plumbum

The latest Greek bail-out

2012-02-22T00:01:00.000Z

It can't work and it won't work. There's not much point in my telling you why not, other commentators have done an excellent job already. This is not because the powers-that-be are acting particularly foolishly; it's because there are no good options available. Daniel Davies has put together an ingenious game in which you can try in vain to come up with something that works: the current deal leads to paragraph 26.

Quite apart from the numbers not working, a general election in Greece has been promised for April. Wolfgang Schäuble, the German Finance minister, wanted the elections postponed, because he quite reasonably had no confidence that an incoming government would abide by the terms of a bailout package, but a postponement seems not to be part of the deal. I suppose there will be an attempt, probably not in public, to get anyone who's at all likely to be important in the next government to sign up to the deal before any money is handed over. This could break down very quickly.

Mathematician thinks mathematicians are very important

2012-02-15T18:22:00.000Z

Ian Stewart, writing in the Guardian, says that Black-Scholes equation

opened up a new world of ever more complex investments, blossoming into a gigantic global industry. But when the sub-prime mortgage market turned sour, the darling of the financial markets became the Black Hole equation, sucking money out of the universe in an unending stream.

This is just wrong. The Black-Scholes formula is used by major players in the derivatives market only as a calibration tool, to obtain "implied volatilities" which give one a measure of how far market option prices diverge from an equation all the players know to be a simplification. And the pricing models used for the mortgage-backed securities that caused the financial crisis have got very little in common with the Black-Scholes equation.

Stewart is wrong too in what he says about Nassim Taleb's notion of "black swans". In Taleb's conception a black swan is not just an extreme event, it's an event that couldn't possibly have been built into a model because the modeller couldn't reasonably have even considered the possibility of its happening.

Stewart opens his concluding paragraph by asserting that "Despite its supposed expertise, the financial sector performs no better than random guesswork." He doesn't explain this remark, but it's not a fault of the financial sector if the Efficient Market Hypothesis is nearly true.

Having established to his own satisfaction that financial mathematics caused the financial crisis, Stewart concludes that what's needed is more, better, financial mathematics. This isn't exactly wrong - who would be against doing things better? But I am sceptical that we need mathematical advances before we can design a sufficiently stable financial system.

I have the advantage over Stewart of having done this stuff for a living. And I say that:
- nothing can make financial markets follow any particular model, unless a tradeable arbitrage exists when the market deviates from the model. (The Black-Scholes model is based on an arbitrage strategy of sorts, but one that operates only in an idealized world: the arbitrage is not tradeable in the sense I mean). Therefore financial models are tools for understanding financial risk, not for eliminating it.
- financial mathematicians (quants) don't make ill-advised trades: traders do. It's the duty of the quant and trader both to make sure that traders understand the limitations of the models.
- from a mathematical viewpoint, the financial crisis occurred because traders grossly underestimated the probability of correlated mortgage defaults. That's got little to do with black swans - it was foreseeable and foreseen that the US housing market wouldn't go up forever. And not very much to do with models - even the simplest models for mortgage-backed securities had a correlation input. It's got a lot to do with the hubris of traders who chose to bet the house on their guesses of an unobservable and unhedgeable parameter, and the failures of understanding of the bankers and insurers who let them do it.

Greek budget numbers

2012-02-10T00:24:00.000Z

In a comment on my previous post about Greece, Frances Coppola helpfully directs my attention to this spreadsheet put together by Yiannis Mouzakis, using data from monthly reports by the Greek finance ministry. (The reports give year-to-date data, so the spreadsheet backs out each month's figures by subtraction: it's possible that some months' results are affected by restatements of previous months.) I've created a similar spreadsheet myself: the primary* balance for January-June is a deficit of €5.7bn, for July-December a surplus of €360mn. The corresponding numbers in Stephanie Flanders' article are €5.1bn and €1.4bn.

It's possible that Flanders' numbers include two receipts not part of the main budget figures, listed as "Revenue from financial transactions". The amounts are €952mn in July and €380mn in December. I suppose this is income from the sale of assets, such as the sale in June of a 10% stake in OTE Telecom. Adding these sums in gives a July-December primary surplus of €1.7bn.

This looks like good news for Greece. However, also not included in the figures are some significant outgoings, including €1.38bn in December for "Acquisition of credit institution's preferred shares" and a further €306mn in the same month for "participation in the share capital increase of various enterprises". The total of additional outgoings over the six months is €2.6bn. The purchase of preferred shares is the final stage of a bank bailout scheme set up in 2008, and compensates Greek banks for their write-downs on government debts.

So the summary is that the Greek government did run a primary surplus for the last six months of 2011, if you count all its income and only some of its expenditure.

Does this put Greece in a position where default becomes a relatively attractive option? No, in that it would create a run on the Greek banks at the same time as inflicting further write-downs on them. Yes, in that the cuts being demanded of it now seem to be aiming for a substantial primary surplus. It's hard to see why any Greek politician wanting to be re-elected in April would back the Eurozone's demands - even if they think it the right thing to do they'll be waiting hopefully for someone else to say so.

__
*"primary" in this context means "not including debt interest payments". If you have a primary surplus you can consider defaulting, since you don't need new borrowing to keep going.

People who disagree with me are stupid

2012-02-08T23:00:00.003Z

Or perhaps not. They might not have chosen to consider my argument properly, if at all. Or I might not have expressed myself clearly enough. Or they might have a different view of the desirability of trade-offs involved. Or I might be wrong.

However, there is a line of research purporting to show that right-wing ideology (which disagrees with me) is associated with being a bit thick. A recent paper added to this corpus has been seized upon by George Monbiot in the Guardian "conservatism thrives on low intelligence and poor information". I think that's a fair description of Republican politics in the USA currently - the candidates for the Republican presidential nomination have recently been conducting a series of debates of quite extraordinary stupidity. But in the UK, the Conservative Party, whose policies are well to the left of the intelligent and thoughtful Barack Obama, strikes me as no less intelligent than the Labour Party. Its problem is a lack of concern for the problems of the economically unfortunate, not any inferiority in policy analysis, nor a reluctance to argue its case coherently. (Tim Worstall makes the case that in the UK 'conservative' and 'Conservative' may not be the same thing.)

The paper itself finds "that lower general intelligence (g) in childhood predicts greater racism in adulthood, and this effect was largely mediated via conservative ideology". What the authors did is analyse some existing data from two studies in the UK, each of which tested a group of children then years later asked them questions as adults. From these data they distilled measures of general intelligence g, social conservativism, racism, socio-economic status, and education level. They then used a factor analysis to show that social conservatism is quite strongly negatively correlated to g, even taking into account socio-economic status and education level. Another factor analysis including social conservatism as a factor showed that g is not a predictor of racism once you take social conservatism into account.

There are a lot of criticisms that can be made of the statistical methods: William Briggs outlines them here (but his comments about the tiny correlation along what the paper calls path c' are rather unfair: the authors are clear about it). But the fundamental problem is that this paper is not setting out to test competing hypotheses, it's just looking for confirmation of one idea, by means of a crude measure of social conservatism. The paper gives examples of the questions used in this statistic: "“Give law breakers stiffer sentences”, “Schools should teach children to obey authority”, and “Family life suffers if mum is working fulltime”. Similarly, the example questions it gives for the racism statistic are "I wouldn't mind working with people from other races” and "I wouldn’t mind if a family of a different race moved next door”. What the results tell us is that the same people who answer yes to the 'conservatism' questions tend to answer no to the 'racism' questions, and those people tend to have lower g scores. But those answers are not just conservative (by one definition) and racist, they are also unnuanced. Perhaps the same people would have agreed also with some other questions on the questionnaire, such as "Ordinary working people do not get their fair share of the nation’s wealth" or "Private schools should be abolished". If so, a differently motivated analysis might have found that g is negatively correlated with left-wing views, and left-wing views predict racism.

Perhaps a social scientist would care to conduct a statistical analysis to determine whether social scientists tend to seek confirmation of their own prejudices in the way they choose to analyse data. Or perhaps it would be safer to get someone else to do it.

Mid-Table Obscurity

2012-02-08T18:10:00.000Z

There's a strange story in the Guardian, with the headline "UK trails Poland and Bulgaria on adults educated to A-level standard" and the subhead "Lecturers' union says European data shows Britain risks languishing in 'mid-table obscurity' due to rising cost of learning". You don't have to read on to guess that the story is not going to make sense - there are no fees for A-level education at state schools in the UK.

The statistics behind the story are from Eurostat. The data are described thus:

The indicator shows the percentage of the adult population (25-64 years old) that has completed upper secondary education. The indicator aims to measure the share of the population that is likely to have the minimum necessary qualifications to actively participate in social and economic life. It should be noted that completion of upper secondary education can be achieved in European countries after varying lengths of study, according to different national educational systems.

So it means no more than having attended school or college for two or more years of what in the UK is called the sixth form.

The lecturer's union - the UCU - has its statement in full on its own site. It is concerned about "the very real possibility that we will slide further down the table as people find it harder to access education following price hikes and restrictions on places." I can reassure it that university tuition fees will not make it harder for students to complete sixth form studies.

I'd like to read an intelligent discussion about what proportion of the student population could benefit from sixth form studies, how that should be divided between traditional A-levels and vocational qualifications, and what the rest of the 16-18 year-old population should be doing. We might even learn from a comparison with the rest of Europe. The Guardian? Anyone?

The mystery of the primary surplus

2012-02-06T23:55:00.001Z

Eleven days ago, Stephanie Flanders, economics editor of the BBC, announced that "the Greek government has slashed its way to a primary budget surplus: as of now it is only borrowing money to pay off the debt...look at the Greek government's budget outturns for the second half of 2011, published earlier this month. As Graham Turner of GFC Economics has noted, these show a real step-change in the effort to cut spending and actually collect more Greek taxes...In the second half of 2011...the Greeks seem to have managed a 1.8bn euro primary surplus."

Sundry bloggers picked up on this remarkable turnaround in Greece's budgetary fortunes, noting that it may make a default more likely, in that if you're running a primary deficit you can't afford to default. And I made a note to look into how Greece had managed it against all expectations.

So I went looking for the data published in January. And I couldn't find it. All the mentions of the story I can find online refer to Flanders' article. It's not mentioned on the GFC Economics site, nor on the associated blog. So I had a look at the IMF fiscal monitor update, dated two days before Flanders' article. "headline deficits were larger than expected in Greece owing in part to a weaker economic outturn..." and at its latest (December) country report on Greece " Through end-September, the primary general government balance fell short of the program target by €280 million, or 0.1 percent of GDP". The plan in that document is for a primary surplus starting in Q2 of 2012, revising a previous plan for a primary surplus from Q4 2011. And here's the IMF country head in Athens last week, insisting that Greece has achieved a lot, but not taking the opportunity to mention a primary surplus.

I see two possibilities. One is that Greece, having achieved this breakthrough, has chosen to conceal it from the IMF and whisper it only to Graham Turner, who has exploited his scoop not by publishing it but by passing it on to Stephanie Flanders. And the other is that there has been a misunderstanding somewhere. I'm keeping an open mind...

Abiraterone

2012-02-02T22:02:00.000Z

There's an important newish prostate cancer drug called abiraterone which doctors are keen to prescribe to suitable patients. The drug was approved by the FDA in the USA in April 2011, and in Europe by the EMA in July. The UK body responsible for approval drugs for use by the NHS, NICE, started its review process in May 2011, intending to conclude its glacially slow deliberations in May 2012. Today it's issued a draft decision that the drug should not be funded by the NHS.

This is not to say that abiraterone is entirely unavailable on the NHS. The Cancer Drugs Fund was established last year to pay for unapproved drugs, subject to agreement for each patient by the Strategic Health Authority in their region: your chances are better in some regions than others (which is ironic, since the government said the Fund would end the "postcode lottery", I've no idea why they thought they could do that with a regional decision-making process).

There's no question at all that abiraterone is an important advance. A phase III trial was stopped at the interim stage in September 2010 because the results were too good for it to be ethical to continue with the control group. The drug works by blocking the body's production of testosterone in a novel way (prostate cancer, until it becomes hormone refractory, needs testosterone to grow), and was found to increase median survival time by 3.9 months in patients with metastatic castration-resistant prostate cancer.

So has NICE got it wrong? Cancer Research UK, which helped discover the drug (now owned by Johnson & Johnson), has put out a press release saying so. But really there's no way to tell. NICE is supposed to consider not just effectiveness but also price in deciding whether to approve a drug: it's starting point is the cost per Quality-Adjusted Life Year (QALY), which should not much exceed £30,000 (I haven't found an official statement of the current number), though other considerations can affect this. We know how good abiraterone is, but we don't know what price Johnson & Johnson have offered it at, so we can't do the calculation.

Which brings us to NICE's real role in all this: it's implementing a pricing mechanism. The manufacturing cost of producing a drug like abiraterone is trivial compared with the research and development costs, which are usually estimated at something in the region of a billion dollars. There is therefore a huge gap between the average price the manufacturer needs to charge globally to make a profit, and the price at which the manufacturer is better off striking a deal in any particular market than walking away. The NHS needs to keep prices down, the manufacture wants to charge the most it can, there's only one buyer and one seller, but there has to be some basis for price setting. So the semi-public but not clearly defined QALY mechanism allows the manufacturer to calculate a price at which they think the drug will be approved. The uncertainty has a reason to exist in that it prevents them from pricing the drug right on the limit. And to reinforce this, there's no negotiation: the manufacturer offers a price and NICE either accepts it or rejects it.

But the mechanism works only if NICE does actually decline to approve some drugs, otherwise prices for new drugs would drift up. So it has to apply its methods rigorously. Meanwhile, the Cancer Drugs Fund has reduced the pressure on manufacturers to quote a price that will be accepted, because they know that they will get some sales even at a higher price. Hence the failure of the market to clear in this case.

So why has NICE announced a preliminary decision to withhold approval? It must be to give Johnson & Johnson the chance to make its offer more attractive. Probably not by anything as crude as cutting the price, but by some mechanism such as providing the drug free to any patient remaining on it beyond a specified length of time. In part this is because some other countries are willing to pay the official NHS price but no more, so Johnson & Johnson will want to keep the headline price high.

At this point I stop on reflect on the absurdity of the whole thing: humanity has created a system for funding drug development that prevents us giving drugs that are cheap to produce to patients who need them, even in one of the world's wealthier countries which is willing and able to pay something like its share of development costs.

The government has radical plans to change this price-setting process. When I've read the details I'll comment on how they might work.

Take away that fool's bauble

2012-02-02T11:18:00.000Z

In 2004, Fred Goodwin, then Group Chief Executive of RBS, was awarded a knighthood for "Services to Banking". On Tuesday it was announced by the Cabinet Office that Goodwin's knighthood is to be "cancelled and annulled", following a recommendation by the Honours Forfeiture Committee.

I would have thought this would be no great loss to him: he should find it easier to enjoy his considerable wealth as the relatively obscure Mr Goodwin. But his friends and sympathizers are outraged: Alistair Darling, who was a better Chancellor than Gordon Brown, wrote in the Times that "There is something tawdry about the government directing its fire at Fred Goodwin alone..." Jackie Stewart says that "No single person or even any single bank created the biggest financial recession in modern times...To have this stripped I think is poor for the constitution and very dangerous for the future." Simon Walker for the Institute of Directors says "To do it because... you don't approve of someone, you think they have done things that are wrong but actually there is no criminality... is inappropriate and politicises the whole honours system". Digby Jones doesn't disagree with the decision, but remarks it's surrounded by "a faint whiff of the lynch mob on the village green".

What a load of tosh. Goodwin was given the knighthood for services to banking, presumably because a grateful nation appreciated the contribution therefrom to the economy in general. We now know that his banking efforts have cost us many billions of pounds - the price of the bailout depends on what the government gets when it eventually sells its shares in RBS, but currently we're looking at a loss of over £20bn. Against that you can set the tax revenues it's received over the years as a result of RBS's activities, but the end result is not going to be any great gratitude. Goodwin's services to banking were less than worthless, it was a horrible mistake to give him the knighthood, and now we've put that right.

Goodwin's not the only one whose knighthood was an obvious error? Then let's unknight the others too. No single person created the recession? Quite true: no single person created the profits at RBS either, but only Goodwin got the knighthood. The annulment politicises the system? Very funny: it's awards that are decided by politicians, not annulments. The whiff of the lynch mob? That's an odd description of the Head of the Home Civil Service and his colleagues.

The underlying argument seems to be that the annulment of a knighthood is a punishment for wrongdoing, to be decided only after due judicial process. That's wrong. No one has the right to a knighthood; it's a privilege awarded to about one millionth of the population each year. Goodwin doesn't deserve this special privilege, and now he hasn't got it, just like millions of others far less undeserving.
__

I've not attached titles to anyone's name in this piece, apart from Mr Goodwin's. The things are so ephemeral nowadays.

SOPA blackout

2012-01-18T16:18:00.000Z

Assorted websites, including Wikipedia, have blacked themselves out today to encourage readers to lobby against the new legislative restrictions on the internet being proposed in the SOPA and PIPA bills in the USA. Wikipedia has carefully done this in the weakest way: you can access Wikipedia as normal by telling your browser to block Javascript: this can be done only for site http://en.wikipedia.org if you want other sites to be unaffected.

The protesting sites are careful to say that their opposition to the bills is not based on any lack of respect for Intellectual Property Rights. I'm against the bills too, but I think the concept of IP has gone much too far. I am not a supporter of the Amalgamated Union of Tollbooth Operators.

Child Benefit

2012-01-16T23:18:00.000Z

Chris Dillow points out the clumsiness of the government's proposal to claw back Child Benefit from households whose top earner is in the 40% bracket (or above), and rightly suggests that it would be much simpler to increase the 40% rate to something higher. He's mistaken about the numbers however: treasury estimates (see page 14) say that £2.5bn a year is at stake. I agree with Dillow's view that the government is sticking with this ugly policy because it sees inherent virtue in reducing both taxes and benefits.

In general, I hold that government benefits should be of one of two types: universal benefits with no means test (treated as taxable income), or subsistence benefits which taper off with increasing earnings. (The government's proposed "Universal Credit" is a composite of subsistence benefits.) Up to now, Child Benefit has been a universal benefit: the current proposal would make it neither flesh nor good red herring. Why should a childless household falling just below the 40% band subsidize a similar household with children, but no such transfer take place if both households fall just above the band?

My opinion is that children are expensive for parents but necessary for society, and that with the UK's fertility rate currently well below the replacement rate it's reasonable for the state to transfer modest sums from the childless to the fecund. And that universial benefits are generally preferable to subsistence benefits.

Declaration of interest: my household currently receives child benefit which it would lose under the government's proposal.

Rule Britannia

2012-01-16T12:16:00.000Z

A particularly sycophantic Tory wants us to give the Queen a new yacht for her diamond jubilee. Her father died on 6th February 1952; I suppose after sixty years she feels less uncomfortable than she once did about celebrating the anniversary.

I'm not sure that an 85-year-old monarch would be particularly keen to have her own yacht: she's been struggling on without since Britannia was decommissioned in 1997. But if she does want one, I suggest we fund it by public subscription, and create a new chivalric order for the largest donors, which we might call "Benefactors of the Royal Yacht Britannia Endowment".

One hundred and fifty million points of darkness

2012-01-15T00:13:00.000Z

JSTOR is a not-for-profit online archive of over 1,400 academic journals and related content. Many academic institutions subscribe, giving their staff and students online access to a huge body of knowledge. If you don't have access, you can buy individual papers, but the fees are quite high - $14 for On the Method of Theoretical Physics, which I picked arbitrarily.

In September, JSTOR started making older, presumably non-copyright material freely available, and it has recently announced a "Register and Read" scheme giving restricted free access to 70 of the journals it carries, with the expectation that hundreds more will be added. This is welcome news. But the story reporting this in The Chronicle of Higher Education reveals that every year JSTOR "turns away almost 150 million individual attempts to gain access to articles". (This is not JSTOR's fault. It's an archive, not a copyright holder. Access restrictions are the price it pays for being allowed by the journals to carry their content.)

One of the costs of academic copyright is 150 million failed attempts online every year to learn from the corpus of published research.

Stealing books

2012-01-12T23:21:00.000Z

Last July Aaron Swartz was arrested for taking direct action against copyright restrictions on academic papers by downloading almost the entire JSTOR archive. Kevin Drum has just found out and expresses surprise at the outrage provoked by Swartz's arrest. Megan McArdle has taken this up with a long and confused piece about property rights.

This is less difficult than McArdle makes it seem. Goods have an intellectual content, which is non-rivalrous, and a physical content, which is rivalrous. Property rights serve both as a rationing mechanism for rivalrous content and as an incentive to increased production. Land is very expensive to create (albeit Hong Kong is closer to Kowloon than it used to be) so property rights over land are useful almost entirely for rationing (and non-rivalrous trespass on land is not usually a criminal offence). Computer files are almost free to copy, so property rights over them are useful only to encourage creation of their intellectual content. Books, which trouble McArdle, have both physical value and intellectual content. There's no intellectual problem with believing that the intellectual content of a particular book should not be protected by copyright but that a physical copy of the book should be protected by physical property rights.

It's important to make these distinctions, because they enable one to consider whether property rights are working well to achieve what we want. It's obvious that 70 years after an author's death is a much longer copyright period than could conceivably be needed to encourage the creation of intellectual content.

Welfare Reform

2012-01-12T22:28:00.000Z

18 months ago the government published a consultation document 21st Century Welfare. The document proposed reforming the UK's benefit system with the aim of reducing what it called "Marginal Deduction Rates" for the low paid. It means by that the percentage of any increase in earnings that is lost in reduced benefits. It gives an example whereby "a couple with a single earner and two children sees a Marginal Deduction Rate of 95.5 per cent on earnings between £126 and £218". (That range of weekly earnings corresponds to 22 to 38 hours a week at the then minimum wage.) The paper proposes to ameliorate this unhappy state of affairs by combining all benefits into a "Universal Credit", which will then be progressively withdrawn as earnings increase at a "taper rate" to be decided.

By November 2010 the government was ready with its white paper Universal Credit: Welfare that Works. The white paper specified a taper rate of 65%. For workers paying income tax (at 20%) and national insurance (at 12%), i.e. those earning more than £143 per week, the taper rate would apply to their net earnings, giving a combined deduction rate of 76.2%.

