foundation books, you can accurately predict everything if you can record the current postition of everything accurately enough, and that makes us feel in control.   It is no surprise that a theory which states we are not in control and are unlikely to ever be in control and which cannot be easily understood or explained is not going to get accepted easily.

For our decision makers to base policy on chaos theory they would either have to really get it on a much deeper level than just knowing what ‘the butterfly effect’ means, or they would have to make a great leap of faith and place themselves in the hands of mathematicians.  The trouble with that is that you can always find another mathematician with an alternative theory.  I have to admit that even though I did pretty well in maths at school and have read the standard popular science and popular maths books on chaos I don’t really get it.  I think it is beautiful and mysterious, but I can’t claim to have absorbed it completely.

I still hold out a little hope that chaotic does not mean impossible to predict or calculate; just very, very difficult.  Difficult to the level of being practically impossible, but still theoretically possible.  OK, I know that stochastic systems can be so sensitive to initial conditions that to measure those initial conditions accurately enough you will run into Heisenberg’s uncertainty principle…  but somehow I can make myself turn a blind eye to that.

In a way I wish I had been born a lot earlier.  Life was so much simpler when Foundation was published in the 1950s and the idea of psychohistory could be thought plausible.

Still… good to see programmes about maths getting made, even if they are a bit superficial.  Makes a change from reality TV, talent shows and celebrity dancing.  It almost makes up for missing Tim Marlow’s return to TV tonight: he has defected from Five and is now on the Sky Arts channel, which I don’t get.

I try to avoid spouting my own personal philosophy of government, partly because it sounds like a very Tory viewpoint unless it is explained properly, but I think the role of government can be summed up as being there to do the things that individuals cannot do for themselves, to help individuals do things they cannot do alone, and to do the things that can only be sensibly done collectively – particularly infrastructure stuff.

As not all individuals are in the same circumstances, or have the same abilities, it might be that a government or council will be selective with some services and concentrate on those who cannot cope.  When it comes to savings I really would expect those with more than £35,000 to put in a bank to be able to work out that you should spread it around a bit, or to have advice available to tell them that. In any case, if there was such a collapse of the banking system that bank deposits disappeared, someone who had the misfortune to have £50,000 in their account would still be left with £35,000 – hardly classifying them as the most needy.

Its all very hypothetical because I am sceptical about how many people fall into the category of having such large amounts in one bank anyway.  Take away all those who can only dream of having more than £35k in cash for a start.  Of those few that are left, most will view money on deposit as a missed opportunity and will have it invested in a variety of other forms – property, shares, ISAs, government bonds, etc.  At least that is the sort of advice that is normally given isn’t it?

I think this is a bit like the inheritance tax business of last year, with lots of headlines, and hardly anybody actually affected by it.  At best it is a distraction from all the other things and gives the papers something easily understood to write headlines about.

Red, according to the key meant it was classed as an ‘enterprise powerhouse’, while Brighton was in a much lower classification something like ‘not living up to its potential’.  Right at the other end of the scale were places like Hastings with a classification of ‘economic graveyard’.  Ok.  So I am making up the names that I can’t remember, but ‘enterprise powerhouse’ is definitely right.

To get some idea of what its all about I had a look at the website for the Work Foundation who did the research and found this table of the data (in PDF format).  All the measurements are of GVA and show that Crawley is in 7th place out of the 56 – just one place behind London.  This is good news not just for the town itself but for its wider area of economic influence – as we know many of the jobs in Crawley are filled by commuters from Horsham, Haywards Heath, Brighton, East Grinstead and even further beyond.

It must take a long time to gather and process all the data, because the report that was released only yesterday shows performance in 2005, and compares it to 1995.  The table shows that Crawley’s GVA per head was 26678 (pounds presumably), only 18 lower than London and well above the 18K average for the country.

The negative side is that Crawley’s position in 1995 was 3rd place, so it has been overtaken by Reading, Swindon, Milton Keynes, and London – but not by a lot. Its not just a case of a North-South divide either: Warrington, Northampton, Leeds and Derby are all in the top fifteen, while Southend, Hastings, and Chatham are near the bottom.  Coastal towns generally have not done well.  Basildon, Harlow, Bracknell,  and Stevenage which you might have thought were comparable new towns to Crawley don’t even feature in the list, neither do Guildford or Basingstoke.

Not that having a high GVA per head is necessarily good for a town, or not for everybody in it anyway.  The way I understand it¹ the total economic benefits generated in a town are divided by the population of the town: that does not mean that the product was generated by the same people.  It is quite possible for a town to generate lots of income, all earned by incoming commuters, while the indigenous population are stuck in low-paid service jobs.  Unless you believe in the trickle down theory, being poor in a productive town is no better than being poor in an unproductive one.

1. imperfectly obviously

I thoroughly enjoyed Freakonomics, but just figured Steven Levitt was a one-off, however this Dan Ariely looks like a similar sort of bloke.   I’m sure economics never used to be that interesting when it was all just arguments about monetarism, but this whole behavioral economics business seems to be more about people, incentives and psychology than it is about money.

I have added Predictably Irrational to my Amazon wish list while I wait for it to come out in paperback.