I suggested last month that a marginal tax rate of 52% is discouraging. How much more so is a marginal deduction rate of 95.5%? I doubt that anyone could seriously oppose the underlying aim of this reform. 76.2% or 65% still seem much too high, but at least they represent a significant improvement, and create a mechanism to make further reductions administratively straightforward. I am very much in favour of the proposal.

In February last year, the government was ready with its legislation. (The full text of as currently proposed is here.) The bill sets out a whole new system of benefits, and some of the proposals reduce benefits to some claimants. Three of those cuts, affecting sick and disabled people, were defeated last night in the House of Lords. It's impossible to reform any system of payments without either spending a lot more money on it or leaving some people worse off, but, according to the BBC report, the government is defending these proposals not as a necessary part of the package but on the grounds that tough decisions have to be taken to cut the government's deficit. It's a pity that the government is making it difficult or impossible for some people to support an important reform by combining it with a package of cuts.

I would like to more towards a system in which the marginal rate of deduction for the lowest earners is zero. Then I would like to abolish all laws forcing claimants to seek employment on pain of loss of benefit. And at the same time I would abolish the minimum wage. The effect would be to subsidize low-paid employment rather than trying to force people into it. I would be quite comfortable with employers taking advantage of this to hire people on very low pay rates, knowing that the employees are working of their own free will, that they are financially better off with the jobs than without them, and that they are doing something productive with their time. My hope is that there would be many things worth employing people to do at £2 per hour that would be automated or left undone if you have to pay £6.08 an hour. While the government would get no direct tax income or benefit savings from the employment, it would receive indirect taxes, and the economy would be better off by the added value of the labour performed. I suppose that the right would hate the unrestricted benefits, and the left would hate the low wages, but society would benefit from both the economic and human effects of reduced unemployment.

Encouraging investment

2012-01-08T02:32:00.000Z

I missed it at the time, but my attention has been drawn by discussion of the woes of corporate pension funds to a policy document published early in 2010 by the Conservatives setting out George Osborne's plans for the economy. Section 2 is the plan for "Creating a more balanced economy" "We will create the conditions for higher exports, business investment and saving as a share of GDP".

The section laments low levels of business investment in the UK, and lists some rather insubstantial ideas to increase it. Then it goes on to discuss savings " Over the longer term, we will reverse the effects on pension savers of the 1997 abolition of the dividend tax credit for pension funds". This is a reference to Gordon Brown's so-called 'raid on pension funds', which I thoroughly approve of.

So having identified insufficient business investment as a problem for the UK economy, Osborne proposed a tax break which would encourage businesses to pay dividends rather than reinvest profits.

FA v Suárez

2012-01-07T00:36:00.001Z

The independent Regulatory Commission which heard the FA's case against Luis Suárez published its report this week. It's a long and thorough document: judging by media commentary on the case I may be one of the few people not actually on the Commission who's read it. In short, it was agreed that Evra and Suárez had an unfriendly conversation in Spanish, which is Suárez's native language and one that it turns out Evra is capable of holding a conversation in. Suárez admits to having called Evra "negro" (in Spanish) once, and has issued a sort-of apology for it. Evra says that Suárez called him "negro" seven times. The Commission had no other direct evidence on what was said, but chose to believe Evra, on the grounds that Suárez made the claim to the Commission that he was attempting to be "conciliatory and friendly", whereas television pictures suggested that there was nothing friendly about the conversation, thereby damaging the credibility of his evidence in general.

After due reflection, Liverpool FC has decided not to appeal, presumably feeling that it has done enough to demonstrate its loyalty to Suárez, and not wishing to do anything further to discourage any current or potential future players who would prefer their employer to be unambiguously opposed to racist abuse.

Interestingly, the Commission became in part a linguistic enquiry: including hearing expert witnesses on South American usage. We learned that:
- Evra at the time understood Spanish "negro" to be the equivalent of French "nègre", whereas he now understands that it translates as "noir". The whole case might never have arisen without this misunderstanding.
- Evra's opening remark to Suárez, having earlier been fouled by him, was "Concha de tu hermana". The Commission accepted that that is not as insulting as it sounds, and colloquially would not be taken as a direct reference to one's sister's anatomy, just as English swearwords should not usually be understood literally. In any case, Suárez, who perhaps wasn't expecting to be addressed in Spanish, didn't grasp what Evra had said.
- Evra was interviewed by French television shortly after the match, and said (in French) "You can even see
clearly on his lips what he told me at least ten times". Evra claimed to the Commission that "ten times" in French is just a figure of speech meaning "many times". The Commission accepted this, and so held that Evra's credibility as a witness was undamaged by it. I think French viewers would have understood "at least ten times" to mean "at least ten times". But there again, television interviews and evidence to a quasi-legal hearing are not the same thing.

Overall, I think that low-level and not unprovoked abuse like this could best be dealt with in private - players can sort out among themselves what's acceptable. But that once it's come to official attention, it has to be firmly censured.

SOPA

2011-12-27T20:13:00.001Z

The US Constitution declares that "The Congress shall have Power ... To promote the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries." The House of Representatives is considering exercising this power by passing the so-called "Stop Online Piracy Act" - SOPA for short. There is strong and well-reasoned concern about the technical requirements of the proposed Act, outlined here, and internet companies are near-unanimous in their opposition.

There's no doubt that SOPA would damage the internet; the question is what would be gained in return. The media conglomerate Viacom has produced an online video putting its case. They seem to be trying to persuade us that there will be no more SpongeBob Squarepants without new copyright protections online. I don't believe them. Successful films, television programmes, and books are more profitable than ever before. J.K Rowling is past half-way to being a sterling billionaire. The truth is that the content that's attractive to 'pirates' is the content that's already enormously profitable. This Act is aimed at making very rich people even richer. It is not necessary for the promotion of making children's television programmes that there should be no unauthorized Rugrats toys, nor does songwriting depend on the ability of Warner Brothers to collect royalties for online performances of Happy Birthday.

Intriguingly, SOPA has the support of AFL-CIO, the American Federation of Labor and Congress of Industrial Organizations. It says it believes that SOPA would increase employment. In many circumstances Trades Unions add balance to the unequal relationship between employers and employees, but they are essentially economic actors who are interested not in employment in general but in the employment of their own actual and potential members. It would be possible for a government to raise funds by auctioning the right to collect tolls on roads, and the Amalgamated Union of Tollbooth Operators would be pleased to support it. That doesn't make it a good idea.

It's possible that if Warner Brothers made even more money out of Harry Potter and Happy Birthday it would spend more supporting potential new hits from otherwise struggling artists. I'd be interested to hear from any such who believe in this. Pending that, let's not break the internet: I'm willing in exchange for that to allow media multi-millionaires to struggle on with what they've already got.

Slow roasting

2011-12-24T19:25:00.000Z

Chris Dillow seasonally enjoins us to 'stick it to The Man' by cooking stuff. (I suppose it's implicit that The Man should not be allowed to eat what we cook.) I claim no great proficiency in the kitchen, but what's on my mind today is the right way to cook turkey. There is a way that gives much better results than the usual method, which is to roast it slowly overnight.

Before I try to persuade you of this, a word of warning: this method is widely disrecommended. However you cook the bird, it's important that every part of it get hot enough: the USDA recommends 165F/74C. This is comfortably above the temperature at which vegetative bacteria such as salmonella and staphylococci will die. This paper takes a look at the bacteriology. The concern with slow roasting is, or at least should be, that the meat will spend longer at intermediate temperatures at which bacteria multiply rapidly and may secrete toxins. This creates "a small reason to set a minimum time for raw food cook come-up".

You should choose a bird that's been reared non-intensively. I like to think that such birds are less likely to be contaminated with harmful bacteria, but in any case you owe it to a creature you're going to eat that it should have enjoyed a life worth living. And it will taste better. It will cost more too: most families in the UK can afford it, if you can't then you'll have better things to worry about than my culinary advice.

So to the cooking. The problem with roasting large pieces of meat at 160C or higher is that the outside will have spent a long time at a high temperature before the inside gets hot enough to be safe. That's ok with meats like beef for which it creates an interesting variation in texture and flavour, especially if there's a good covering of fat to keep the outside moist. But turkey just dries out. You can avoid this by cooking at much more gentle temperatures. And it makes the whole process of cooking a meal much easier, because there's no need to be exact with the timing provided you give it long enough. In one way, this method is safer because you won't be tempted to take the turkey out too soon because the outside is getting overcooked or because the rest of the meal is ready.

I hesitate to point you to any specific procedure: I mix and match from various sources. But the key points are:

- Cook stuffing separately. This leaves the cavity empty for the turkey to cook from the inside too.
- Start the turkey at a high temperature to kill surface bacteria. (Or boil it for a few minutes instead if you're equipped to do so)
- Cook overnight on a rack at a temperature just below boiling point (cooler and bacterial toxins are more of a concern, hotter and it's harder to keep the meat moist, though a foil tent completely covering the roasting pan may do it)
- Use a meat thermometer to make sure the turkey is hot enough all the way through. If you do this with time to spare you can always turn the heat up at the end to speed things up if necessary.

Best get started in the next hour or so...

Racial abuse update

2011-12-22T09:06:00.001Z

There were developments yesterday in two of the cases I discussed six weeks ago.

First, John Terry is to face criminal charges detailed here:

On 23 October 2011 at Loftus Road Stadium, London W12, you used threatening, abusive or insulting words or behaviour, or disorderly behaviour within the hearing or sight of a person likely to be caused harassment, alarm or distress which was racially aggravated in accordance with section 28 of the Crime and Disorder Act 1998.
Contrary to section 31 (1) (c) of the Crime and Disorder Act 1998

31 (1) (c) says "a person is guilty of an offence under this section if he commits an offence under section 5 of the Public Order Act 1986 (harassment, alarm or distress) which is racially or religiously aggravated for the purposes of this section". Section 28 defines "racially or religiously aggravated": I think it safe to assume that any case against Terry will have no problem satisfying that definition. Section 5 of the POA says "A person is guilty of an offence if he...uses threatening, abusive or insulting words...within the hearing or sight of a person likely to be caused harassment, alarm or distress thereby...It is a defence for the accused to prove that that he had no reason to believe that there was any person within hearing or sight who was likely to be caused harassment, alarm or distress, or...that his conduct was reasonable."

I confess that I overlooked in my earlier comment that section 5, unlike section 4A, does not require anyone actually to have been distressed. It would be improper for me to speculate at this stage as to the outcome of the case, but I note that if convicted Terry faces a fine he would find trivial (a maximum of £2,500 if I read the scale correctly). I cannot see how the public interest has been served by the police and CPS pursuing the case rather than allowed the FA to get on with its proceedings.

Meanwhile, the FA has shown how seriously it intends to take this sort of thing by banning Luis Suárez for eight matches and fining him £40,000. The financial penalty imposed on Suárez, in whose case the police have shown no interest, is much heavier than the maximum fine faced by Terry, but even so it's the ban that will really hurt. Suárez is paid about £4m a year by Liverpool, and they paid Ajax about the same per year again for his contract, so the value to the club of his services is of the order of £200,000 a game. It's not surprising that the club is very disappointed by the penalty.

Reportedly Suárez admits to calling Patrice Evra either "negro" or "negrito", speaking in Spanish, where the words do not carry all the same overtones. And there's an unclear allegation that Evra started it by referring in some way to Suárez's origins in South America. I suspect that neither player could hold butter unmelted in his mouth for very long, and that this case is on the borderline between racial abuse that ought to be stamped out and playground tit-for-tat that ought to be left on the field. It's possible that the FA has decided that a salutory ban reduced on appeal to a slap on the wrist is the way to send the required message - the FA statement emphasized that Suárez "has the right to appeal" and suspended the ban to give him the chance to do so: good luck to them sorting this out.

Intellectual-property rights: academic papers

2011-12-20T15:49:00.000Z

I wrote earlier that I'm opposed to intellectual property rights wherever plausible alternatives exits. I'll start my review of the alternatives with perhaps the easiest case: academic papers.

My relevant experience is all in science and finance: conceivably things work differently in the humanities. In the fields I know about, which are overwhelmingly the ones that matter to the vast majority of the population, the way that journals work is that authors submit papers for publication, the editor asks experts in the field to review the paper, the reviewers make recommendations for changes and for or against publication, the authors are invited to make any changes the editor thinks advisable, and the editor eventually publishes the paper or rejects it. The journal, which has contributed the least to this process, ends up with the copyright to the paper: the author and reviewers work for notional fees or none.

Copyright is therefore no incentive for the production of academic papers. Its only function is to provide incentives for journals to carry out a filtering process by which readers get an indication of which papers are worth reading, and funding bodies get an indication of whose research is worth funding. Since there are too many papers to read, and too many researchers to fund, both these filters are valuable.

In practice, authors often circulate their papers to peers before submitting them for publication, both as a courtesy to anyone whose work they cite, and in the hope of getting helpful feedback. Also,they often make a version of the paper freely available on their personal websites - this is worth knowing if a paper you want to consult is hidden behind an expensive paywall. I suppose that journals disapprove of this practice, but think it prudent not to draw attention to it by objecting publicly.

The alternative is simple: authors, as they do now, should consult whomsoever they wish until they think their paper ready for general release. Then they should publish them on websites dedicated to the purpose. arXiv does this already for some of the geekier fields. Here's an outline of how it works, and here are some comments by its founder on its implications for academic publishing. Here are some thoughts on its disadvantages: none of them seem to me to be fundamental to the question of copyright. Interestingly, there is no suggestion that prestigious journals in Physics have been unable to operate without exclusive publication rights.

It may be that copyright restrictions are necessary in most cases to make it worthwhile to operate pre-publication peer review: here are some comments by Richard Smith, former editor of the BMJ, on how small a loss it would be to do without.

I submit that medical research in particular would benefit from free publication along the lines of arXiv. That would get results out quicker, make them easier to consult online, and encourage publication of negative trial results.

If filtering mechanisms are required, something along the lines of Amazon's book-review system would be possible. The user should have the option to apply weightings to the reviewers, favouring for example ones with high academic titles, or ones whose views, positive and negative, he shares regarding other specified papers.

Let's abolish copyright on academic papers now. I predict that a few prestigious journals will survive, and the rest will be more than adequately replaced by free on-line publishing.

Assholocracy

2011-12-14T22:56:00.002Z

This blog is usually restrained in its use of language, fondly imagining itself to be read by relatives as well as its sometime trading-floor colleagues. However, it is resolved to express itself with vigour when the occasion demands. And so it now does: Geoffrey Pullum, whose book The Great Eskimo Vocabulary Hoax made me briefly regret never previously having perceived the attraction of a career in linguistics, thinks it important that the title of this post should get more google hits. I am delighted to be able to render him this trifling service.

Intellectual-property rights

2011-12-14T12:13:00.001Z

Tangible-property rights are a good idea. They both encourage the supply of additional stuff and provide a mechanism for apportioning finite supply to where it's most wanted. (This would work better if wealth were shared more equally.)

Intellectual-property rights are a bad idea. They encourage the creation of new intellectual property, but they impoverish humanity by restricting the use of non-rivalrous goods.

Starting from scratch, would anyone really want the system we have now? I think one would explore every other idea for rewarding innovation and creativity before being willing to settle on what we have as the least bad option. So I'm going to explore other ideas in future posts...

Alcohol-Attributable Fractions

2011-12-13T20:19:00.002Z

This press release on Saturday reported that there were 1,173,386 hospital admissions related to alcohol in 2010-11, an increase of 11% from the previous year and more than double the number in 2002-3 (Hospital Episode Statistics are calculated from 1st April to 31st March). Andrew Lansley for the government said:

These figures are disturbing evidence that, despite total consumption of alcohol not increasing recently, we have serious problems with both binge-drinking and long-term excessive alcohol abuse in a minority of people.
These consistent rises show that Labour took their eye off the ball on tackling alcohol abuse during their 13 years in power. Their reckless policies, such as the decision to unleash a 24-hour drinking culture in our country, only made matters worse.

Whereas Diane Abbott for the opposition was of the view that

The alarm bells should be ringing with the publication of these figures. It is clear that this Government is rapidly pushing us towards a binge-drinking crisis.
It is clear that for Andrew Lansley, the be-all and end-all is whether his friends in big business are happy, and, unfortunately, it is costing our NHS and British families an absolute fortune. A recent report predicted that binge-drinking will cost the NHS £3.8 billion by 2015, with 1.5 million A&E admissions a year.

So there you have it. For the Tories, the problem is one of both binge drinking and long-term alcohol abuse, and it's Labour's fault. For Labour it's just binge drinking encouraged by big business that's the problem, and the Tories are to blame' (Ms Abbott was talking about a different report: I haven't traced it but it's mentioned here)

The press release was reproduced, quotes and all, in most of the papers. The Guardian fleshed it out a bit. The Daily Mail took Ms Abbott's word for it that all the admissions were to A&E. The Times [paywall] got a quote from Mark Bellis, director of the North West Public Health Observatory which compiled the figures "These things are working their way through the system from a massive increase in alcohol consumption over the past two or three decades. We've probably got more of this to come...Particularly at this time of year, we've got to address our relationship with drunkenness."

There's one dissenting voice, which calls the story a lie and links to this description of how the figures are calculated (the analysis dates from when the 2009-10 figures were published in May this year - the calculation seems to be quicker now). The statistics are compiled not, as you might think, by asking people admitted to hospital whether they've been drinking (in A&E) or how much they drink (on the heart, liver, and cancer wards), but by applying an "alcohol-attributable fraction" to each admission according to diagnosis, age, and sex. This methodology is confirmed in a comment by Andy Sutherland of the NHS Information Centre (I'm fairly confident that it's really him, because the press release correction he promises did appear).

The calculation of AAFs specific to England is described in this pdf (the purpose of which is described here). The method for each diagnosis is to identify the best available research on the increased (or decreased) risk associated with various levels of alcohol consumption (by age and sex where the data were available), apply the levels of alcohol consumption determined by the 2005 General Household Survey (by age and sex, adjusted using new estimates of the alcoholic content of drinks), and hence calculate what proportion of hospital admissions in 2005 were related to alcohol consumption. Ideally alcohol consumption figures integrated over time should be used for diseases which take many years to develop, but the method seems broadly reasonable to me.

The data for all other years since 2002-3 have been calculated using the same AAFs. Collated data can be downloaded in a spreadsheet here, showing a steady rise in alcohol-related hospital admissions.

Let me say that again: "calculated using the same alcohol-attributable fractions". So what has happened is that researchers into each diagnosis have analysed data on alcohol consumption for people with and without the disease, and fitted those data to a model in which the diagnosis is due to two perfectly uncorrelated factors, one for alcohol consumption and one for everything else. Applying this model to data on alcohol consumption in 2005, statisticians have deduced what fraction of 2005 hospital admissions for each diagnosis was due to the alcohol factor - the 2005 AAF. And then these two perfectly uncorrelated factors have been assumed to be perfectly correlated in every other year, so that the AAF remains constant. I am shocked that reputable statisticians have put their names to this method. I can see no good reason not to repeat the 2005 analysis each year (except perhaps that it would take longer to get the numbers out). Certainly that would give different results, since current alcohol consumption would actually be an input to the analysis.

What are the data on alcohol consumption? The General Lifestyle Survey reports on weekly alcohol consumption above safe limits:

Following an increase between 1998 and 2000, there has been a decline since 2002 in the proportion of men drinking more than, on average, 21 units a week and in the proportion of women drinking more than 14 units...This trend seems to be continuing under the new methodology; between 2006 and 2009 the proportion of men drinking more than 21 units a week fell from 31 per cent to 26 per cent and the proportion of women drinking more than 14 units a week fell from 20 per cent to 18 per cent. These falls were driven by falls in the younger age groups...

and on average weekly consumption:

The British Beer and Pub Association (BBPA) makes annual estimates of per capita alcohol consumption using data provided by HM Revenue and Customs. These show a steady increase in consumption from 1998 to 2004, followed by a decline of about 5 per cent to 2006, and then a further decline of about 7 per cent from 2006 to 2009. The decline measured by the GHS is much greater, at about 15 per cent between 2002 and 2006.

(there was a change of methodology in 2006 that makes it difficult to produce a single set of numbers)

It would seem that any increase in hospital admissions must be due either to the after-affects of long-term abuse which may have increased in the years up to 2002 or so before declining thereafter, or to occasional binge drinking not captured by weekly averages. So I looked at data for three diagnoses: "toxic affect of alcohol", which should be an indication of binge drinking, "alcoholic liver disease", to capture the effects of long-term alcohol abuse, and "atrial fibrillation and flutter" to look at what's happening with a common diagnosis with a small but non-zero AAF. These are available here, based on the same data as the alcohol-related admissions figures.

I've included series for total admissions and for the alcohol-related admissions data I'm writing about. All the series are normalized to 2002-3, when the numbers were: total admissions 11,414,074; alcohol-related admissions 510,780; atrial fibrillation and flutter 68,731; alcoholic liver disease 11,582; toxic effect of alcohol 1407.

What's striking is that the alcohol-related admissions numbers have increased far faster than any of the other series (admissions for the toxic effect of alcohol have not increased at all). How can this be explained? I looked through the diagnoses to find any that had at least doubled from at least 10,000 since 2002-3: there were 27. But only one of them had a non-zero AAF: hypertensive renal disease. I must be looking at the wrong data - AAFs for many diagnoses are higher for younger patients, so there must have been a big increase in these admissions among the relatively young, which don't appear in the totals I looked at. (The data are there in the spreadsheets, but you get only so much for your money.)

One thing did catch my eye however, which is the increase in admissions for "obesity" from 1,297 to 11,740. This may be associated with increasing availability of bariatric surgery, but it's no secret that there have been big increases in obesity. Furthermore, obesity is linked to hypertension and diabetes, both of which will increase hospital admissions among the relatively young (not least for hypertensive renal disease).

This is speculative, but my guess is that the alleged rise in alcohol-related hospital admissions is in fact a rise in obesity-related hospital admissions, which are linked to some of the same diagnoses at similar ages. Perhaps the statisticians behind this weekend's newspaper stories could find time to look into this hypothesis.

What the UK wanted

2011-12-13T10:31:00.002Z

Frances Coppola links to this document, which the Telegraph tells us is the "UK protocol demand to the EU". I reproduce here the demands, which in the document are interspersed with what look like briefing notes:

1. Unanimity on:-
i) Transfer of powers from national level to EU agencies
ii) Maximum harmonisation provisions that prevent member states imposing addditional requirements
iii) Fiscal interests of member states and imposition of taxes, levies etc.
iv) The location of the European Supervisory Authorities
2) General provisions for:-
i) Requirement for executive powers of ESAs to be clearly set out and not replace the exercise of discretion by member states' competent authorities
ii) Ensuring that 3rd country financial institutions that operate only in one member state are authorised and supervised in that member state if they do not want a passport
iii) No discrimination within the single market for financial services on the grounds of the member states within which an institution is established.

[The most relevant ESAs here are the European Banking Authority, based in London, and the European Securities and Markets Authority, based in Paris.]

The note on 1iii) explains that "...measures which entail very sizeable levies on the financial sector, such as the Deposit Guarantee Scheme Directive, are being pursued under QMV [Qualified Majority Voting] legal bases"

Coppola comments:

...they amount to imposing a UK veto in areas pertaining to financial markets and regulation. Existing EU practice allows decision-making in these areas to be done by Qualified Majority Voting, which would in effect mean that a tighter, more unified Eurozone could consistently out-vote the UK and therefore impose on the UK's financial sector regulation and taxation against the will of the UK government. It isn't correct to suggest, as some commentators have, that Cameron was trying to evade tighter regulation of the financial sector, or prevent imposition of a Financial Transactions Tax (FTT). In fact paragraph 2 of the proposed changes would allow the UK to impose higher capital requirements than the EU requires and unilaterally implement the ring-fence recommended by the Vickers committee. And the FTT is not mentioned in the proposals at all - and it would require all 27 nations to agree to it anyway. No, this was simply an attempt to preserve the UK's authority over its financial sector, which dominates its economy.

I'm not entirely convinced by Coppola's argument about the FTT. First, not every leaked note is a complete and accurate representation of what was actually discussed. Second, Cameron may have been concerned that some of the powers he wished to limit could be used to twist the UK's arm - "if you can't agree to the FTT we'll have to introduce a swingeing new levy instead".

Be that as it may, what are the deal-breakers in the demand? Sarkozy spoke of a "lack of regulation of financial services". Cameron claimed to have "protected Britain's financial services...from the development of eurozone integration". 1i) would seem to be relevant: the notes tells us that "agreed...restrictions are being tested routinely in new legislation seeking to extend the supervisory powers of the ESA". Still, it's hard to see that if both parties wanted an agreement they couldn't reach a compromise on ESA powers. I think we should take Henry Peterson's advice and follow the money, so my attention is more on 1iii) and 1ii): Merkel wants taxes and levies to be determined centrally, Cameron wants them to be in the hands of member states.

Incidentally, Paddy Ashdown in the Guardian asserts that a deal couldn't be reached because Sarkozy is utterly fed up with Cameron. But I persist in believing that it's Sarkozy who talks, but Merkel who decides. Because Merkel is the one with the money.

Update: Peter Mandelson thinks the EU will be able to force the FTT on us:

...EU financial regulation will be decided by majority vote and the majority will argue for strong regulation to curb the activities of the people who have done most to exacerbate, in their view, the eurozone crisis. The eurozone will introduce a financial transaction tax that will hurt the City and we will be powerless to halt it.

MBA

2011-12-12T16:37:00.000Z

I read in the Guardian that Osita Mba, the HMRC whistleblower, has a master's degree from Oxford. In fact he is a Bachelor of Civil Law - at Oxford this is a postgraduate course but not a master's degree.

Which is disappointing, in that I was hoping to find that he had a qualification as reported, in business administration.

The capitalist yolk

2011-12-10T14:36:00.002Z

The BBC has a story about the probability of getting six double-yolked eggs in a box of six. It points out that young hens are more likely to lay double-yolked eggs, and those eggs are larger than normal, so if you buy a box of large eggs which happen to have been selected from eggs laid by young hens, the odds of their all being double-yolked are much shorter than the one in a million trillion they first thought of.

Well yes, but the odds must still be pretty long. And there have been other similar stories, not least this one about a woman who opened 29 double-yolked eggs in a row from a box of 30.

When something wildly improbable seems to have happened, it's as well to consider alternative explanations. Here's a clue from David Spiegelhalter, Professor of the Public Understanding of Risk, who was intrigued to find he could buy a box of double-yolked eggs from Waitrose: he mentions it in this article.

It turns out that double-yolked eggs can be identified easily enough by shining a light through them - "egg candling". (It's safe to try this at home.) Egg producers operate egg-grading machines: I suppose the machines include automated candlers as part of the grading process. So it's not unlikely that some machines automatically separate double-yolked eggs. Some of those eggs will be sold as such for a premium, if demand exists. And if the demand is less than the number of double-yolked eggs produced, they'll just get put into regular boxes for the appropriate size of egg. I reckon the odds of this happening sometimes would be very close to one.

Questions from the EU summit

2011-12-10T12:28:00.001Z

We are told that 26 out of 27 European leaders agreed to amend the Lisbon treaty, but David Cameron exercised Britain's veto. So the 26 will do as they wanted, but it won't be an EU agreement.

The leaders' statements raise more questions then they answer. Among them:

- Were they really hoping to revise the Lisbon treaty?
A revised treaty would have to be approved by all 27 parliaments, and the Irish would probably have to have a referendum (unless the Supreme Court decided the revision didn't substantially alter the character of the Union). It took two years and two Irish referendums to get the original Lisbon treaty ratified.

Cynics, including me, will have at least a passing suspicion that none of the countries really wanted unanimous agreement. It would suit everyone if the deal could be kept just this side of requiring an new referendum in Ireland. The 26 countries want to be seen to be tough on banks, especially Germany which has spent much more (Figure 1.6) than the UK on bail-outs. Cameron wants to be seen to be tough on the EU. This looks like a separation made in heaven.

- What exactly was it Merkel and Cameron couldn't agree on?
Sarkozy has made the clearest statement about this: he says the sticking point had been Mr Cameron's insistence on a protocol allowing London to opt out of proposed change on financial services. "We were not able to accept because we consider quite the contrary - that a very large and substantial amount of the problems we are facing around the world are a result of lack of regulation of financial services and therefore can't have a waiver for the United Kingdom." The word 'because' is being strained to breaking point there: there's nothing about the substance of the plan that requires new powers to regulate financial services.

This document gives an outline of the plan. The first ten clauses are concerned with the enforcement of budgetary discipline in the member states. The rest is about the new "European Stability Mechanism" (ESM). Clause 15 provides for qualified majority voting when emergency assistance is needed. There's nothing about financial regulation.

The major disagreement between the UK and the others has been on the proposed European Financial Transactions Tax: the rest of the EU wants a tax on business in London to be paid directly to Brussels and the UK doesn't. It's plausible that (unpublished) details of the proposed agreement would remove the UK's veto on this, and Cameron wouldn't agree.

- Why wouldn't Cameron tell us?
He said "We have protected Britain's financial services, and manufacturing companies that need to be able to trade their businesses, their products, into Europe. We've protected all these industries from the development of eurozone integration spilling over and affecting the non-euro members of the European Union". Which seems to be a suggestion joining the other 26 would make it harder for the UK to sell them stuff. Colour me sceptical on that one.

If the real sticking point was that he wanted to retain a veto on a Financial Transactions Tax, why not say so? OK, banks are not popular, but neither is giving money to the EU. Couldn't he have said "they want to impose a tax on business in London that would be paid directly to Brussels. I wouldn't agree to let them do that."? The only explanation that makes sense to me is that the 27 agreed not to be specific about the problem, so that each could spin it in their own way.

- What is Merkel's plan to save the Euro?
No one seriously imagines that austerity alone is going to do it. Cutting government spending never achieves the intended savings, because the government gets some proportion of its spending back in tax revenues. The underlying problem is in the balance of trade: if each country had its own currency then FX rates would have adjusted to prevent the imbalances getting too large. As it is, Italy, Spain, Portugal and Greece are all running large deficits. It would in theory be possible for austerity to reduce imports enough (except perhaps in Greece which has a problem collecting taxes), but that's a theory that requires people not to mind having their living standards crushed.

Last time I wrote about this I guessed that the markets guessed that she was going quietly to allow the ECB to undertake a massive programme of Quantitative Easing, using the money to buy PIGS bonds. There's still no sign of that. The plan as it stands seems to be to calm down the bond markets with more or less believable promises of austerity, with the ESM - a slightly souped up EFSF - to contain any local difficulties: it's hard to see that's going to be sufficient to let Italy refinance its debt at affordable interest rates.

What might work in the medium term would be for Germany to spend (you might prefer to say 'invest') its trade surplus in the PIGS. For example, it likes solar power: how about building solar cell factories in those countries, buying up land there where the sun shines a lot (this is not the hardest part) and covering it in solar power stations? That would help meet any undertakings the EU may make in Durban, and I think it would be a lot easier to persuade German voters to spend money on saving the planet than on supporting pensioners in Greece.

- Whose hand did Nicolas Sarkozy want to shake in Le Snub?
Sarkozy air kisses the hand of Dalia Grybauskaitė, president of Lithuania, then seems to swerve a handshake with Cameron, in favour of Dimitris Christofias, president of Cyprus. According to the Telegraph it was just a trick of the camera angle - "Mr Sarkozy was making eye contact with a man beyond Mr Cameron". According to me, Sarkozy was making a beeline for one man in the room whose hand he could shake without having to look up. (It's interesting that none of the newspapers' European correspondents is able to identify minor European presidents.)

- Has Ed Miliband got a plan?
According to Miliband, Cameron "mishandled these negotiations spectacularly". But how would he know, he wasn't there? Miliband has got a real chance of becoming Prime Minister in three years or so: he needs to start behaving like someone who can be taken seriously in that role. When commenting on international affairs, he should be saying something statesmenlike, along the lines of "it's unfortunate for Great Britain that the Prime Minister was unable to reach an agreement in the best interests of the country. I will be meeting with Mr Cameron to find out why he was unable to do so."

More on marginal tax rates

2011-12-09T11:08:00.000Z

In my post on optimum tax rates I mentioned as an afterthought that the 52% marginal direct tax rate in the UK goes through what seems to me to be a psychologically important level of 50%. Comments on a blog that's easier to read than this one have led me to expand on the point.

The analysis of optimum marginal tax rates depends on how much taxable income changes when the tax rate changes. Changes in taxable income can result from two causes: reduction of broad income and tax avoidance which reduces taxable income without the taxpayer actually earning less money.

Tax avoidance, through income timing or taking income in a different way, will involve careful planning, so all avoidable taxes should be considered. But reduction of broad income by trying less hard to earn money, or by moving overseas to a friendly tax regime, will be caused not so much by considered analysis of what's worth it for the money as by one's gut reaction to the marginal tax rate - "Do I really want to do this piece of work just so that Osborne can get 52% of the reward?"

In that context it seems to me that 50% is an important level to breach. It may be that the curve relating taxable income to marginal tax rate has a kink in it at about that level, so that either 42% or 62% might raise more revenue than 52%.

This is just speculation; empirical evidence would be hard to come by. One can't simply experiment with tax rates from year to year: a temporary change will see more elasticity than a permanent change, because some top-rate taxpayers are able to advance or defer their income.

Optimum tax rates

2011-12-09T03:07:00.003Z

Peter Diamond and Emmanuel Saez have published a paper which includes a calculation of the "optimal top marginal tax rate" in the USA, on the assumption that the only criterion is to maximize revenue - there is negligible social utility in letting rich people keep their income. The calculation has attracted considerable interest from on-line commentators. Nobel laureate Paul Krugman writes in the New York Times in defence of the criterion. Brad DeLong observes that Adam Smith disagrees, partly because the rest of us take vicarious pleasure in the rich enjoying their wealth. Richard Green fears that higher taxes on high earners might cause them to pay their servants less. Kevin Drum reports with evident satisfaction that according to one number in the paper the peak of the Laffer Curve is at a (US) Federal income tax of 76%, far above the current top rate of 35%.

In the UK, the "#1 economics blogger" Richard Murphy quotes Drum at length, and concludes that we are comfortably below the peak of the Laffer Curve. Murphy is not one to concern himself with details, but he seems simply to be noting that the top UK tax rate of 50% is a lot less than the 76% he's quoted.

Meanwhile, the UK's leading libertarian scandium oligopolist, Tim Worstall, asked his readers to calculate what tax rate in the UK, including employers' and employees' National Insurance and VAT, would be directly comparable with the tax numbers used by the paper for the USA, which includes the Medicare tax and state income and sales taxes. He used the analyses they (I might say 'we') submitted to declare that Murphy is wrong (that's always Worstall's conclusion) and that the true optimum top UK income tax rate is 40%.

As you might expect, I am going to adjudicate. First, an outline of what Diamond and Saez actually did: They assume, in line with extensive empirical research, that income at the top end follows a Pareto distribution, that is it has a probability density function falling off according to a power law, p(z) = C/z^(1+a). They find empirically that the parameter 'a' in the USA is 1.5 . Then they assume, following various other authors, that taxable income is an elastic function of retained earnings (in the economic sense of 'elastic', i.e. a given change in the logarithm of the fraction of marginal income not taken in tax results in a proportional change in the logarithm of taxable income reported). This is a convenient assumption, in that it means that a change in marginal tax rate leaves the power law shape unchanged, affecting only the value of 'C'. As the tax rate increases the fraction of income retained falls, so that a given change in tax rate has a larger proportional effect on the retained fraction, and hence a larger effect on taxable income reported (e.g. a tax rate change from 0% to 1% takes away one hundredth of your net income, but a change from 90% to 91% takes away a tenth). So with the elasticity assumption there is a critical tax rate at which the reduction in taxable income when the tax rate is increased balances out the extra tax raised by the higher rate - this is the optimum rate, which turns out to be 1/(1+elasticity.a), as the mathematically inclined reader may care to prove. The difficulty now is to determine the elasticity parameter. They report a mid-range estimate from the empirical literature of 0.25, but go on to use figures from another paper, also co-authored by Saez, which finds an elasticity of taxable income for top earners of 0.57, but only 0.17 for 'broad income', which they define as "Total Income less Capital Gains [and] Social Security Benefits". The implication is that most of the elasticity is due to tax avoidance rather than reduced income.

How applicable is this to the UK? The Pareto distribution seems to hold quite generally, but the power law may be different: this paper reports a=1.37 in the USA and a=1.06 in the UK. I would expect the 'broad income' elasticity to be somewhat higher in the UK, because high-earning Britons are more likely than Americans to move overseas, if only because Americans are discouraged by the extraordinary geographical range of American tax laws. But I would expect the taxable income elasticity to be smaller in the UK, because there are fewer deductions available.

What taxes is it appropriate to include in a UK calculation? Income tax obviously, and the 2% top rate employees' national insurance contribution (it's the same for the self-employed). This corresponds to the 1.45% employees' Medicare tax included in the US calculation. Also included in the US calculation are the 1.45% employers' Medicare tax and 40% of average (state) sales taxes, which is 2.32% Analogously, we should include employers' NI of 13.8% and some fraction of the 20% VAT rate. But I'm unconvinced that this is right. The relevant taxes in the USA are quite small, so Diamond and Saez may have included them just to avoid argument. In the UK the issue is more important, and deserves some consideration. It seems to me that tax avoidance schemes are chosen by careful calculation of their benefits, but scaling of effort in response to tax changes is more emotional: I doubt that many people would think of employers' NI as a consideration there. However, the incidence of employers' NI is considered to be largely on the employee, so it may make working abroad relatively attractive financially. Regarding VAT, I doubt that much of the marginal income of high earners goes on goods subject to VAT. For the most part, a person earning well into six figures buys whatever retail goods they feel like already. And psychologically, paying tax when you buy stuff does not affect your attitude to earning money in the same way as having to hand more than half of it over to the government as you get it.

My rough numbers: a=1.25, broad income elasticity = 0.27, taxable income elasticity = 0.4, optimum combined marginal tax rate = 67%. Employer's NI contributing to elasticity effect = 2%, VAT contributing to elasticity effect = 5%, Marginal income tax rate net of 2% employees' NI to give 67% combined rate = 62%

There's a good bit of guesswork in the parameters I've used, so there's no reason why anyone else should get the same answer. But I think it's pretty hard to defend the choice of elasticities of either 0.57 in the UK (Worstall) or 0.17 in the USA (Drum).

In the interests of full disclosure I should say that I've paid tax at the 50% rate ever since it was introduced. I may not do so in the 2012-13 tax year. I can tell you that there's a psychological impact from direct taxes exceeding half one's marginal earnings: it's OK for you not to care.

And then there were none

2011-12-06T22:36:00.000Z

There used to be one tolerably sane candidate seeking the Republican nomination for the US presidency. Not any more. Here's John Huntsman revising his position on climate change:

there are questions about the validity of the science — evidence by one university over in Scotland recently

I think he means the University of East Anglia. It's reassuring to note that he's wrong about the geography as well.

FTT and stock market crashes

2011-12-03T00:33:00.000Z

Could a Financial Transactions Tax in Europe avert major falls in equity markets? I'm going to consider this in the light of major equity index falls working backwards from now.

1) The Eurozone debt crisis sell-off starting in July 2011.
Between 7th July and 24th November this year the FTSE fell by 14.6% in reaction to the Eurozone debt crisis. Its hard to see how an FTT on shares could have had much of an effect on that. It's possible that an FTT on bonds (which is also part of the proposal) could have slightly reduced the falls in sovereign bond prices, but the underlying problem is the massive deficit and debt problems of several Euro countries. (I've put an end date to the sell off at the recent market low, but I'm not promising the decline in equity prices is over.)

2) The Flash Crash of 6th May 2010.
Starting at about 2:40pm on the east coast, the S&P and other major indexes fell about 5% over 5 minutes, then recovered their losses over the next 10 minutes. The exact causes are not definitely known, but it's certain that high-frequency trading played an important part. It's probable that the crash wouldn't have happened had there been an FTT in the US.

However, the temporary crash had no effect on European markets, which were closed. Had the crash occurred earlier in the day, there would have been some reaction in Europe, which would have been smaller with an FTT than without. There's no way to quantify this.

3) The Financial Crisis sell-off between October 2007 and March 2009.
Between the end of October 2007 and 3rd March 2009 the FTSE lost 47.7% of its peak value. This was one effect of a global financial crisis caused by the collapse of a credit boom built on the back of rising US house prices. Banks had built up extraordinary levels of exposure to mortgage-backed securities, but an FTT would have affected this not at all.

4) 9/11
The FTSE fell 5.72% on 11th September 2001, in reaction to terrorist attacks in New York. This was the only one of the ten biggest one-day percentage falls not to have happened in either October 1987 or during 2008. The fall was a rational response to the information then available about the attacks (which occurred during the European afternoon). An FTT would have been irrelevant.

5) The collapse of the tech bubble at the beginning of the third millennium
After reaching a new high on the last trading day of the century, the FTSE fell progressively, reaching a low on 12th March 2003, by which time it had lost 52.6% of its peak value. A lot happens in three years, but the simple explanation is that there was a gradual re-evaluation of the true value of the internet market. An FTT would have no bearing on this.

6) The Russian Financial crisis and the collapse of LTCM, July-October 1998
Between 20th July and 8th October 1998 the FTSE fell by 24% as a result of a financial crisis in Russia and in a reaction to the (not unrelated) failure of the hedge fund Long-Term Capital Management on 23rd September. The market recovered the LTCM part of its losses over the following eight days as it became apparent that the damage had been contained.

It would probably have been impossible for LTCM to have executed its strategies in the presence of an FTT in the USA, so its boom and bust never would have happened. An FTT in Europe would have made little difference to it. So an FTT in the USA could have averted the last 6.6% of the fall.

7) Black Monday, October 1987
The FTSE fell 5.4% on Friday 16th October, and 5.7% on Monday 19th. The major action happened in the US market, which fell precipitously after the FTSE had closed: the S&P lost 20.4% on the day. As a result, the FTSE opened on the 20th down another 18.1%.

The causes of this one were complex. The losses on the 19th seem to have been accelerated by program trading and portfolio insurance strategies in the US. It's possible that an FTT would have discouraged the development of these strategies.

***

Of the seven market falls I've looked at, one, which had no effect in Europe, would probably have been prevented by an FTT in the USA, one would probably have been reduced by it by about a quarter, and one might have been reduced by an unknown amount. None would have been significantly affected by an FTT in Europe.

It's not surprising that an FTT would have more effect in the USA. For regulatory reasons, most share trading in the USA is done on (electronic) exchanges, which makes automated trading much more profitable. In Europe, similar exchanges exist but most large share trades are OTC (over-the-counter).

***

While writing this, I came across this BBC analysis which covers many of the same events (without reference to a Financial Transactions Tax).

Hypersensitivity

2011-12-01T11:04:00.002Z

The BBC, in an article about AIDS funding, lists the ten leading causes of death in high, middle, and low-income countries. It seems that about 2% of global mortality is due to "hypersensitive heart disease". I think it's rather tactless of the BBC to say so - mightn't it hurt the poor darling's feelings?

This isn't spelling correction software doing its worst - "turberculosis" is also on the list.

But this is a serious subject, so on a more serious note: why won't the BBC link to its sources? The data come from this WHO report (the WHO gets the names of the diseases right). There's a list of countries by income group on page 170 here: the list is derived from a World Bank spreadsheet.

Update: The BBC has deleted the list. Here's a screenshot:

The FTT, noise trading, and volatility

2011-12-01T00:07:00.000Z

I summarized quite a lot of research in my post about the FTT and volatility with an airy "There are other high-frequency noise effects which have been theoretically analysed". I'll say a bit more.

First, except in the special circumstances I discussed previously, speculative trading can increase volatility only if it loses money. As Milton Friedman noted in his seminal 1953 paper The Case For Flexible Exchange Rates

People who argue that speculation is generally destabilizing seldom realize that this is largely equivalent to saying that speculators lose money, since speculation can be destabilizing in general only if speculators on the average sell when the currency is low in price and buy when it is high.

That does not mean that individual speculators cannot profit from activities that increase volatility, but they can do so only at the expense of other speculators. Consider a market in which trend-following speculators are active. An ingenious speculator might create an artificial trend by buying a stock in sufficient volume, causing the trend-followers to start buying into the trend, driving the stock higher. When the clever guy judges the trend-followers have filled their boots, he'll dump the stock at the higher price, locking in a profit. The stock will thereafter gradually revert to whatever it's really worth, and at some point the trend-followers will sell out, realising their losses.

But there is only so much money that unsuccessful speculators are willing to lose, so the capacity for speculators to increase volatility is limited. (Bankers have lost apocalyptic amounts of money in the last few years, but not on speculative trading of the sort that might be discouraged by an FTT.)

Nevertheless, the review paper I discussed previously cited no fewer than twelve papers attempting to predict the effect on volatility of a transaction tax. (The ante-penultimate link doesn't now work, and the paper, which is good, doesn't discuss volatility directly.) Each of them sets up an a model of a securities market, and predicts how it will operate with and without a transaction tax by means of theoretical analysis, or by computer simulation of trading strategies, or by having humans playing a trading game.

An essential component for a transaction tax to be able to reduce volatility in these models is the existence of what Fischer Black (of Black-Scholes) called "noise traders". These are traders who speculate in the market without having any information not already priced in, as distinct from "information traders". In Black's conception, traders often do not know which sort of trader they are, which creates uncertainty essential for the operation of a liquid market. The papers I list do not all follow the definition exactly, but they incorporate the concept in some form. Their results seem to depend on to the extent that the way the market is modelled tends to cause the transactions tax to discourage noise traders more than others.

None of the papers has a set-up which is much like actual equity markets: this is partly because they are analysing something like the Tobin tax proposed for FX markets and partly because it's often easier to analyse something other than reality. But it's the equity market that the proposed European FTT is mainly concerned with (the FX market is excluded). And none of the papers includes the full range of trading strategies that operate in actual markets.

A noise trader whose decisions are indistinguishable from random will add a small amount of volatility, and tend gradually to lose money. I am sceptical that there are many traders of this sort. Most speculative traders follow some sort of strategy, broadly the strategies are either trend-following or contrarian. (One of the papers listed explicitly includes both these strategies; others may do so implicitly by using human traders in their simulations.) It's important to include the trend-followers to give a transactions tax a fair chance to reduce volatility significantly

If I were to attempt something like this I would want to include at least the following:
- large trades being executed gradually. This would feed a series of trades in the same direction, with the broker varying the size and timing in an attempt to disguise what he's doing. These trades are profitable for trend-followers
- trades being done for exogenous reasons. These are not strictly noise trades, and will not be deterred by a small transactions tax, but their size and direction looks random.
- information trades (some authors call them fundamental trades). These are done by traders who have used private aptitude to deduce fundamental valuations from public information.
- hedge trades. These are trades done by option traders who are in aggregate either long or short gamma. If option traders are short gamma their hedging tends to increase volatility, and vice versa.
- insider trades. These are trades done using information that is not yet public, but is made public after some time delay. These trades are profitable for trend-followers.
- trend-following speculative trades.
- contrarian speculative trades.
- speculative trades attempting to profit at the expense of other speculative strategies
- a stochastic process for the fundamental value. All traders will be aware of the direction of large changes in fundamental value (corresponding to obviously important news).

That's a lot of things to put in, and a lot of parameters and relative weightings to vary. However, there are only three sorts of trades which tend to increase volatility - short gamma hedging, unsuccessful trend trades (successful trend trades don't increase volatility, they just bring the price change forward), and trades parasitic on trend trades. If things are set up so that trend trading is profitable despite being unsuccessful quite often then a transactions tax sufficient to make it unprofitable can decrease volatility significantly. Note that trend traders do need to trade quite often, because they need to unwind their position quickly if a trend they've traded on fails to continue.

My guess is that with some care it would be possible to create a set-up where this happens. More tentatively, I guess that the actual market doesn't match it.

Mann, sind die dick, Mann

2011-11-28T13:44:00.001Z

The title is the Berliner Kurier's expression of appreciation for Britain's chip-eating habit (the link is from kevin writing at Understanding Uncertainty, as is the basic point of this post). The BBC carried a similar story, based likewise on a Eurostat report comparing the proportions of obese people across the EU: "UK Women are fattest in Europe".

Certainly obesity has increased over the last few years in the UK, and I think that's a bad thing. But the comparison with the rest of the EU is meaningless, because the statistics are collected in a way that's simply not comparable. For the rest of the EU, data come from the EHIS survey in which the interviewer simply asks the participant how tall and heavy they are: question 21 here. In England (the UK data in fact come from England only) data come from the Health Survey for England, in which the interviewer actually measures the participant's height and weight: section 3.1 here. What proportion of obese people do you think will under-report their weight (or over-report their height) sufficiently to be classed as non-obese? One in ten? What about answers of "don't know" or refusals to answer - how far will they tend to reduce the observed obesity rate?

My guess is that genuinely comparable statistics would put England in the top quarter of the table, but not at the top. But I'm just guessing. And so is Eurostat.

Teaching children to program computers

2011-11-28T12:10:00.001Z

My first two years of secondary schooling were spent at a large and mediocre comprehensive. Its computing facilities consisted of a Teletype connected to a mainframe at a polytechnic six miles away (this was at about the time the first personal computers were being developed). And at the age of 11 or 12 what was certainly not called the top maths set was encouraged to write programs for it in FORTRAN 66 (being a heartwarming nerd I taught it to play noughts and crosses).

Decades later, there is more than one computer for every four children in UK schools (the ratio will be better in secondary schools). And ICT - Information and Communication Technologies - is part of the school syllabus. So how can it be that children are not learning computer programming? The recent "Next Gen" report has the answer:

...instead of building on the BBC’s Computer Literacy Project in the 1980s, schools turned away from programming in favour of ICT. Whilst useful in teaching various proprietary office software packages, ICT fails to inspire children to study computer programming. It is certainly not much help for a career in games. In a world where technology affects everything in our daily lives, so few children are taught such an essential STEM skill as programming. Bored by ICT, young people do not see the potential of the digital creative industries. It is hardly surprising that the games industry keeps complaining about the lack of industry-ready computer programmers and digital artists.

I had a look at the OCR's ICT GCSE examination - this is the exam 16-year-olds in most of the UK will take to certify their computing skills. One optional "unit", making up 30% of the overall marks, concerns itself with coding. Within that, at most 11 out of 60 marks are available for the actual code. That's 5.5% of the overall marks.

It used to be the case that the nerds could be left to pick up programming skills for themselves. But that's changed - why bother to write a noughts-and-crosses program when you can find a much better one on the internet in a few seconds? We don't need everyone to be a programmer, but if we want to be a rich country we need enough programmers to support a thriving software industry. The importance of literacy and numeracy is well recognized, but for most children learning how to use computers goes little further than the equivalent of learning how to take the cap off a biro.

There's been an understandable trend in education towards teaching the same subjects to children of all abilities, with the difference between abilities being in the level of attainment expected. Appropriately enough, computer programming skills are more binary than that. We have to take an elitist approach with the most able 10% or 20%, while doing everything we can to minimize the risk of leaving out the wrong children.

The government intends to publish its response to the Next Gen report today: I hope it takes the issue seriously.

Insurance for cyclists

2011-11-26T15:27:00.000Z

The BBC has a story encouraging cyclists to purchase insurance, apparently based on a press release from the Association of British Insurers (but the press release is not yet on the ABI's website). The ABI's spokesman says:

Some 230 cyclists a month are killed or seriously injured on the roads so there is a good chance you are going to be off work for weeks, if not months, so some sort of insurance to cover you for loss of income makes sense

The statistic is accurate - according to the Department of Transport 111 cyclists were killed in Great Britain in 2010 and 2,660 seriously injured in accidents reported to the police, which combined comes to just over 230 a month. And it's not surprising that British Insurers are in favour of Britons buying insurance.

But why focus on cyclists in particular? The DoT statistics for pedestrians are 405 deaths and 5,200 serious injuries - twice as many serious injuries and nearly four times as many deaths (I wonder why the ratio of deaths to serious injuries should be so different). A plausible estimate is that 27% of the adult population are cyclists, and I'm confident that less than 100% of the adult population are pedestrians, so the risks seem not to be very different.

The ABI spokesman goes on to say that third-party liability insurance is essential. Well, whether on a bicycle or not all of us are at risk of somehow causing someone an injury. Few of us sue one another on account of it - I suspect that legal actions such as this one would be much rarer if personal liability insurance did not exist, partly because most of us don't have enough money to make bringing the action worth the lawyers' while - Jack of Kent has some interesting thoughts on the subject. If you're not rich enough to be worth suing for your own money, you might think it your civic duty to carry liability insurance, but that should not be for cycling only.

It seems to me that there's something unnecessarily discouraging about attitudes to cycling in Britain. I'm reminded of the debate about wearing cycling helmets. Helmets provide some protection, and I often wear one when cycling, but they would protect pedestrians and car passengers too: no one tuts at people walking down the street without a helmet on their head.

Anthropogenic Global Warming and democracy

2011-11-24T02:16:00.001Z

More hacked emails from the University of East Anglia's Climate Research Unit have been released, timed apparently for the COP17 conference starting in Durban on monday. There's nothing recent - apparently this is all material appropriated at the time of the original "Climategate" hack in 2009. Nevertheless, high-profile disbelievers in AGW are besides themselves with excitement: here for example is James Delingpole in the Telegraph. Just in case there's something in it I've looked at the first email Delingpole reproduces as an example of the revealed perfidy of UEA climate scientists, from Thorne/MetO (apparently Peter Thorne at the Met Office addressing Phil Jones at the CRU):

Observations do not show rising temperatures throughout the tropical troposphere unless you accept one single study and approach and discount a wealth of others. This is just downright dangerous. We need to communicate the uncertainty and be honest. Phil, hopefully we can find time to discuss these further if necessary [...]

Thorne seems to be saying that a claim Jones has made in a draft paper or report about "rising temperatures throughout the tropical troposphere" is not supported by the evidence and should be deleted. You might or might not detect a slight note of reproach. But there's nothing scandalous about this. If Thorne decided actually to publish the claim while still believing it to be unjustified then that would be scandalous. But neither Delingpole nor anyone else seems to have any evidence of that. Whereas Jocelyn Fong at Media Matters has looked into it, and concludes that this email was part of a discussion in February 2005 of an IPCC report eventually released in 2007. The section about the upper troposphere, which is the only section discussing the troposphere directly, makes no strong claims at all: "the uncertainties about long-term change are substantial".

So the news story seems to be "old emails reveal no scientific dishonesty by Climate Scientists, in agreement with the conclusions of several enquiries".

What I find remarkable is the underlying assumption in much of what's published in newspapers and online, by believers in AGW as well as by disbelievers, that these questions can be settled by debate among people who are not experts in the scientific issues (I'd guess there are at most a few hundred experts qualified to give first-hand opinions). There are five questions to be answered:
1) Is the climate getting warmer?
2) If it is, is the warming caused by human activity?
3) If it is, do we expect warming to continue if we carry on as before?
4) If we do, what can we change to reduce or halt the warming?
5) Is it worth changing the things we can change?

Only (5) is a matter suitable for political debate, ultimately to be decided by democratic vote. If the climate is getting warmer, no lobby of Telegraph readers asserting that it isn't is going to stop it. Yet it seems to be question (1) that climategate enthusiasts are most anxious to argue about. This is a strange choice of argument in view of the story of Richard Muller. In 2004, Muller, a professor of physics, came out in support of a paper (there's a version of it here) claiming that the famous "hockey stick" analysis, showing global temperatures rising sharply during the 20th century, was based on fatally flawed statistical methods. This argument met with vigorous rebuttal, but eventually Muller set up the Berkeley Earth Surface Temperature project to analyse temperature data using statistical methods he was satisfied with. A month ago, BEST released its first results, which it summarized here. Its conclusion is that it agrees closely with the previous concensus among climate scientists. To his credit, Muller acknowledged in a piece in the Wall Street Journal the accuracy of the work done by prior groups "We think that means that those groups had truly been very careful in their work, despite their inability to convince some skeptics of that".

How can one explain the extraordinary confidence of so many people who have no technical grasp of the issues that the scientific consensus on question (1) is wrong? Perhaps it comes from a misapplication of libertarian thought: it's right that I should be allowed to do what I want, I want to burn fossil fuels, climate scientists are trying to stop me, so climate scientists must be wrong. That is, they are confusing their self-entitling theory of justice with scientific fact.

Update: commentator Belette rightly points out that I have been unclear about what BEST's results so far actually say. BEST has analysed temperature measurements dating back to 1800, but it has not yet reported on the proxy temperature data used to create the "hockey stick" graphs going back 600 and later 1000 years. (This is an ice hockey stick: the graph is roughly horizontal (the shaft of the stick) until it starts rising during the 20th century (the blade).) It's still entirely possible that BEST will produce a reconstruction of longer-term temperatures outside the currently accepted ranges: that would be a result to be evaluated on its own merits.

My point is that now that an avowed sceptic has independently confirmed the global warming trend, it is madness to allege that it's a fabrication or a mistake arising from a self-reinforcing scientific consensus.

The Financial Transactions Tax and volatility

2011-11-23T00:45:00.003Z

The Institute of Economic Affairs has published a report by Tim Worstall setting out a case against the proposed FTT. The article introducing the report asserts, among other things, that "it won't reduce volatility, a desired aim, it will increase it". Richard Murphy, commenting on the report in the name of Tax Research UK, flatly contradicts this "If there was less liquidity in these markets there would, very obviously, be much less volatility than we are witnessing at present". So who is right?

Neither writer troubles himself to say what he means by volatility. When used by sombre-sounding financial news reporters, it tends to mean security prices going down a lot (prices going up a lot are just as volatile, but they don't evoke the same atmosphere of impending doom). But as a term of art in finance, it means the standard deviation of the logarithm of price returns, scaled by the square root of the time interval over which each return occurs - Black and Scholes' seminal 1973 paper on option pricing uses the concept, describing it as the square root of the "variance rate".

In a simple model, security prices follow a geometric Brownian motion. In this model, the observed volatility is expected to be same whatever time interval of returns is used. This model is far from being an exact description of the real world - much published work on option theory is concerned with its flaws - but it is a useful approximation. Under this model, what would be the effect on volatility of an FTT? Assuming that trades become less frequent, but otherwise occur at the same prices, it would make no difference. (The result is essentially the same if one introduces an additional drift to compensate investors for reduced liquidity.)

One minor flaw with the model is that if trading occurs at high frequency, prices may bounce between the bid and the offer, introducing additional volatility if the return periods used to observe it are very short. An FTT would largely eliminate this effect. But the effect does no one any harm, apart perhaps from causing some inconvenience to anyone engage in high-frequency analysis of market-price data. Could this be what Richard Murphy means when he says less liquidity very obviously gives much less volatility? I don't think so, I think he just means that traded prices don't move when no trades occur. Which is true, but not to anyone's advantage.

There are other high-frequency noise effects which have been theoretically analysed. The conclusion tends to be that some reduction in short-term volatility is possible, at least in theory, if some sorts of high-frequency trading can selectively be discouraged. (More on this below.)

A more important flaw in the model is that in practice there are far more large price moves than it predicts, unless one allows very large process volatilities to prevail temporarily. This effect can be modelled by introducing a jump diffusion term to the price process. Although these large price moves may not be related to an underlying volatility process, they nevertheless contribute substantially to observed volatility whenever they occur. So if the incidence of these large moves could be reduced, there could be a substantial reduction in volatility, of precisely the sort one would wish to see if concerned about market price instability.

Some large moves may be caused by speculative activity. Holders of securities may be induced, or even compelled, to sell them if the price falls far enough. For example, as I noted in another post, when sovereign debt yields get large enough margin requirements are made more onerous, making it still more unattractive to hold the bonds and leading to further selling. This can give two distinct possible prices for the same instrument. Speculators may be able to gain by pushing the price from one possible value to the other one. An FTT would inhibit such speculation. So there is at least a mechanism by which it could reduce volatility. Whether this is significant could be determined only empirically.

Which brings us to Worstall's commentary. Whereas his introductory article is emphatic that an FTT would increase volatility, his actual report is more measured: it quotes this from a report by the Institute of Development Studies at the University of Sussex:

The balance of evidence suggests that there is a positive relationship between transaction costs and volatility, although the size of this effect varies across different studies. Whether a Tobin Tax would affect volatility in the same way as underlying market transaction costs is not clear.

and concludes that "this suggests that a transaction tax would increase, not decrease volatility." But the quotation seems to have been carefully selected to suit Worstall's position. The discussion on volatility is much longer and more nuanced. Ideally you should read the whole thing, but I'll offer a flavour of it by quoting the whole of the paragraph Worstall quotes from:

Nonetheless, the overall conclusion from the empirical evidence is more one sided than the theoretical work. The balance of evidence suggests that there is a positive relationship between transaction costs and volatility, although the size of this effect varies across different studies. Whether a Tobin Tax would affect volatility in the same way as underlying market transaction costs is not clear. The Swedish experience of imposing a tax on equity transactions may have increased volatility, but the size of the tax was large; there is no evidence that UK Stamp Duty had any effect on volatility, although it clearly affected returns on equity.

My summary is that the theoretical work tends to support the case that an FTT can reduce short-term volatility. The empirical work suggests the opposite, but does not of course rule out the possibility that a carefully designed FTT could work as suggested by the theory. But none of this matters very much because short-term volatility doesn't matter very much.

Importantly for my argument about jumps, the report notes that:

Unfortunately, to our knowledge, there are no papers which look at the impact of FTTs on the probability of a crash or adjustment taking place...We see this as a major gap in the literature.

To answer my original question, both Murphy and Worstall are wrong. Murphy is completely wrong, except perhaps under some definition of volatility known only to himself. Worstall is wrong in stating a definite answer to the question not supported by the evidence he cites. The true answer is that we should not expect any great effect on short-term volatility, but that any small effect is somewhat more likely to be up than down. And that there is no way of knowing whether they would be a useful reduction in the risk of the occasional large moves that we really care about when we worry about volatility.

Median survival time from cancer diagnosis

2011-11-22T23:08:00.001Z

The BBC has a story about median survival times from diagnosis for various cancers, and how they have changed in the last 40 years. For some cancers there's been a big improvement, for others there isn't. A spokeswoman for Cancer Research UK says that more research is urgently needed into cancers for which there has been little improvement.

The source is a research briefing paper by Macmillan Cancer Support. Under the heading "Shocking Variation" the introduction says:

First the good news: overall median survival time for all cancer types 40 years ago was just one year, now it is predicted to be nearly six years. This improvement is testament to the improvements in surgery, diagnosis, radiotherapy, and new drugs. There have been particularly dramatic improvements in survival time for breast cancer, colon cancer and Non-Hodgkin’s Lymphoma – with many years added to median survival times.
But the good news is tempered by the woeful lack of improvement in other cancers. There has been almost no progress for cancers like lung and brain, where median survival times have risen by mere weeks. Shockingly pancreatic cancer median survival time has hardly risen at all. The NHS and cancer community must urgently look at why.

Apart from not being shocked, I don't disagree with that. But there is something important left unsaid. There are three ways to improve cancer survival time from diagnosis.
1) Better treatments
2) Earlier diagnosis, even if the treatment is ineffective
3) More effective treatment made possible by earlier diagnosis

Certainly treatments have got better for all cancers - medical science is a wonderful thing. But there are few in which this has given us a really big increase in median survival time: Non-Hodgkin's Lymphoma is one. I suspect that most of the improvement has been from much earlier diagnosis made possible by scanning technology invented in the early 70s, by endoscopy, and by testing for tumour markers such as PSA. And it is hard to separate effects (2) and (3).

Screening programmes are likely to become widely deployed only if there is evidence that they decrease mortality: that suggests that treatment following early diagnosis reduces mortality even in asymptomatic patients, but it doesn't tell us by how much it increases median survival. (There's a helpful discussion of how to evaluate screening programmes here.)

The Macmillan report notes that the prostate cancer should be treated with caution because of the increased "incidence" of low grade tumours following the introduction of PSA testing (they should say "diagnosis"). Similar caution should be applied to interpreting the data for all cancers.

A concocted quotation

2011-11-21T18:16:00.003Z

Israel's first Prime Minister, David Ben-Gurion, wrote in 1937: " The Arabs will have to go, but one needs an opportune moment for making it happen, such as a war".

The quotation, from a 2008 column in The Independent by Johann Hari, gets "about 5,640" hits on Google. Happily, after developments described below, the first few pages currently reported by Google are quoting it in order to point out that Ben-Gurion wrote no such thing. But most of the pages using it treat it as authentic: it seems to be attractive to supporters of the Palestinian cause.

I was surprised when I read the column, because the quote seemed to contradict what I thought I knew about Ben-Gurion (not that I am an expert). So I looked it up, and found that Hari had already used it, a year or so earlier, in a longer version "I support compulsory transfer. I do not see in it anything immoral ... The Arabs will have to go, but one needs an opportune moment for making it happen, such as a war." At that time, Benny Morris, an Israeli historian generally sympathetic to non-Zionist perspectives on the founding of Israel, wrote to the Independent saying that whereas the first part of the quotation is genuine (more on that here), everything after the ellipsis - that is the quote at the head of this piece - is an invention. I left it at that.

A few months ago, I saw these screenshots from the 2010 film With God on Our Side, which speaks against Christian Zionism, and decided to find out the truth of the quotation.

As I write this piece, I find that I've been overtaken by events. CAMERA, a media-monitoring organization sympathetic to Israel, has done its own investigation and has persuaded the director of the film to issue a correction. Nevertheless, the quotation is still widely used, and I'm going to try here to convince any believers that it's a dud.

The source of the quotation is a 2006 book by Ilan Pappé, The Ethnic Cleansing of Palestine, on page 23:

Ben-Gurion himself, writing to his son in 1937, appeared convinced that this was the only course of action open to Zionism: 'The Arabs will have to go', but one needs an opportune moment for making it happen, such as a war [40].

Reference [40] is given on page 266:

40. Ben-Gurion's Diary,12 July 1937, and in New Judea, August-September 1937, p.220

This is already strange. How can there be two sources for the quotation, neither of them the letter mentioned in the text? And what's going on with the quotation marks around the first six words only? Pappé used the quotation again, in an essay titled "State of Denial: Israel 1948-2008"; you can find it on page 6 here:

This link between purpose and timing had been elucidated very clearly in a letter David Ben-Gurion had sent to his son Amos in July, 1937: “The Arabs will have to go, but one needs an opportune moment for making it happen, such as war.”

Pappé seems to have tidied up his earlier version.

David Ben-Gurion's diary is in the Ben-Gurion archive at the University of the Negev. I asked them for a facsimile of the 12th July 1937 entry and they kindly sent it to me. It's nearly four pages of unpointed typewritten Hebrew, and not easy to make out. But I needn't trouble you with my own attempts at translation, because in checking for alternative readings I found that Benny Morris published one already, in his contribution to The War for Palestine, first published in 2001, on pages 41-43. Morris doesn't say so, but, with minor elisions, this is all but the last half page (which is about what Ben-Gurion did that day) of the diary entry.

Morris is writing about Zionist interest in the idea of forced transfers of the Arab population of Palestine, and cannot reasonably be suspected of suppressing evidence favouring his argument. Ben-Gurion discusses with some enthusiasm the proposals of the Peel Commission, including forced transfers, but he does not write the words Pappé quotes. (Nor does he mention a letter to his son.)

The other source Pappé gives is "New Judea, August-September 1937, p.220". The publication in fact calls itself "The New Judaea", and is available in Copyright Libraries. I have a copy of page 220 in front of me; it contains a minute of Ben-Gurion's speech to the Twentieth Zionist Congress in August that year. He is reported as saying "[Jews] would never dispute the rights of the Arabs in Palestine, and there was no contradiction between this and the principle that as many Jews as wished should come into Palestine". There is nothing remotely like Pappé's quotation.

I am in no doubt that Pappé simply invented sources for his quotation. I assume that he did so because no genuine source exists. The quotation is a fabrication by Pappé.

(If you want to know more about Ben-Gurion's thinking on population transfers, including in his letters to his son, Chaim Simons has some useful pointers.)

Does this matter? Well, if you think you can advance your argument by quoting Ben-Gurion, you should quote Ben-Gurion. If you make a documentary film your facts should be factual - a later statement of correction doesn't change the film. If you base an argument in a serious newspaper on something somebody is supposed to have said, you should take care that they have really said it (Hari has since got into a lot of trouble over his freedom with quotations). If a university cares about its academic reputation, it should make sure that its employees' "incisive thought" on the "methodology of historical enquiry" does not extend to making stuff up. And if you're a historian, you should write about what people said, not what you would have liked them to say.

But I don't think the truth of this has got anything to say about what should happen now in Israel. Whatever Ben-Gurion's private thoughts, the events of 1948 - the Nakba that befell the Arabs of Palestine - are as much in the past as the building of the Dome on the Rock on the site of the Second Temple. The writings of Ben-Gurion, any more than the histories of the Caliphate or the Kingdom of Israel, are not going to help in finding a compromise for the future.

Value for money

2011-11-19T00:32:00.000Z

Northern Rock plc is being sold to Virgin Money for £747m, plus a potential future £280m. Whereas it cost the taxpayer £1,400m to get it into its current state. George Osborne says that this "represents value for money".

I don't know whether or not this is a good trade for the British Government. But "value for money" means you spent money on something and got something at least as valuable to you in return. I think that £1,027m or less is not as valuable as £1,400m.

Let's hope that it's Osborne's English rather than his arithmetic that's failed him.

Statistical Translation

2011-11-16T01:52:00.000Z

I saw an interesting painting on my mother-in-law's wall, signed (in Cyrillic) "A. Lozhkin". So I looked him up, and here he is - Александр Егорович Ложкин, which transliterates to Alexandr Egorovich Lozhkin. My browser - Google Chrome - offered to translate the page, so I let it, and the translated name is "Alexander Zhukovsky Lozhkin". How did that happen? I'm aware that Google Translate (which gives the same result) uses a statistical approach to translation rather than applying any rules, so it makes mistakes like not realising that Ложкина is the genitive of Ложкин, but what inspired it to make up a completely new name for him?

You might be more interested in how a painting by a People's Artist of Udmurtia ended up in a terraced house in Cullercoats. There was a story about a sailor relative docking in Leningrad that I didn't quite grasp: I'll try harder next time.

What next for Italy?

2011-11-10T20:40:00.001Z

A week ago I wrote about what might happen next in Greece, and suggested that Italy had similar problems. That was hardly an original view then, and in the seven days since it's become the consensus, as Italian government bond yield spreads have widened.

It seems to me that the consensus view is reading too much into what has in fact been a quite small market move. Have a look at this chart of German and Italian government bond yields (data from Bloomberg):

Italian government yields have widened to the extent that if Italy has to roll its maturing debt at these rates over the next year it will not be able to afford the interest payments. But this is by no means game over. Because if the market were convinced that Italian was going to default, yields would be much higher already. Rather, the market yields are a weighted average of the default scenario and scenarios in which Italy gets rescued and yields come in.

It's possible to convert the Italian yield spread over Germany into an implied default probability, subject to various caveats. Here's the chart:

The caveats are:
- these probabilities assume the bonds are worth zero if Italy defaults. In practice, the recovery rate might be 50%. If so, the default probabilities are doubled.
- to do this properly, I should have stripped the discounted coupon value out of the bond prices to get zero-coupon yields. But you're not paying me enough. It won't make a huge difference.
- I've interpreted the spread as being entirely due to default risk. But some of it is a liquidity premium. In so far as the spread represents liquidity premium not default risk, the true default probability is reduced. Because of the default risk, LCH.Clearnet, the bond and repo clearing house, has increased its margin requirments for Italian bonds, as it did previously for Greek, Irish and Portuguese bonds. These margin requirements make it less attractive to hold the bonds, so prices are lower and yields are higher. The margin rules for LCH.Clearnet Ltd are fairly clear, so this was a foreseeable risk which will already have been affecting bond yields to some extent a week ago. LCH.Clearnet SA follows its own procedures: no one is surprised that it too has increased its margins, albeit by less.
- I've assumed zero default risk for German government bonds. It may be that their default risk is in a sense slightly negative, in that there's a faint possibility that Germany will leave the Euro in favour of a new Deutschmark, which would presumably appreciate against the Euro. (The 3-month Bubill yield in the first chart is very slightly negative: something odd is being priced in.)

Despite the caveats, the probabilities are not meaningless. The bond markets think it possible but rather unlikely that Italy will default in the next year or so.

So why is default unlikely? What could happen to save Italy?

One possibility is an emergency move towards financial integration in the Eurozone. Merkel and Sarkozy have spoken before about the desirability of such integration, but in terms that suggest that they see this as something to be developed over the next few years. What would be needed would be the creation within a few months of a mechanism which in effect meant that Germany ran the economies of the southern Eurozone countries, in exchange for paying their debts. This would be a logical development of the EU and Euro projects, but politically it seems highly unlikely to be achievable.

A more plausible suggestion is that the ECB could buy enough Italian bonds to reduce yields to the point that the market decides that Italy can afford the interest payments. It's already been doing this to some extent: it keeps the details confidential but it may be holding €100bn of Italian bonds. It would need to buy several times as much to keep Italy's problems under control. Since Germany is not going to pay for it, the only way I can see to fund that would be by Quantitative Easing - the electronic creation of the money required. The obvious obstacle to doing this is the ECB's charter, established by EU treaty, which stipulates that its Primary Objective is to maintain price stability. The ECB has interpreted this objective as meaning that consumer prices should not be allowed to rise by more than 2% per year, whereas the rate of increase of the HICP (Harmonized Index of Consumer Prices) in the Eurozone is currently approaching 3%. The treaty agreement can't quickly be changed, but the inflation objective can perhaps be tacitly overlooked. This would have to be done quietly enough for German public opinion not to be outraged, while the bond purchase scheme would have to be overt enough to reassure the markets. Despite the difficulties, I think this is the horse the bond markets are cautiously backing. And they are not afraid that the implied QE would be inflationary, judging by the falling yields on German debt.

There's also a hope that China might help: the EFSF has already asked. The truth is that China doesn't like Europe enough to do this just to oblige. But if an ECB buying programme appears to be reassuring the markets, the Chinese might well join in, in the hope of both earning themselves favours and making a profitable investment.

Since I mentioned my earlier post about the problems of Greece, I should acknowledge that my prediction about the referendum was wrong: I didn't know enough about Greek politics to foresee the possibility that Evangelos Venizelos would recover from his conveniently timed illness and kibosh the whole thing. Still, I was right that Greece would reluctantly accept the bail-out plan.

Is the NHS a world leader in cancer care?

2011-11-10T01:30:00.001Z

The Guardian is pleased to report that "The prime minister and health secretary have criticised the NHS on cancer, but new figures suggest the service is a world leader". This is based on a study published in the British Journal of Cancer, which says that "the NHS in England and Wales has helped achieve the biggest drop in cancer deaths and displayed the most efficient use of resources among 10 leading countries worldwide."

The Guardian doesn't link to the paper, and its report is a masterpiece of unclarity. "While six countries saw falls of at least 20%, England and Wales – which in 1979-81 had the third highest rate with 4,156 deaths per million men – improved the most, achieving the fifth lowest rate among the 10 countries by 2004-06 with 2,869 deaths per million." Which is to say that England and Wales improved from eighth to fifth out out of ten countries.

The actual paper, by Colin Pritchard and Tamas Hickish, is here. It finds that England and Wales has had the largest reduction in male cancer deaths out of the ten countries over the 25-year period, and that England and Wales has the highest ratio of improvement in cancer mortality to percentage of GDP spent on cancer care.

The relative improvement for women is much less impressive. I've tried averaging to get a rate for the sexes combined (the calculation ought to be more elaborate than a crude average, but this is useful estimate) and the result is that England and Wales has had the largest reduction by this measure too.

The data don't cover exactly the same dates in all ten countries, so I've calculated an annualized rate of improvement. England and Wales is easily the best, at 1.2% per year (Germany is second at 0.99%).

Are these good measures of performance? Tim Worstall pungently comments that "What [the figures] show is that the NHS used to be shite at cancer and now it’s only middle ranking". He's right that England and Wales ranked in the middle of the ten countries for cancer mortality at the end of the period studied. It had almost exactly the same cancer mortality rate as the USA (the USA data are from one year earlier). The lowest mortality was in Japan and the highest in The Netherlands. I don't believe this tells us anything about the relative merits of various healthcare systems, as Worstall might like it to. Regarding the figures relative to GDP he adds "...a system which spends less to cure less cancer is going to be more efficient in its use of money to cure cases of cancer. Because it’s only curing the easy cases." That's a fair point in theory. But if the USA with all its extra spending is curing lots of hard cases, the effects aren't showing in the mortality data.

The government has a strategy document which proclaims that "we aim to save an additional 5,000 lives every year by 2014/15". Cancer Research UK tells us that in 2009 there were 156,090 deaths from cancer, so that would be an improvement of about 3.2%, or about 1.06% per year over three years. It seems the government's aim is to slow down the rate of improvement. (The Pritchard and Hickish analysis is for ages 15-74 in England and Wales, so the comparison is not exact.)

It's genuinely hard to compare one health service with another. If you compare mortality data, you are looking at different populations with different lifestyles and different methods of compiling statistics - differences in healthcare may be a minor factor. By looking at improvements in mortality, Pritchard and Hickish eliminate some of these effects but have the problem that the quality of healthcare at the start date may differ markedly between the various countries. The government analysis prefers to refer to survival times from diagnosis: the problem with this is that it's as much a measure of how early you diagnose as of how effectively you treat.

EU FTT

2011-11-09T00:10:00.002Z

George Osborne has responded robustly to a proposal at the meeting of EU Finance Ministers to introduce a Financial Transactions Tax, as advocated by the European Commission, to raise money directly for the EU. For once, I agree with him. It's extraordinary chutzpah to use a Eurozone crisis meeting to propose raising funding with a tax on business conducted largely in one country, the UK, which isn't even in the Euro zone. I suggest instead an ecotax on luxury cars of the sort made by BMW, Porsche, and Daimler.

The European Commission's argument, as stated by José Manuel Barroso, is the EU countries have spent a lot of money bailing out the banks, and it's only fair that the banks should pay it back by means of a tax on their activities. But much of the banking activity in London is conducted by banks based outside the EU - in the USA, Switzerland, and Japan. And the sort of trading that would be prevented by the proposed tax - high-frequency arbitrage - is conducted mainly by hedge funds, which were not bailed out at all.

Is the FTT a good idea? Usually anything that reduces market liquidity disadvantages market participants generally, including the pension funds that many EU citizens depend on. A study by the European Commission estimated that the tax would raise revenue of between 0.13% and 0.35% of EU GDP, while reducing that GDP typically by 1.76%, or perhaps by 0.5% with some restrictions on the application of the tax and using favourable assumptions about the effect of the restrictions. So the expectation is that the tax would depress GDP and hence reduce total tax take. The one advantage from the point of view of the EU is that the reduced tax income would affect national governments, especially in the UK, while the smaller increase would go directly to the EU.

I agree with George.

Update: Here's Kenneth Rogoff against an EU FTT. "...Another possibility is the Europeans concluded that an FTT’s political advantages outweigh its economic flaws...."

Racial abuse in sports

2011-11-08T00:56:00.002Z

It seems there's been an outbreak of racial abuse in the sporting world. First, Luis Suarez, a Uruguayan paying for Liverpool FC, was accused by his opponent Patrice Evra, a Frenchman born in Senegal and playing for Manchester United, of "saying a certain word to him at least ten times". Unlike me, the Guardian was willing to put the word in writing. Suarez denies it, saying "I go to the field with the maximum illusion of a little child who enjoys what he does, not to create conflicts". There seems to be no supporting evidence for the allegation from all the cameras, microphones, players and officials at the match, so it may not be true.

Second, John Terry, a white Englishman playing for Chelsea FC, was accused on the basis of video evidence of having racially abused his opponent, Anton Ferdinand, an Englishman whose mother is Irish and whose father is from Santa Lucia. Again the Guardian's report is frank as to the words allegedly used, and includes a video of the incident which seems to bear out the allegation. (It seems to me that Terry follows up with another insult, obscene but not racial,) Terry's defence is that he did use the words, but only in order to deny having used them. If you call that a defence.

Third, Steve Williams, a white golf caddie from New Zealand, speaking at an (off-the-record) awards ceremony for caddies, used a racial epithet in speaking disrespectfully of his former employer Tiger Woods, an American golfer of impressively mixed race. Williams, whose cut of Woods' winnings made him one of New Zealand's highest-earning 'sportsmen', quickly apologized.

All three alleged culprits have been defended with statements that they are not racists. I see no reason to doubt that, except in so far as we are all a bit racist. It doesn't matter, the issue is not what they thought, but what they said.

I'm thinking about how bad all this is, and what should be done about it. Provided that there's no threat to public order, I don't want to censor what jokes people can tell, so whereas I shan't be hiring him as a public speaker, Williams should escape formal sanction. But using a person's membership of an oppressed ethnic group as an insult really is nasty in a way that's difficult for white people to understand, unless perhaps they're Jewish. Sportsmen should not have to put up with this sort of abuse on the field of play. The Football Association has a Disciplinary Handbook which includes in its list of offences "use of abusive words" and stipulates that an offence aggravated by reference to race or colour incurs double the punishment. That should cover it. But Terry has been selected in the England squad for international matches on Saturday and the following Tuesday. "He is innocent until proven guilty", says the manager. So are prisoners on remand, but that doesn't mean they go free until a verdict is reached.

Meanwhile, the Metropolitan Police say they are formally investigating the allegation against Terry (and thereby delaying the FA inquiry). It would be helpful if they'd specify what crime they think he may have committed. It can't be a racially aggravated offence under Part II of the Crime and Disorder Act 1998, because no one thinks it's a crime for footballers to swear at each other non-racially. It can't be the use of abusive language intended or likely to stir up racial hatred, under Part III of the Public Order Act 1986 because no one seems to have been listening to what Terry said. Perhaps it's inciting the Met to waste police time.

Incidentally, I agree with the Guardian's policy of reproducing the exact words when reporting on these incidents. I don't see what's gained by writing in asterisks (the Guardian quotes Charlotte Brontë's preface to Wuthering Heights on this). But since they've published what was allegedly said, I needn't.

Why pick on the BBC?

2011-11-05T15:38:00.001Z

The BBC's news editor has written to the Guardian in response to Ben Goldacre's article last week about my bowel cancer data analysis. The points his letter makes are roughly:

There is too a three-fold variation
It's not our fault, we copied it off Beating Bowel Cancer
It's not fair to pick on us because...
...lots of other people published the same story, including the Guardian.

(the links are mine)

There's nothing factually incorrect in that. But point 2 is feeble. It's tantamount to say that the BBC will reproduce any plausible-looking press release so long as it offers a sufficiently eye-catching headline (I suppose "regional variation in bowel cancer mortality easily explained by randomness" wouldn't do).

I can't speak for Ben Goldacre, but I picked on the BBC for the same reason that I link to it wherever possible for news stories - because it's an impartial organization that "exists to serve the public interest". Charities and newspapers have their own axes to grind, but the BBC ought to be a reliable source of information.

Overseas readers may not be aware that the BBC is funded through a "television licence". It's obligatory in the UK, on pain of a fine of up to £1000, to have such a licence if you "watch or record TV as it's being broadcast". This applies even if you never watch BBC programmes. Collecting income under legal duress imposes on the BBC a special obligation to get things right.

It's common among experts in technical fields to bemoan the poor standard of reporting on the things they know about. "If they'd rung me up I would have told them what's what for free." Perhaps something could be done. It might be difficult to get this sort of report analysed in a few hours, but what does it matter if your news story on data from three years ago is a day or two behind the press release?

Unhealthy Celts

2011-11-04T09:57:00.002Z

The BBC reports that 4000 lives a year could be saved if only the Scots, Welsh, and Irish would eat like the English. Their source is this paper, from the British Heart Foundation Health Promotion Research Group.

A sidebar in the report tells us about the data:

The data showed people in Scotland and Northern Ireland ate more saturated fat and salt, and fewer fruit and vegetables, every day than people in England, while differences between England and Wales were smaller.

and:

Changing the diet to a typical English one would save about 11,000 of these lives - or just under 4,000 a year - with the biggest impact in Wales and Northern Ireland.

That's odd, how can the biggest impact be in Wales if that's where the smallest dietary differences are? The answer is in Table 2 of the paper: it calculates that 53% of the "mortality gap" would be closed in 2009, 43% in 2007, and 120% in 2008. It's not obvious that these numbers should be quoted as a percentage of the mortality gap in that year, since presumably there's a time lag between eating imprudently and dying from it, but the big difference in 2008 is not in mortality but in the diet data, shown in Table 1, which shows the Welsh eating more of everything in 2008 than in the other two years.

The Table 1 data seem to come from this spreadsheet giving household nutrient intake and this spreadsheet for eating out. It's the household intake that has the anomalous data in 2008. I suppose that the nutrient data will have been calculated from the food purchasing data given here, which show that the Welsh bought more carcase meat (especially), cheese, fruit and vegetables, and biscuits in 2008 than in any other year from 2001 to 2009. I am deeply sceptical that that represents a genuine change in consumption rather than a data-gathering glitch.

I'm putting this one tentatively in the GIGO pile, pending some enquiries into DEFRA's data gathering.

Update: DEFRA does give some information about its methodology. This pdf is about sampling: the data for 2009 come from surveying 5825 households across the UK. I wonder if one of the Welsh households in 2008 held a barbecue for the whole village the week they got asked.

Greek cunning?

2011-11-03T17:40:00.000Z

Greek opposition leader Antonis Samaras now says he will support the bailout deal, having opposed it up to now. Was the referendum just a trick by Papandreou to force the opposition to support him?

Understanding the EC

2011-11-03T16:49:00.000Z

The European Community is easier to understand as a deal between Germany and France to give each what it wants: Germany gets to run Europe and France gets to act important and have its agriculture subsidized. It's much better to do this by treaty than to have another round of the terrible wars of 1870, 1914 and 1939.

But according to Romano Prodi, speaking in February this year, this wasn't originally the case. “It used to be that France was the political driver and Germany the economic one. Now it is the lady [Merkel] that decides and Sarkozy that holds a press conference to explain her decisions."

Run on the banks

2011-11-03T08:42:00.001Z

If you've got money in a Greek bank, and you think there's a significant chance that Greece will leave the Euro and switch your holding into rapidly depreciating Drachmas, the prudent thing to do is to take the money out now and stash it away somewhere the Greek government can't get at it. The seriously rich will have got their money out already, but there must be a lot of ordinary people with savings. So why wouldn't there be a run on the Greek banks before the referendum?

Greek people power

2011-11-03T00:49:00.002Z

The Greeks invented δημοκρατια, so it would be presumptuous of me to tell them they shouldn't have a referendum on the bail-out package. Papandreou's unexpected (notwithstanding this story from September) decision to hold the vote is very bad news for the rest of the Eurozone, at least in the short term, but perhaps he's trying to do what's best for Greece. It's not hard to see advantages.

First, imposing further austerity without a referendum might well result in a complete breakdown of social order, whereas if the Greeks decide reluctantly to endorse the bailout plan it's much more likely that they will co-operate in rebuilding the economy. And if the vote looks close (no one is expecting a resounding 'yes') perhaps Merkel will find a way to sweeten the package a little.

Second, it's not clear that default is not the better option. The package doesn't do that much to reduce Greek debt - only private banks are accepting a haircut. And Greece's interest burden is going to increase as it rolls maturing debt into new, higher interest borrowing. This chart (using IMF data) of governments' annual deficit as a percentage of GDP is interesting:

(The 2011 numbers are projected by the IMF: I've trusted those but ignored the projections it offers out to 2016.)

Greece's large deficit is now almost entirely due to paying debt interest. If it defaulted it would be not very far off balancing its budget.

However, defaulting would be a painful business. After a default, Greece would have no choice but to run a balanced budget at once, because no one would lend it anything. And since a reported 30% of Greek government debt is held by Greek banks, the Greek banking system would fail catastrophically unless the government chose to bail it out, using money it hasn't got. The only way I can see to save the banks would be to leave the euro and use electronically created drachmas. This shouldn't in itself be inflationary since this money is not going to circulate, but the drachma would quickly depreciate and imported goods would get very expensive.

Which raises the question of whether default and leaving the euro are effectively the same thing, as the French in particular are saying. There's no mechanism in the Maastricht Treaty for Greece to secede from the Eurozone or to be expelled from it, but Greece remains a sovereign state and can do what it wants within its own borders. Since Greece needs control of its currency to handle the results of a default, and since the rest of the Eurozone doesn't seem to want it if it defaults, it seems certain that a way would be found for Greece to leave.

It's not even clear that Greece can avoid default for long enough to hold a referendum, since the Eurogroup is threatening not to deliver bailout money until the Greeks have made their minds up. I suppose that once a referendum date is set, for the earliest possible date, enough money will be reluctantly trickled in to meet interest payments, if absolutely necessary.

How do the other PIGS compare? None is in as much trouble, but Italy is the most similar - it would have no Government deficit at all if it didn't have to pay interest. What's more, it has a lot of debt maturing in 2012. And its debt in Euros is about five times what Greece owes: Germany is not going to put its hand in its pocket to sort it out. It's not surprising the markets are scared. Spain on the other hand has a deficit problem not a debt problem: there's no good reason for it to default. But Portugal might be tempted. Ireland is in a class of its own: since it got itself into trouble with its quixotic determination to honour its banks' debts, it's not likely to try to get itself out of trouble by reneging on its own debts.

My guess is that the Greeks will be scared into voting yes. Papandreou has submitted to a serious ear-bashing from the French, so he must think that's a possible outcome. But I'm not at all confident.

Skilled workers

2011-11-01T23:13:00.000Z

The Institute for Public Policy Research has a report out today responding to the UK government's consultation paper on economic migration. The report is unenthusiastic, and rightly so.

If you're going to have a social security system that's generous by world standards, you can't allow unrestricted immigration. We have to have restrictions, but we owe people who want to live here a system that is decent, and, if we wish to promote relative prosperity in the UK, we need a system that works to Britain's economic advantage.

If you want to enjoy living standards well above the world average, you need a big competitive advantage. Having sound infrastructure, little corruption, and a good supply of quite well educated labour is not going to be enough - the asian economies can supply that much cheaper than we can. One thing we can and should do is to have a lot of technically brilliant people. We can't grow them at a much faster rate than the rest of the world, we have to persuade them to come here. So a major aim of our immigration policy should be to welcome the brightest and the best from around the world.

What provision does the government's consultation paper make for that? Amost none. If you're a wealthy investor or entrepreneur then you'll be welcome. If you're an internationally recognized world leader in science, arts, or the humanities then you can come (there's a limit of 1000 places in the first year, to stop the country being swamped with internationally recognized world leaders). If you're needed to fill a graduate-level vacancy here that can't be filled by an EU citizen then you can have a visa (there's a limit of 20,700 places a year). And if you're a highly skilled migrant who wishes to work or become self-employed in the UK then you can bog off.

My policy would be to offer right of settlement in the UK to anyone in sound mind with a good degree in mathematics, science or engineering from a leading university (or equivalent) anywhere in the world (the BRIC countries all have institutions that would qualify). I'd have a committee of academics and employers to nail that down. How can this be a bad idea?

Balancing the budget

2011-11-01T02:26:00.000Z

I like Chris Dillow's economics blog, and I largely agree with this piece on the causes of the crisis. But his point (4), which he has made several times before, is based on an circular argument, and it's wrong to boot:

The fact that the government was running a fiscal deficit before the crisis was not its fault. It was instead a simple accounting identity. If foreigners and companies are net savers, then other sectors must be net borrowers. This was partly the household sector, but also the government.

But there's no magic economic equation that makes it impossible for governments to reduce their debt in times of economic prosperity. Their tax take rises and their social security spending falls, so they have a surplus. The surplus can be used to cut taxes, or to increase spending, or to reduce the national debt. The mechanics of reducing debt are not difficult: the government redeems bonds as they mature without issuing new ones. Or if there aren't enough bonds maturing, it can buy them back in the market. And if government debt reduction makes it unattractive for companies to save domestically, then they will make investments overseas.

Dillow expands his argument thus:

My chart shows the story. It shows that the public sector’s financial balance is very largely the mirror image of the corporate sector’s one. This shouldn’t be surprising, because for every borrower there must be a lender, and so across all sectors of the economy (which includes foreigners) net borrowing must be zero. The fiscal deficits of the mid-00s were, then, counterparts of a corporate surplus.

So argument is:

net government borrowing + net corporate borrowing + net foreign borrowing = 0
the chart shows that net government borrowing + net corporate borrowing ~= 0
which is to say that net foreign borrowing = 0
so net government borrowing has to be the mirror image of net corporate borrowing

ho hum. Net foreign borrowing is net lending to foreigners by corporates minus net lending by foreigners by the government. If this number is otherwise zero, then reduction of the government's debt will make it positive. The only way that could not happen is if all the money previously lend to the government were lent to the household sector instead. Dillow does not attempt to make the case that that would happen.

So the argument amounts to little more than saying that the government did not reduce its debt, therefore it could not have done so.

It is true, as Dillow says, that reducing debt would have made the UK economy less prosperous. That's the intention of a Keynesian stabilization policy - you spend money in bad times to encourage economic activity, and save money in good times, in the expectation that you will dampen growth.

Gordon Brown's "golden rule" was that he would balance the budget over a six-year cycle. Of course, there's no rule of economics to say that growth has to follow a six-year cycle. In practice as chancellor he was a net saver from 1988 to 1991, having taken office in 1987, and a net borrower for all eight years in office thereafter as chancellor and prime minister (not including the massive borrowing of 2010, for which the current coalition government can hardly be held responsible).

The true reason why democratic governments seldom run balanced budgets is not economic but political. Repaying debt might be the right thing to do, but it's taking money away from electors to give it to foreigners. The electorate may well react by voting in the opposition, who will inherit a healthy government balance they can use to get themselves re-elected.

Uploads

2011-10-30T22:19:00.001Z

The following files are available for download:

A CSV file containing data scraped from Beating Bowel Cancer's map site (the data there come from UKCIS).
A spreadsheet for drawing funnel plots
An alternative version of the spreadsheet, converted by Chris for use in older versions of Excel
A spreadsheet which runs a simulation to find the typical range of bowel cancer mortality rates across UK districts

Heartwarming nerd

2011-10-29T05:17:00.000+01:00

Guardian readers welcome. If you want to try playing with funnel plots you could try this spreadsheet.

Sovereign CDS

2011-10-28T17:15:00.000+01:00

The Eurozone deal is done. Judging by the reaction of the equity markets, even the 50% 'haircut' on Greek government debt, when taken together with the rest of the package, is a good deal for the banks. One interesting aspect is that the 'haircut' being taken by private banks has been structured as a 'voluntary' exchange of bonds, with the intention that it should not be a default event triggering CDS payoffs. ISDA, the body responsible for ruling on CDS, seems willing to go along with this, even while acknowledging that "there has been a lot of arm-twisting".

The effect is that anyone who has insured against loss on Greek government debt by buying sovereign CDS will find that their insurance is worthless and they just have to take the loss. Conversely, anyone who has blithely written Greek sovereign CDS will make a tidy profit. It seems strange that we should be encouraging banks to accept downside risk and discouraging them from insuring against losses. Not that I am going to spend any time feeling sorry for investment bankers - if you trade sovereign debt derivatives you have to be aware that governments can manipulate the market.

I suppose that this will destroy the sovereign CDS market in Europe, especially if the threatened ban on naked buying of sovereign CDS is implement, since that would leave no buyers. Instead, the EFSF (European Financial Stability Facility) will be offering insurance. I doubt that the bond markets will be in a hurry to trust the EFSF actually to be there with the cash should the need arise.

Synecdoche

2011-10-26T22:44:00.000+01:00

The answer to the challenge is that "Short" is a verb in the imperative mood, and the rest is a synecdoche for "the shares of companies with powerful CEOs".

Probably you've worked this out already if you care at all, but I don't expect to get another chance soon to write a post whose title is both a figure of speech and part of the title of a favourably reviewed film.

Short Powerful CEOs

2011-10-24T22:51:00.001+01:00

I've stolen this title from another blog. The challenge is to guess what the post there is about.

Eurozone bailout

2011-10-24T10:29:00.000+01:00

I apologize to Ed Miliband, who must be chortling to himself this morning. Despite what I wrote, David Cameron, who I suppose has detected political danger in allowing the Eurozone bailout to be finalized in his absence, is going back to Brussels on Wednesday after all. I don't suppose he'll enjoy himself much sitting there while Merkel and Sarkozy ignore anything he says. Sarkozy is unlikely to be charming about it: "We are sick of you criticising us and telling us what to do."

It seems that the bailout deal will include a Greek government default on its debts, in the form of a bond 'haircut'. The eurozone is no more interested in my advice than it is in Cameron's, but I say that abandoning the absurdity of pretending that Greece can pay its debts is a start.

Alcohol limits

2011-10-24T03:10:00.001+01:00

The Royal College of Physicians is advising us to drink no more than 21 (for men) or 14 (for women) units of alcohol a week, and to have two or three alcohol-free days a week. Ian Gilmore, the RCP's former president and currently the UK government's special adviser on alcohol says:

In addition to quantity, safe alcohol limits must also take into account frequency.
There is an increased risk of liver disease for those who drink daily or near-daily, compared with those who drink periodically or intermittently.
We recommend a safe alcohol consumption limit of between 0 and 21 units a week for men and 0 and 14 units a week for women provided the total amount is not drunk in one or two bouts, and that there are two to three alcohol-free days a week.
At these levels, most individuals are unlikely to come to harm.

So I can drink 21 units a week, provided that I spread my consumption over three, four, or perhaps five days a week (a UK unit is a centilitre, so there are 9 units in a 75cl bottle of wine containing 12% alcohol by volume: nowadays most wine is a little stronger than that). It seems strange that somewhat uneven consumption should be safer than drinking the same amount every day: what's the evidence?

The BBC report arises (indirectly) from a written report by the RCP to a House of Commons committee. The most relevent section of the report says:

Current Department of Health sensible drinking guidelines state that regular consumption of between three and four units a day for men, and between two and three units a day by women will not accrue significant health risk. Regular is defined as ‘drinking every day or most days of the week'.

26. This suggestion that daily drinking is low risk runs against evidence which suggests that frequency of drinking is a significant risk factor for the development of alcohol dependency, and the development of alcoholic liver disease.[7]

The report proposes that:

A very simple addition would remedy this problem namely a recommendation that to remain within safe limits of alcohol consumption that people have three alcohol-free days a week.

Reference [7] is this paper, which reports most pertinently that:

A large North American study of over 22,000 also showed that daily drinking carried more than twice the risk of liver damage compared with intermittent drinking once or twice per week [28].

Reference [28] therein is this paper, which investigates the health effects of frequent "risk drinking":

Risk drinking was defined as consuming the equivalent of 5+ standard drinks in a day for men and the equivalent of 4+ standard drinks in a day for women.

It doesn't define a "standard drink", but it seems that in the USA a standard drink contains about 14g of pure alcohol. The density of alcohol (ethanol) is 0.789g/cm^3, so that's about one and three quarter UK units. 4 standard drinks would be 7 units, 5 standard drinks would be 8.75 units.

This table in the paper quantifies the risk of a list of adverse consequences at various frequencies of risk drinking. It shows that drinking a bottle of wine nearly every day gives about twice the risk of liver disease of drinking a bottle of wine three or four times a week. I'm not surprised - that's about twice as much alcohol consumed.

My summary is that the papers cited do not support the RCP's conclusion. There is no evidence that drinking 3 units of alcohol every day is worse for you than drinking the same 21 units a week spread over only four days.

I suspect that they've made this recommendation because they think if you drink less often, you'll drink less in total. They may well be right. But I'd recommend a more honest approach, along the lines of "most people who drink alcohol several times a week consume more than they think they do. One good way to reduce consumption is to have three days a week on which you drink no alcohol."

Real Estate

2011-10-23T01:59:00.000+01:00

There's a half page in The Times Saturday opinion section often occupied to amusing effect by Giles Coren (in his spare time he writes humourless tosh for the Daily Mail: I suppose he needs the money). This week the space is taken up by the thoughts of Roger Scruton on home ownership in England. Suddenly, he says, we are being encouraged to take out second mortgages on our homes and gamble the proceeds. Perhaps this is a piece he wrote ten years ago, which a sub-editor pulled out of a drawer at the last minute when Coren's effort got pulled because he'd written something the lawyers wouldn't risk publishing. [The Times is behind a paywall, so there's no link here to the article.]

I mention Scruton's dull space-filler mainly in order to marvel at this under-informed comment: "...real ownership does not mean leasehold or rental but freehold - what the brokers call "real estate" on the understanding that nothing else is really real."

No. Real estate is a legal term meaning fixed property, as distinct from personal property. It is perfectly possible to have a leasehold on real estate. (It's from the Latin res, a thing. Some etymologies claim instead that it's from regalis, meaning royal as in "real tennis", but there's no evidence to support them.)

I wonder why Scruton didn't check this with a fellow don: a lawyer or historian perhaps. I think the problem may be that the universities he has studied and taught at are "mere teaching machines rather than a community of scholars that is a humble part of a larger organism."

Myob

2011-10-22T16:46:00.001+01:00

Ed Miliband has told off David Cameron "for not seeking a place at next week's crucial eurozone summit". Ed, the reason why Cameron isn't going is that it's none of our business. The UK isn't in the eurozone, thanks in part to the Gordon Brown's "five tests", carefully crafted to allow Brown to keep us out of the Euro without embarrassing Tony Blair.

I suppose the eurozone countries would be delighted to have us along if we offer to chip in a few billion for the latest "defence fund". Ed?

But it's the weekend. If you want to think about financial obligations, you could do worse than read this novella, which may be the source of the acronym I've used for the title of this post. You might even buy the book.

Sunlight and bowel cancer incidence

2011-10-20T13:40:00.002+01:00

I mentioned a fortnight ago that I was going to investigate a possible relationship between the regional distribution of bowel cancer incidence in the UK and of sunlight. And so I have.

I've chosen to work with incidence rather than mortality, because the incidence numbers are larger and hence less affected by random variation, and because it seems to me that sunlight is more likely to affect incidence than outcome.

The hypothesis is that sunlight is linked to bowel cancer incidence because exposure to ultraviolet light promotes synthesis of vitamin D, which has a protective effect. It's the UVB (higher energy UV) component of the light that's important for vitamin D synthesis, and the process is not linear. However, for a first pass at least, I've used data I could quite easily get online, which is sunlight incidence from this site, intended for use in solar energy calculations (I told it I'd use horizontal panels). For each district I queried for one or more population centres, averaging the results if necessary. The solar incidences I found varied from 2.14kWhr/m^2, averaged over the whole year, in Shetland, to 3.00 in Kingsbridge, Devon.

Here's a scatter plot of the data. I've used a non-zero intercept on the sunlight axis. I've resisted the temptation to let Excel draw a regression line.

It looks as if there might be something there. I calculated a population-weighted correlation: the result is -0.300 . To check for significance I tried shuffling the sunlight data so that the numbers were applied at random to the districts, recalculating the correlation each time. In 1000 tries none of the correlations where anywhere near that large: there may be a lot of perturbations that would give that much correlation, but they're a tiny fraction of the 380! available.

However, this is an in-sample test - I've used the same data to form the hypothesis and to test it. To avoid that, I tried ignoring the eleven labelled points I looked at when I came up with the notion. The population-weight correlation was reduced to -0.256 . This is still larger than anything I got in 1000 shuffles of the data (the largest therein being -0.199). I conclude that there is a genuine negative correlation in the UK between bowel cancer incidence and sunlight.

Correlation does not prove causation - I suppose I would have got a similar result if I'd looked at latitude instead of sunlight, and one could attribute that to lifestyle differences between different parts of the country. , But more rigorous analyses in the USA and Japan have found a negative correlation of bowel-cancer mortality with sunlight even after correcting for dietary differences.

Population-weighted linear regression gives a regression slope of -15.34, i.e. the best guess is that an increase in solar incidence of 1kWhr/m^2 reduces bowel cancer incidence by about 15 per 100,000 people. To give an indication of the potential effect, I worked out the effect of applying an adjustment in each district as if every district had the solar incidence of the sunniest. That would reduce bowel cancer incidence by 4298 cases per year. If the ratio of mortality to incidence were maintained (research suggests sunlight might in fact improve survival) that would save 1742 lives per year.

I am not proposing that we promote climate change to allow more sunlight through the atmosphere. But it might be possible to encourage people to expose themselves to sunlight more (not of course neglecting its dangers: there were 2067 deaths from malignant melanoma in the UK in 2008), or dietary vitamin D might have a similar effect (the data are suggestive but unclear).

Baby Grand

2011-10-18T00:46:00.000+01:00

Dinner last night at De Belhamel in Amsterdam, which I commend. The menu includes "Petit grand dessert". I've been trying to work that out: there seems to be a not very well defined term "Grand Dessert" for an elaborate dessert comprising assorted smaller desserts. This would be a nouvelle version of it.

Incidentally, the restaurant is proud of its "art nouveau" decor (it doesn't call it "nieuwe kunst"). It occurs to me that the adjective is relatively accurate, as compared with its use by New College.

I'm more confident about Little Big Horn. The battle was fought on the banks of the Little Bighorn river. Which is a tributary of the Bighorn river. The Bighorn river was named by fur trader François Larocque for the bighorn sheep he saw there. And the bighorn sheep is so called for its big horns.

Like twins

2011-10-14T08:10:00.000+01:00

The Daily Mail has the shocking allegation that Liam Fox and his close friend Adam Werrity sometimes dress similarly. It illustrates its case with a picture from Fox's wedding, where Werrity was best man.

It's a pity they never served in the Army together.

How to stop rogue-trading losses

2011-10-13T18:33:00.000+01:00

I'm now better informed than I was about how Kweku Adoboli managed to lose so much money for UBS. I needn't reveal any confidences: this is a fair outline of what I have been told went on.

Whenever losses like this are uncovered, the bank concerned is censured, and rightly so, for whatever lax practices allowed the risk management system to be fooled. But there is one simple procedure that would have caught each of the notorious rogue traders - Nick Leeson at Barings, Jérôme Kerviel at SocGen, or Kweku Adoboli at UBS. And that is to check positions giving rise to any funding requirement out of proportion to the risk being reported.

All three traders were supposed to be carrying out low-risk trading, in which equity futures hedged the risk on other, quite simple instruments. For Leeson, it was similar futures on another exchange. For Kerviel it was a basket of shares or warrants, and for Adoboli it was ETFs. Because the positions were supposed to be low risk, they were authorized to trade in very large size. But in each case, the offsetting trades were faked so the actual risk was enormous, as were the losses when markets turned sharply against the positions.

When you hold an equity futures position, you pay or receive daily "variation margin" as market prices move. In each of these rogue-trading cases, the banks will have paid out most of the losses in variation margin even before the losses were discovered (the balance of the losses being due to market moves caused by trading out of such large positions after their discovery). Barings ought to have been receiving offsetting variation margin on the offsetting futures trades, but weren't. In the other two cases the purported offsetting trades would not have been expected to generate margin. But large profits were being reported on the offsetting trades, slightly greater than the large real losses. It would have taken only a brief investigation to discover that many of the offsetting trades had been neither confirmed nor settled by their counterparties. At which point a thorough investigation would have been instigated.

I'm not saying that this sort of check would catch all rogue traders. But it would detect sizeable losses from rogue trading before they become huge losses.

This sort of investigation might well pay for itself even if there were no rogue traders. This is because arbitrage businesses exploiting small margins should be accounting carefully for funding costs (which have become much larger since the 2008 crisis) and for credit risk. Investigation might show that the apparent profits may not really exist in businesses that seek to exploit narrow arbitrage opportunities by trading in high volume.

Another thing that should be monitored is an explosion of trading volume in any one instrument - in Adoboli's case that would be forward-settled ETFs. The trading desk concerned should have to demonstrate that the market demand is there and that it's genuinely profitable to satisfy it.

There's one more thing that banks might consider doing: appoint a senior banker with a small team whose sole remit is to prevent large trading losses, whether by rogue trading or by concentration of risk in illiquid instruments. This team should be paid mostly in salary: any bonuses should be paid in cash (not shares) deferred for three years and forfeited if major trading losses are uncovered during the deferral period. Team members should not be allowed to transfer to trading jobs.

Some say Theresa May

2011-10-10T13:51:00.000+01:00

Theresa May, the British Home Secretary, has attracted much adverse comment for some of her remarks on the Human Rights Act, not least from her own side and its partners. But let's look at what she actually said (full text here):

We all know the stories about the Human Rights Act. The violent drug dealer who cannot be sent home because his daughter – for whom he pays no maintenance – lives here. The robber who cannot be removed because he has a girlfriend. The illegal immigrant who cannot be deported because – and I am not making this up – he had a pet cat.

"We all know the stories about the Human Rights Act" - That's unlikely to be exactly true, but if you're looking for an audience that reads the Daily Mail and follows the speeches of Nigel Farage, where better to go that the Conservative Party Conference? (I assume that the UKIP conference cannot be a better place.) I think Ms May can be excused this rhetorical flourish.

"The violent drug dealer..." This story is true. (Ms May omits the detail that the drug dealer had been in this country since he was four, so it would seem rather unfair on Trinidad to deport him there. I suspect the Tory Party Conference is not much concerned with fairness to Trinidad.)

"The robber who cannot be removed...". This story appears to be true.

"The illegal immigrant" The cat-owner was not an illegal immigrant, he was a Bolivian student who'd overstayed his visa. But let's not get picky.

"I'm not making this up". This is true. It was the Daily Mail who invented the story. Ms May didn't even make up the line about not making it up.

"because". This is a whopper. But it's not Ms May's whopper. And it's only one word. And she said it was a story: stories don't have to be true.

"he had a pet cat". Yes he did.

In further support of Ms May, I might mention that:
i) She wears better shoes than does Ken Clarke
ii) Ken Clarke has made a lot of money peddling carcinogenic drugs in developing counties.
iii) Chris Huhne's ex-wife alleges that he lied about a speeding offence
iv) The Labour Party's most recent Immigration Minister, Phil Woolas, was a proven liar.

On the other hand, Ms May cited these examples in support of her view that "the Human Rights Act needs to go". This is just populist pandering. The Human Rights Act simply requires British courts and public bodies to act in accordance with the European Convention on Human Rights so long as British law permits them to do so. Repealing it would remove enforcement of the Convention to the European Court of Human Rights. How is it desirable to have the law work more slowly, and with the final decision in the hands of foreigners? If I read the feeling of the meeting correctly, the Conservative Party Conference is against them.

Nick Clegg on the Euro

2011-10-10T11:03:00.000+01:00

Here's Nick Clegg in January 2009 advocating that Britain should join the Euro:

Mr Clegg says he is not pushing for immediate entry and admits that the past housing bubble might have been even worse had Britain been tied to eurozone interest rates.
But he says the “page has been turned” in economic policymaking, highlighting the need for an “anchor” against the “incredibly vulnerable exposure to international financial markets”. Refusing to discuss the euro is a “failure of political leadership”, he says.

and here he is being interviewed at his party conference recently:

"I think, clearly, with the benefit of hindsight, you can say [joining the Euro] would have been a huge, huge error,"
"I don't think anyone could have predicted at the time the euro was created that the rules which were supposed to be in place to ensure that everybody looked after their own financial affairs properly would be so spectacularly ignored and broken.
"I think history will judge the then French and German governments very, very unkindly who, some years ago, basically signalled that the rules could be relaxed because that then sent a signal out to everybody else - oh well, we don't need to keep our house in order.

I don't think it would have been very difficult to predict in 2009 that the rules would be ignored. Here's an official EU report from 2006. Table A.2.1 shows that Belgium (1995-2007), Germany (2002-2007), Greece (1997-2007), France (2003-2007), Italy (1995-2007), Austria (1995-2007), Portugal (2005-2007) were all in breach of the 60% limit imposed by the Stability and Growth Pact on debt to GDP ratio, and that Greece and Italy were the worst offenders, having had a ratio over 100% ever since 1995.

Eddie Izzard for Mayor?

2011-10-10T02:16:00.000+01:00

There's an interview with Eddie Izzard in Saturday's Times, in which he says he's going to run for Mayor of London in 2020. He's a comedian, but two years ago he ran 1100 miles round the UK in 52 days. So he's got my respect and attention.

There's one paragraph of political analysis:

He thinks of the Conservative Party as the Dementors from Harry Potter ("It cannot be proved scientifically, but we're pretty sure that the Tory party wil suck your face off"), and is against the cuts. "Why the hell do we have to pay everything off so bloody quickly?" he asks me rhetorically, before delivering a small lecture on Britain's Second World War debt.
"It was paid off in 2007. That says it all to me..."

That might be a good joke about the Dementors - being funny is not my area of expertise. But I thinks he's serious about the cuts. It bothers me that as an aspiring politician he should be so disconnected from the facts on the one political subject mentioned in his interview. The fact is that we've not paying off a penny of government debt, and plan to continue to be net borrowers until 2016. The cuts are about reducing the government deficit - how much it's overspending by - not about paying back debt.

The point about the War debt is misguided too. We did pay back the money the USA lent us at the end of the war. But we didn't do it by running a surplus. There was a schedule of payments attached to the loan, which we met mostly by borrowing more money - the UK government has made net debt repayments in only 14 out of 55 years since the Second World War ended.

It's not that I expect better of politicians. But I expect better of Eddie Izzard.

Funnel plot of UK bowel cancer incidence

2011-10-05T00:01:00.000+01:00

If you've already read more than you want to about colorectal cancer, please look away now.

This chart is a funnel plot of incidence (i.e. new cases) rather than mortality. It shows that there is significant variation from one district to another - there are several points outside the dashed lines.

It would be a mistake to deduce from this and the previous analysis that incidence depends on where you are but mortality doesn't. We didn't prove the null hypothesis for mortality, we just failed to disprove it (outside Glasgow). But it's easier to get statistically significant results for incidence, because the numbers are larger. Strangely, the best evidence that mortality varies with district may be in the incidence numbers not the mortality numbers.

However, the data are for diagnosed incidence, not for the (unknown) total incidence. Starting a screening programme will cause a jump in diagnoses, which will mostly but not entirely fall off with time - in the absence of screening, some people with bowel cancer may live out their lives without being diagnosed, and die of something else. So for example the high incidence of diagnoses in Wirral in 2008 may be more to do with the start of a screening programme in 2007 than with a high total incidence.

I note that all the points well above the upper dashed line lie in the north of the UK, and all but one of the points well below the lower dashed line lie in the south of the UK. I asked an oncologist, who told me that bowel cancer is known to be negatively correlated with sunlight, more so than any other cancer. I'll try to show to what extent this factor is explanatory. Meanwhile, here's a US map, generated on this site, of the sort that was first used to generate the sunlight hypothesis.

Age Standardization

2011-10-04T15:07:00.000+01:00

I accused Beating Bowel Cancer of doing its age standardization wrong: I withdraw that. What they seem to have done is to standardize against European norms, without saying so - I realised this when I had another look at the Cancer Research UK spreadsheet, which gives a very similar standardization.

Actual bowel cancer mortality across the UK is substantially higher than the numbers from Beating Bowel Cancer tell us, which are for a hypothetical population with fewer old people in it.

Bowel Cancer Statistics - a funnel plot

2011-09-27T21:46:00.000+01:00

I'm grateful to David Spiegelhalter of Understanding Uncertainty for the suggestion that I should display these data in a funnel plot. (Click on the plot for a full-screen version.)

For a given population size, and assuming that the death rate is uniform across each authority, an authority has the same probability of falling outside the funnel lines whatever its size - the funnel is narrower at the right-hand end of the plot where the authority sizes are larger and the standard deviation of the distribution is smaller relative to its mean.

Under the uniform distribution assumption, the probability of a point falling above the upper dotted line is 2.5%, as is the probability of a point falling below the lower dotted line. There are 378 points, so typically nine or ten of them would be above and below the dotted lines. For the dashed line, the probabilities are 0.2646%, which I chose so that one point would typically be above and below the lines.

What stands out from the plot is that Glasgow City's poor result is fantastically unlikely to be random. There may be a meaningful pattern too in the figures for North Lanarkshire and Falkirk, which cover the area from Glasgow east-north-east to the Firth of Forth above Edinburgh.

Only Westminster falls below the lower dashed line. Since we expect one point there at random, this is perhaps not worthy of much attention. However, there are a lot of points - 21 - below the 2.5% line, most of them in south-east England (one of them - Stirling - is in Scotland).

I suspect that there are genuine regional variations in outcome, Glasgow aside. But the data need looking at over regions larger than most local authorities.

(Wales, which is presented as a single, very large, region is a long way off the right-hand end of my plot. But it falls comfortably within the funnel.)

[This post is a follow-on to my previous analysis of the same data]

Blaming the Bankers

2011-09-26T15:20:00.000+01:00

Bankers here means Investment Bankers. No one is blaming the cashiers in High Street banks, I hope.

Daniel at Crooked Timber has written a piece to the effect that bankers are not all that bad, inspired by Joris Luyendijk, an anthropologist who's writing a blog about bankers for the Guardian. The mainly leftish commentators on those blogs are almost all unpersuaded. I've been meaning to write a piece myself on a similar theme: here it is.

1) Bankers are Greedy.

Yes, bankers like money. But that's the basis of capitalism - people would rather have more money than less. Footballers, musicians, doctors, academics, they all conform.

The real grievance isn't that bankers like money. It's that they get it.

2) Bankers' wealth has come in the last three years from making the rest of us poor.

This is wrong. Bankers (other than those working directly for the government) do not have the power to make huge sums of money disappear. It's rather the opposite: by securitization of loans they made huge sums of money appear, or, if you prefer to count it thus, they made huge sums of money circulate faster. The effect was to make some people - in particular those who sold property - richer, and to make lots of people who owned property feel richer. The money ultimately went to pay for imported goods which people enjoyed having, hence the increasing balance of trade deficits in the UK and USA since 1998. With the massive losses the banks inflicted on themselves through their mortgage-backed bond holdings, this source of money has dried up.

Governments outside the euro zone could, if they chose, restore their people's purchasing power by printing (electronically) more money - Quantitative Easing - to make good the lost circulation. They don't do it on anything like the scale they'd need to because of frightening analogies with Zimbabwe or the Weimar Republic. Arguably they shouldn't do it because international trade needs rebalancing before China owns everything. But this rebalancing would be needed even if there had been no banking crisis.

In short, you can fairly blame the bankers for making us think we had more money than we did. But not for the fact that we didn't really have it.

3) Bankers are useless

Investment banking activities fall into roughly the following categories.
i) Efficient allocation of capital. This is necessary, and a lot of banking activity either promotes liquid markets - even short selling of shares - or creates the securities needed for corporates to achieve a desirable capital structure.
ii) Recirculation of money. This is unnecessary: whatever the velocity of circulation the government is equally able (or unable) to adjust the money supply to give the value it wants to the left-hand-side of the Equation of Exchange.
iii) Tax avoidance. This is unnecessary: governments could greatly reduce it by implementing flatter tax rules in which income would be taxed at the same rate whether it came as salary, dividends, debt interest, or capital gains.
(One might add to this category other tricks to change the appearance of accounts, such as the swaps Goldman Sachs used to help the Greek government conceal its true debt.)

On Capital Punishment

2011-09-25T01:58:00.000+01:00

Capital punishment is wrong. Not because all murderers deserve to live, but because it diminishes us all when the state kills on our behalf.

In the developed world, only the USA carries out judicial executions (the vast majority of the world's executions are in China). I'm writing about this now because of the attention focussed on the execution of Troy Davis in Georgia on the night of 21st September.

Much of what has been written about it has been assertions of Davis' guilt or innocence of the capital crime he was convicted of. The crime was committed in 1989 in Savannah, Georgia, at about 1am outside a Burger King restaurant. One of a group of three young men got into an argument with a homeless man who refused to give him a beer. Another of the group struck the man with a gun. A security guard at the restaurant, who happened to be a moonlighting policeman, went to the victim's aid and was shot dead by the assailant. The identities of the group of three men are not in dispute; the only question is which of them committed the assault and murder.

Perhaps unsurprisingly, polemicists on both sides have wildly exaggerated the strength of their cases. At the direction of the US Supreme Court, the District Court in Savannah (where the crime was committed) re-examined the evidence in June last year, 21 years after the murder. This at least makes available a reasonably objective account of what evidence there was, in two parts.

The court account shows that there is no forensic evidence against Davis, and in particular that claims are false that the dead man's blood was found on a pair of his shorts which were excluded from evidence in Davis's original trial because they had been seized illegally by police.

It shows equally that claims are wildly exaggerated that seven out of nine key witnesses have recanted their testimony. The two most important witnesses were the homeless man, Larry Young, and his girlfriend who was drinking with him, Harriet Murray. Young gave an affidavit to the defence saying that his original evidence had been whatever the police wanted. But the defence declined to call him in person at the 2010 hearing, despite his being present, and despite being warned by the court that his affidavit would carry much less weight if he were not called. Murray gave a statement to the defence, which she declined to have notarized, largely repeating her original evidence. There were discrepancies, but nothing approaching a recantation. She has since died.

Identification evidence is notoriously unreliable. But the identification in this case is unusual in that it is needed to determine which of the group of young men was which, not to determine who was in the group. It seems to me that the reliability in general of this sort of identification would be quite easy to test, and that if either side were interested in the truth they would have done the research at some time in the last 22 years.

The Savannah Court's conclusion was "After careful consideration and an in-depth review of twenty years of evidence, the Court is left with the firm conviction that while the State's case may not be ironclad, most reasonable jurors would again vote to convict Mr. Davis of Officer MacPhail's murder". And it explained at considerable length that it was not the Court's business to conduct a retrial, but to determine whether the original verdict could not reasonably have been arrived at in the light of new evidence.

I don't know what the difference is between "ironclad" and the "beyond reasonable doubt" standard for convictions used in the USA as in the UK. But I suspect that an expensive legal team has got a lot to do with it.

Rogue Trading at UBS

2011-09-20T10:12:00.000+01:00

Having worked for UBS equities for many years, I ought to be writing something intelligent and well-informed about the $2.3bn lost by a rogue trader at the bank. Reportedly, the trader, Kweku Adoboli, lost the money by buying equity index futures while booking fictitious ETF trades, so that the futures appeared to be hedges for the ETFs.

In fact I am baffled. First, Adoboli should not have been able to book fictitious client trades (nor genuine ones). He should certainly not have retained systems access from his previous role in back office. Second, fictitious trades should have been detected by reconciliation procedures - according to the charges he faces he started doing this in 2008, so there's been ample time to catch up with him. And third, the Treasury desk will have had to post margin, in cash or securities, on his losing futures positions. $2bn or so is not a trivial amount (no, really) and they'll have been looking for offsetting margin from the purported client trades. This should have shown up very quickly.

Which goes to show what I know, since evidently he got round all these obstacles for an extended period...

Bowel Cancer Statistics - update

2011-09-19T16:31:00.002+01:00

I've revised the post below, having done some work on the data.

'Three-fold variation' in UK bowel cancer death rates

2011-09-15T01:16:00.000+01:00

[I rewrote this post on 19th September, having done further analysis of the data. The overall conclusion is the same, but better supported by the analysis. I corrected the penultimate paragraph on 4th October.]

I've copied the title from this BBC story. The story is an uncritical account of a press release by the charity Beating Bowel Cancer. "Beating Bowel Cancer calculates that over 5,000 lives could be saved every year".

The press release announces an on-line Bowel Cancer Map which allows one to find the (age-standardized) bowel cancer incidence and mortality for each local authority in England and Scotland. This is based on 2008 figures provided by UKCIS. (The raw data are available from UKCIS to registered users only.)

The headline finding is that death rates vary from 9.16 deaths per 100,000 in the semi-rural district of Rossendale (in Lancashire) to 31.09 deaths per 100,000 in the city of Glasgow. I suppose that the calculation that over 5000 lives a year could be saved is based on reducing the death rate nationally from 17.68 to 9.16 - for a population of 61 million that would save 5,197 lives each year (17.68 is my calculation of the UK-wide death rate, using their data. They give 17.27 for the death rate in England, and higher figures for Scotland, Wales and Northern Ireland).

But this statistical analysis is completely wrong. Beating Bowel Cancer didn't reply to a request I sent them for a spreadsheet containing the numbers numbers behind the map, so I've scraped them out by semi-automated postcode query. The total annual deaths in the data I've got is 15,936 compared with 16,259 reported for 2008 by Cancer Research UK, so I think I've been successful enough in extracting the data. For a given expected death rate, the actual number of deaths in each district will be a random number sampled from a Poisson Distribution with mean equal to the expected number of deaths in that district. I assumed that the expected death rate is the same throughout the country, and simulated on a spreadsheet numbers of deaths for every district in the UK. After each simulation, I found the district with the lowest actual death rate in that simulation, and the one with the highest. The result was that on average the district with the lowest death rate has about 7 deaths per 100,000. The district with the highest death rate has about 32 deaths per 100,000. So the observed range - 9 to 31 deaths per 100,000 - is in fact slightly (not significantly) smaller than one would expect if the variation were purely random. There's nothing in that range to suggest that the expectation is any different from one district to another.

What is happening here is that the analysis has been done over districts that are small enough for random variation to swamp any systematic variation. Taking this to extremes, one might calculate deaths per household, and find that in the best households no one at all died that year of any cause. If we could duplicate that for all households, we could all live for ever.

It's worth saying a bit more about the population sizes in each area. The Bowel Cancer Map doesn't give these numbers directly, but it reports numbers of deaths and "age-standardised" deaths per 100,000.

Age-standardisation adjusts rates to take into account how many old or young people are in the population being looked at. When rates are age-standardised, you know that differences between the local authority areas do not simply reflect variations in the age structure of the populations...

From the data given it is simple to calculate the age-standardized population used for each area. On this basis, Rossendale has 76,000 people and City of Glasgow has 675,000. It is not surprising that the lowest death rate is in one of the smaller areas - they are the ones with the greatest random variation. But if the results are simply random it is surprising that the highest death rate is in a large area. So I do think that the high death rate in City of Glasgow is not purely random - the Cancer Research UK data confirm that death rates are significantly higher in Scotland.

One more thing. Adding up the populations for each area, calculated from the deaths and death rates, I get a UK population of 89.75 million. Since the true figure for 2008 was about 61 million, that's rather surprising. Doing the same calculation on the data for number of cases, which the map also gives, I get a UK population of 83 million. The Cancer Research UK table is using a population of just over 61 million, and therefore gets a noticeably higher death rate for about the same number of deaths. [Update: I find that the CRUK table offers age-standardized rates also: they are very similar to the Beating Bowel Cancer rates. The heading in the table reads "Age-standardised rate (European)...", so it seems that the standardization is to a European-average age distribution.]

I'm not sure whether I should be railing against the use of stupid statistics in a good cause...

Making Britain better

2011-08-30T23:26:00.000+01:00

There are two policies I advocate to get tough on the causes of riots.

a) Legalize drugs. Gang culture thrives when stuff people want (alcohol, lotteries, drugs...) is made illegal.
b) Get serious about reducing long-term unemployment. It disengages people from society (even, or especially, young peoploe facing the prospect of it.). There are far too few jobs now for unskilled labour. The way to fix this is to subsidize jobs. We need a negative income tax for low paid workers.

(a) is almost unanimously agreed among the sort of people who like to talk about this stuff without actually being responsible for it (like me). I reconsidered it last year when a colleague died in a fall after taking cocaine, leaving a wife and young child. I would expect legalizing drugs to lead to more people taking them. Against this, the composition would be much better controlled. We accept the health risks of alcohol: anything which is not clearly more dangerous should be legal (I suspect that cocaine would not qualify: this is a question to be determined scientifically).

(b) is rather more daring. I'll write some more about it.

A made-up statistic

2011-08-22T14:11:00.000+01:00

I was struck by this statistic in a Spectator article about the riots, written by Harriet Sergeant

A full 63 per cent of white working class boys, and just over half of black Caribbean boys at the age of 14 have a reading age of seven or below.

That is spectacularly implausible, so I went searching for the source. I found a report titled Wasted published by The Centre for Policy Studies on 27th November 2009, written by the same Harriet Sergeant. (The CPS was founded by Keith Joseph and Margaret Thatcher and describes itself as "one of Britain's leading think tanks".) The report tells us on page 10:

White working class boys are most at risk of under-performing with 63% unable to read and write properly at 14 compared to 43% of white girls from a similar background. Black working class boys do not do much better. Just over half of them, 54%, can not read or write properly at 14.

That looks like the same statistic, but with a much vaguer description of the underperformance. But reading on to page 51 (ok, I admit, I didn't actually read it all) we find:

63% of 14 year old white working class boys have a reading ability of half their age. Over half, 54% of 14 year old black Caribbean boys have a reading age of seven

The p10 statistic carries a citation, to "The Daily Mail, 13 August, 2007." Citing the Daily Mail in a purportedly scholarly paper smacks of desperation, but I ploughed on. To its credit, that newspaper maintains an on-line archive, in which I found this report on a Bow Group publication

White working-class boys were found to be most at risk of under-performing, with 63 per cent unable to read and write properly at 14. This compares to 43 per cent of white girls from similar backgrounds and 54 per cent of working-class black boys.

So to the Bow Group (the Bow Group describes itself as "the oldest - and one of the most influential - centre-right Think-Tanks in Britain"). The statistic appears in a table in this document by Chris Skidmore (then chairman of the Bow Group), written in August 2007. The document cites this government spreadsheet which contains the same numbers (in "Table 9: Achievements at Key Stage 3 English at Level 5 and above in 2006, by ethnicity, eligibility for free school meals and gender").

Being eligible for free school meals means a child has a parent or carer in receipt of a govenment benefit paid to people on low incomes, so it is talking about the poorest children. That is not the same as "working class": 57% of the population identifed themselves as working class in a 2007 British Social Attitudes survey, as reported by the BBC. 15% of the boys in the spreadsheet were eligible for free school meals.

The educational achievement in the table is reaching level 5 in Key Stage 3 English. KS3 is the first three years of secondary-school education (ages 11-14). Here is an outline of the Key Stage levels : most pupils reach Level 2 by the end of Key Stage 1 (age 7), Level 4 by the end of Key Stage 2 (age 11) and Level 5 or 6 by the end of Key Stage 3. The assessments in English cover reading and writing, so the data are not specifically about reading. That aside, if you want to translate failure to reach level 5 into a reading age, you could plausibly describe it as eleven or below. Which is not what you'd want from your 14-year-old, but is not nearly as bad as "seven or below".

So how did the mostly accurate statistic on page 10 of Harriet Sergeant's 2009 report turn into the tosh in her recent article? Here's an article by her in the Guardian, published at the same time as her CPS report.

at the age of fourteen, 63% of white working class boys and 55% of black Caribbean boys has a reading age of seven or less

So even at the time she had the wrong statistic from page 51 in her mind. Furthermore, this government website dated 22nd December 2009 links to the Wasted study and reports it as saying

Almost two thirds (63%) of 14-year-old white working class boys and more than half (54%) of 14-year-old black Caribbean boys have a reading age of seven

I guess that whoever wrote that had their attention drawn to the juicy statistic by someone, very possible Ms Sergeant herself. I speculate further that in an early version of Wasted the statistic was wrong both times it was used, and someone went through the paper checking the citations and corrected the version with the citation attached. Either they didn't tell Harriet Sergeant, or they did and she forgot.

There's a clue in the 2007 Daily Mail article to how the confusion first arose: the article starts with a selection of eye-catching statistics, including "at 14, one in five boys has a reading ability of a pupil half his age". I speculate that this got mixed up from in Harriet Sergeant's mind with the 63% statistic from further down the article.

This statistic has appeared in the Guardian, in Prospect magazine, in the Spectator, and in the last few days in The Telegraph and in a Dominic Lawson article in The Independent. And it's completely wrong.

Update: repeating my internet searches, I've found this article by Clive Power, casting doubt on various points in the Spectator article, starting with the one investigated here.

UK Income Tax Chart

2011-08-10T12:27:00.000+01:00

Here's a chart I made of UK income tax rates in the current year for a person with no special allowances:

The 60% rate at £100,000 appears because the "Personal Allowance" - the zero rate band for low incomes - is progressively withdrawn for incomes above that level. This was Alistair Darling's idea to get more money out of higher earners without increasing headline tax rates. George Osborne evinced no pain in adopting the scheme.

This chart includes Class 1 National Insurance payments also - they are levied on employees on a weekly rather than an annual basis: I've assumed full-time employment.

There's another blip in the graph at an annual income of £42,475 where the 40% tax band starts, because the lower National Insurance rate (2% instead of 12%) starts at a slightly higher level.

In a rational world, we would abandon the artificial distinction between Income Tax and National Insurance. We would determine an appropriate shape for the marginal tax curve - preferably piecewise linear and non-decreasing. And we would apply a multiplier to the curve to raise what revenue the government deems appropriate.

Tough on the Causes of Riots

2011-08-09T14:02:00.000+01:00

I hate arbitrary destruction. But Tony Blair's sound-bite about crime summarizes a rational approach to the riots.

Which is just by way of preamble to some well-deserved mockery, of Theresa May for the completely wrong prediction in her remarks to a police conference nearly a year ago "The British public simply don't resort to violent unrest in the face of challenging economic circumstances", and of Nick Cohen writing in The Observer two days ago "No Riots Here", for his spectacularly poor timing.

What's gone wrong with the economy

2011-08-07T22:08:00.000+01:00

The simple answers, along the lines of "the bankers did it" are wrong. The highly technical answers are confusing at best. So here's my attempt at making sense of it.

1) The global economy is in an unstable state. Firstly because the USA has been running a large negative trade balance since the late 90s (so has the UK). Obviously this can't go on forever, and the longer it runs for the more strained the system becomes. And secondly because the concept have having independent countries sharing a currency - the Euro - can work only if there's a sufficient degree of economic convergence between them. The Maastricht Criteria were designed to ensure that would be the case, but they haven't proved sufficient, even for countries which, unlike Greece, didn't lie about having met them.

2) The USA (and UK) enjoyed strong growth for ten years up to the banking crisis (with a blip when the internet bubble burst). This growth was fuelled by a credit boom - bankers found new ways, such as mortgage-backed bonds, to recirculate money. Under some measures, this was an increase in the money supply, under others it was an increase in the velocity of circulation of money, but either way it gave us more money to spend. Monetarists, looking at the Equation of Exchange, will tell you that that will encourage inflation, but instead the Chinese (and others) kept prices down by selling us more stuff cheaper. See (1).

3) The banking crisis brought the credit boom to an abrupt halt. Governments could compensate for it by increasing the money supply - Quantitative Easing - but they haven't done it on anything like the scale that would be necessary. It takes courage they haven't got to take such unprecedented steps, but it took none to sit back smugly while the credit boom raged and the good times rolled.

Standard & Poor

2011-08-07T00:44:00.000+01:00

The US politicians put together a last-minute agreement, but S&P has rightly downgraded their the US credit rating anyway - a rating of AAA means not just that you can pay your debts but also that you will pay your debts.

However, in the short to medium term I expect this downgrade to have little or no effect on US bond yields. Why should it? The arguments for selling US bonds apply more powerfully to US equities, and if you sell equities (as the market has been doing with some vigour) you have to put the money somewhere.

Incidentally, I think the share sell-off has got more to do with European government debt than the USA's. Some European countries are not going to be able to pay.

Full Faith and Credit

2011-07-27T16:59:00.000+01:00

As things stand, the US Treasury is going to run out of money next Tuesday, and the USA will no longer be able to pay its bills. There is a cap - currently 14.294 trillion dollars - on the amount of debt the Treasury can issue, which is preventing it from borrowing any more money. It needs agreement in Congress to raise the limit, and that agreement has not been forthcoming, because some Republicans - enough to block progress in the House of Representatives - are unwilling to agree unless they get their own way on absolutely everything. Increases of the limit usually happen about once a year, and approval has been used before for political bargaining, but never to anything like this extent.

There's been some discussion of the notion that if the cap is not raised, since the Executive is going to have to ignore some of its instructions from Congress, it might as well ignore the cap. Obama says his legal advice is that he can't do that, but speculation continues...

I think it more likely than not that some sort of a deal will be reached just in time. If it is not, I would expect the Federal Reserve to find a way to "print" electronic money to keep things going. And if that fails, they will prioritize debt payments, so the US will not default on its bonds (though it would default on its obligations to employees and pensioners).

Nevertheless, the bond markets are not going to take this lightly. Bond investors care very much whether they are going to get paid back or not (and credit ratings are no more than a guide to that, so the possibility of a ratings downgrade is not the whole story). The fact that powerful politicians are willing to play chicken with the USA's ability to pay its debts will already have affected the market's confidence.

As it happens, US Treasury bond prices have not fallen. Investors might be somewhat shaken by what's going on, but they can't think where else to put the money - the global financial system would be rocked by any sort of a US default, and US Treasuries would probably remain a relatively secure investment, especially compared with anything else denominated in dollars. But that could change. At some time in the future, the US is going to find the markets demanding higher yields because it knows that US politicians don't take paying their debts that seriously.

Mobile Phone Hacking

2011-07-07T10:56:00.000+01:00

There's a furore about mobile 'phone hacking by agents of the News of the World. What reports do not make clear is that none of this has been tapping according to its usual meaning of covertly listening in on telephone conversations. What's happened, at least in every case that's been reported so far, is that voicemail messages have been illicitly accessed.

Once you have a 'phone number there are two ways to get unauthorized access to its voicemail. One way is to discovered the 4-digit passcode usually used for security. In the past mobile 'phones had a default passcode, which many users never changed - this has been abolished by most or all providers in the last few years. Or users may choose an easily guessable passcode, or it may be possible to persuade the service provider to reset it for you (date of birth, mother's maiden name: this sort of check is not very difficult to defeat). The other mechanism is that many mobile 'phones allow you to turn off passcode checking for when you call the 'phone from itself. This relies on caller ID to determine the number you're calling from. And caller ID is quite easy to spoof - various websites offer this as an inexpensive service.

I'd advise anyone to assume that voicemail messages are not private. (I hate voicemail anyway. I almost never listen to it. If you want to tell me something when I'm not there, use SMS or email.)

Incidentally, I was watching the Tour de France yesterday when an advert came on promoting a product that spies on SMS messages. I believe that this is software to be installed on an internet-connected smartphone, which thereafter sends information including SMS messages to a website where you can see it.

The NHS and VAT on drugs

2011-06-08T13:07:00.000+01:00

In the UK, drugs administered in hospital are exempt from VAT. But, as the result of a fine distinction drawn by the VAT tribunal, the same drugs administered by a nurse in a patient's own home are zero-rated.

There is an important difference between VAT exemption and zero-rating. Healthcare providers are charged VAT at the standard rate (currently 20%) on the drugs they buy. If their use of the drugs is zero-rated, they can reclaim the VAT they've paid. If the use is exempt, they can't.

Some chemotherapy drugs are very expensive (this is unrelated to production costs: rather the patent-holder is trying to recoup the drug's development costs from relatively few sales). So consider the effect of this VAT charge on a drug that is sold for £2000+VAT per dose. If the NHS administers the drug itself, on an outpatient basis, the cost to it is £2000 plus £400 VAT plus some nursing and bed space costs, say £2450 altogether. If a third party provider such as HAH administers the drug in the patients home, the cost might be £2000 plus £100 for a nurse plus £100 profit for the provider, say £2200 altogether. Not surprisingly this sort of saving is attractive to NHS managers, and home treatment is increasingly being offered as an option for patients on chemotherapy.

However, from the point of view of the British state, the costs are much less attractive. If the NHS administers the drug itself, the state is in effect (via the NHS budget) paying £400 to itself (except that it has to give a few pounds of that to the EU, which is funded partly out of a levy on VAT revenues). So the net cost to the state is not £2450 but about £2050. The state is actually £150 worse off with the home treatment option.

Some patients on chemotherapy prefer to be treated at home, so the money is not entirely wasted. But it's extraordinary that resource allocation is being determined not by consideration of how best to spend the money but by a quirk in the VAT laws.

Against AV

2011-05-04T17:36:00.000+01:00

My friends who express a view are campaigning for a Yes vote on the referendum question:

At present, the UK uses the “first past the post” system to elect MPs to the House of Commons. Should the “alternative vote” system be used instead?

(or, if you're Welsh:

Ar hyn o bryd, mae’r DU yn defnyddio’r system “y cyntaf i’r felin” i ethol ASau i Dŷ’r Cyffredin. A ddylid defnyddio’r system “pleidlais amgen” yn lle hynny?)

I plan to vote no.

Before I say why, a note on nomenclature. The current system is widely known as "First-past-the-post" ("FPTP"). This name is illogical - what post? The name would apply better to multi-member STV where there really is a threshold of votes to pass. But I've had a debate with myself and decided to use the initialism anyway, under protest. Moving on...

The arguments (in italics) for AV, in descending order of persuasiveness, are:

The Conservatives are almost unanimously in favour.
Good point. I may not be able to stomach agreeing with them after all.
Minority candidates can run without damaging the prospects of other candidates they somewhat agree with.
True. But the electorate has got used to voting tactically under FPTP
AV will eliminate the need for tactical voting - first choice preferences will tell us what people really think.
True. If we want to know the real level of support for minority parties like the Greens and the BNP, this is a way to find out. I think this is a minor consideration.
AV is more proportional than FPTP.
Yes, in allocating seats that is likely to be true. But not in allocating power - hung parliaments greatly increase the influence of any party in a position to choose the government.
AV is fairer than FPTP.
Is it? Why is it fairer to elect the least unpopular candidate who manages to avoid elimination along the way (AV) rather than the most popular candidate?
Even if you don't like AV, this is your one chance to move towards a system you do like.
Which is more likely - a vote against AV and a subsequent opportunity to adopt a better system, or a vote for AV with further reform later? I think the former: if AV gets the LibDems in they won't want to change it. But if we get another hung parliament in the future under FPTP they'll want to try something else.

My view is that whereas FPTP encourages electors to lie about what they want (i.e. to vote tactically), AV encourages politicians to lie about what they want, because their aim is to avoid offending anyone. Do we want blander, more devious politicians?

The clinching argument against AV is that no one is genuinely in favour of it. The LibDem 2010 manifesto said (pp87-88) they wanted to:

Change politics and abolish safe seats by introducing a fair, more proportional voting system for MPs. Our preferred Single Transferable Vote system gives people the choice between candidates as well as parties.

This is a policy I support. In this system candidates can say what they really think, and voters can vote for whom they really want. Multi-member constituencies give more people the chance to be represented by an MP they want.

In contrast, Nick Clegg said of AV in an interview during the 2010 campaign: "I'm not going to settle for a miserable little compromise thrashed out by the Labour Party". He went on to argue for "AV-plus", a system proposed by the Jenkins Commission in 1998

What's going on here? Why did Clegg propose STV in his manifesto, argue for AV-plus in an interview, then accept this miserable little compromise thrashed out by the Conservative Party? My guess is that the manifesto simply followed long-standing LibDem policy - STV is what any reasonable person would come up with if not troubled by complexity and if unconcerned about party political advantage. But Clegg's motivations are different: AV-plus is the system that in many electoral scenarios would most favour the LibDems, and hence the system least likely to be acceptable to a coalition partner. This last point gave Clegg another reason to demand it - Brown was bound to refuse it even as a question for a referendum, and Clegg loathed the thought of a coalition with Brown. Cameron refused it too, of course, but Clegg likes making compromises with the Tories.

This is all too shabby for me. I disagree with Nick.

Nonsense about fuel taxes

2011-03-27T16:45:00.000+01:00

Osborne in his budget has cut the duty on petrol and intends to replace the lost revenue with an additional levy on North Sea oil production. (The cut is 1p a litre, but there would have been a 5p increase under the previous policy)

The Labour party reaction to this is that the levy will just be passed on to consumers. No it won't. Refiners buy crude oil on the world market: North Sea producers are in competition with other oil producers and can't raise their prices at will.

The ConDem's claim is that the levy will have no effect at all beyond relieving producers of windfall profits. Again not so. The effect will be to make investment in North Sea production relatively less attractive, with the result that reserves will be left in the ground. So the UK will be importing more oil in the medium term, making us less well off.

In the long term, oil prices will continue to rise. Using North Sea reserves later rather than sooner might be just the thing for our grandchildren. So this is a far-sighted policy.

The one thing politicians agree on is that petrol prices should be lower because prevailing prices make it expensive for people to drive around. The fact that they agree is a clue that they're all wrong. Driving motor cars uses up scarce resources, pollutes the environment, promotes climate change, causes accidents, makes it dangerous to walk or cycle, deprives people of exercise they need, and creates traffic congestion. Just because people like doing these things doesn't mean it should be made cheap to do them.

Less Than Half The World's Defense Spending

2010-10-07T23:34:00.000+01:00

There's much blog chat about the extraordinary datum that more than half the world's defence spending is by the USA, as reported in this BBC story:

The US remains the biggest spender, accounting for some 54% of the total, having increased its military spending by $47bn in real terms, Sipri said.

But that percentage is not the USA's proportion of world defence spending. The true figure is 43%. The BBC's report is easy to misunderstand, but in context it's actually saying that 54% of the world's annual increase in defence spending (from 2008 to 2009) came from the USA. The data are in this table from the Sipri report the BBC report was based on.

I think the USA should spend much less on what is euphemistically called "defense", and so should the rest of the world. And I think journalists, including bloggers, should check original sources, even when using a report by the BBC.
__

Update: I posted a comment explaining the misunderstanding on one of the sites I linked to. Andrew Sullivan doesn't allow comments, so I sent him an email politely setting out the facts: he ignored it. He featured the same mistake twice more, so I sent two more emails which were also ignored. Sullivan should try reading this excellent advice to bloggers.

Land of the Free

2010-07-31T01:22:00.000+01:00

Until the second Bush administration took up torturing prisoners, I was an admirer of the USA for its decades of civilization (since the Civil Rights Act of 1964). Therefore I hope that some of the material I've seen recently has been of a sort that's only recently existed.

A horrifying example, courtesy of Ta-Nehisi Coates is this, published in The American Spectator, an apparently quite reputable publication, unrelated to the similarly named British magazine. Be warned that it's truly disgusting. The writer accuses a woman, in the public eye because she's been wronged by someone whose politics he likes, of lying because she told the story in a speech of the lynching of her relative Bobby Hall in about 1940. And this story, he says, is a lie because whereas Hall was beaten to death by a sheriff and his deputies, that doesn't fall within some technical definition of a lynching because...no I can't go on. Too much of the American right has simply lost touch with decency.

David Laws

2010-06-01T23:39:00.000+01:00

The commentators I read online seem mostly to think David Laws should not have had to resign - here for example is Matthew Parris. The arguments run along the following lines:

- he shouldn't have to resign because I agree with his views on public spending cuts
- he shouldn't have to resign because he was entitled to keep his relationship secret
- he shouldn't have to resign because he could legitimately have claimed more money had he chosen to arrange his affairs differently
- he shouldn't have to resign because he's a millionaire who didn't need the money
- he shouldn't have to resign because the regulations are wrong

Interestingly, no one has defended the argument that Laws' partner is not his partner under the terms of the regulations. In his statement, he said "At no point did I consider myself to be in breach of the rules which ... defined partner as ... 'one of a couple ... who although not married to each other or civil partners are living together and treat each other as spouses'”. Perhaps not, but he must have been aware that his interpretation was tendentious. He could have asked the Standards Commissioner in private for a ruling on this point. This moving interview is unambiguous about the depth of the relationship.

Only the second of the arguments I list merits consideration. And the answer is simple: Laws' should have stopped claiming the money in 2006 when the regulations were changed to forbid payments to partners. I doubt very much that this would have attracted intrusive comment. Or he could have made the relationship public and made a legitimate claim. What he was not entitled to do was ignore the regulations.

A fairer tax

2010-05-16T15:08:00.000+01:00

The ConDems tell us that they want taxation to be fairer. It is widely assumed that they will increase VAT, perhaps to 20%. But the Office for National Statistics has reported that VAT as a percentage of disposable income is paid disproportionately by people on lower incomes. The ONS explains that "those in higher income groups tend to channel a larger proportion of their income into savings and mortgage payments, which do not attract indirect taxes".

I suggest that instead of a VAT increase, the government should introduce a tax on mortgage interest payments (more precisely, i suggest a tax on all personal secured loan interest) at the same rate of VAT. This would have the following advantages:

- it would compensate for the regressive nature of VAT
- it would tend to suppress the sort of house price bubble Vince Cable warned about in a Commons question in 2003 (this question has been cited to support the false claim that he "predicted the crisis").
- it would raise relatively little money now, with interest rates so low, but increasing amounts as the economy recovers and interest rates rise. So it would give the markets confidence that the deficit will be reduced, without imperilling the uk's fragile economic recovery.
- the tax would be paid by mortgage borrowers currently enjoying a windfall gain from the extraordinarily low interest rates brought in to boost the economy.

It would be easy enough to collect, simply by making secured loans, including mortgages, unenforceable unless they are registered with HMRC.

Pay up Pompey

2010-05-16T15:04:00.000+01:00

I posted this on Matt Slater's blog:

>>>

Portsmouth fans want to enjoy good results, like the FA cup win a couple of years ago, and disclaim all responsibility for the financial misdeeds that financed those results. But the two go together.

The proper thing for a fan to do is to withdraw support from a team that has stolen its success. Yes, I know that a true fan can't switch allegiance. But imagine if your wife stole large sums of money. Would you applaud her as she paraded the bling she'd bought with it? I disagree with Matt and everyone else who wished Portsmouth all the best for the FA Cup Final. They deserved to lose.

The PL and the FL need to take responsibility too. The priorities should be to stop leveraged buyouts and to stop uncontrolled debts to HMRC. So there should be a rule to stop any team starting a season in the leagues with debts above a certain proportion of their turnover. And a rule to stop any team starting a season in the leagues owing payments to HMRC that are more than 3 months overdue. There would have to be an exception to the first rule allowing teams with large pre-existing debts to continue, subject to a stringent agreed schedule of repayments.

The leagues were quick enough to bring in the rule about footballing creditors. So why are they sitting on their hands regarding the other financial problems hurting football?

Bankers' Bonuses

2009-10-27T21:52:00.000Z

Bankers, including me, are paid out of all proportion to their contribution to society. This is because a good banker makes a lot more for his employer than a less good one, and that amount is, at least in his employer's expectation, more than it costs to employ him. To put it simply, it's an artefact of the capitalist system.

Similar considerations apply to professional footballers: footballers are less likely to precipitate a global finanical crisis, but on the other hand are paid a larger proportion of the money they bring in.

There has been much criticism of the bonus system in banking: in fact the system worked well in the crisis, enabling banks to slash staff costs by greatly reducing bonuses. In the resulting fall-out, banking salaries have tended to increase as banks seek to retain staff in a recovering financial market. Salary is now a larger fraction of total "compensation", so there will be less flexibility to cut costs in the next crisis.

It's been suggested that it would be better to pay bonuses in deferred shares, i.e. shares that cannot be sold for some number of years after they are awarded. Banks already do this, and it doesn't work to deter risk-taking. It's reasonable to suppose that one of the reasons Lehman Bothers failed is that the Dick Fuld, the Chairman and CEO, was unwilling to accept the takeover deal on offer at a late stage from the Korea Development Bank, because it would wipe out the value of his shareholding. It would be better to pay bonuses partly in convertible preference shares, because they would retain value if ordinary shareholders were wiped out but subordinated creditors were paid.

George Osborne now says he wants to stop British High-Street banks - including their investment banking divisions - paying cash bonuses above two thousand pounds this year. Of coure he's in opposition this year, so this is pure posturing. But if his proposal were to be implemented, any remaining staff in those investment banks good enough to get jobs elsewhere would do so, because bankers, like most other people, are not anxious to work for an employer who is not able and willing to pay the market value for what they're doing. Does he think bankers are so worthless that this would not be bad for the banks concerned? If so, he should say so.

There's a lot wrong with the global financial system. It might be possible to do something about it by means of co-ordinated international action. Successful reform would reduce the amount that bankers get paid. It would also very likely reduce the contribution of banking to the British economy, which governments of both parties have made it a policy to pursue. If that's what Osborne wants, he should say so, and put forward coherent proposals to achieve it. Until then, he should keep quiet.

A common trap

2009-10-25T22:13:00.000Z

How delicious is the feeling of fine silicon crystals slipping twixt one’s foot digits - Anjana Ahuja, author of a Science Column, at the beach.

...like those little silicon bags that come in electronic equipment packaging - Ben Goldacre, on page 8 of Bad Science

I wore thick silicon gloves - Alex Renton, at a sweet factory

No no no. The first two mean "silica". The last means "silicone". All should know better. (The last has more of an excuse, since he's a food writer, but he used up his excuse by writing about "an algae".)

Stat rosa pristina nomine

2009-10-25T13:14:00.000Z

George Osborne, the shadow Chancellor whom I do not admire, shares his name with a character in Vanity Fair. This is by choice: he started life as Gideon Osborne but changed his forename to one he liked better.

The memorable fact about Thackeray's George Osborne is that his creator condemned him to meet his end at the Battle of Waterloo "dead with a ball in his odious bowels". That was in a letter Thackeray wrote to his mother; in the novel itself Osborne ends the battle "lying on his face, dead, with a bullet through his heart."

Did George Osborne (the one who changed his name) not know about the odious bowels? Or did he not care?

When Gordon Brown Got It Right

2009-10-24T12:15:00.000+01:00

I disagree with a lot of what Gordon Brown has done as Chancellor and Prime Minister. But he did get one thing very right - when in 1997 he abolished Advance Corporation Tax (ACT) (with effect from 1999).

In the UK, companies are required to pay Corporation Tax on their profits. ACT required them to pay that tax in advance on that portion of their profits they chose to distribute to shareholders as dividends. The ACT paid was subtracted from the Corporation Tax charged at the end of the tax year.

Payment of ACT was deemed to discharge the shareholders' obligation to pay basic-rate income tax on dividend income. Shareholders not required to pay income tax, including Pension Funds, were entitled to claim back that tax.

So far so plausible, until one spots that the ACT was both set against the company's Corporation Tax obligation, and claimed back by Pension Funds. So despite its name, it acted not as a tax but as a government subsidy for Pension Funds. By abolishing it, the Chancellor not only simplified, for once, the tax system, but also removed a subsidy and so saved money for the public purse. This abolition is what is referred to in those journalistic and political circles which disapprove of government subsidies unless they go to the relatively wealthy as "Gordon Brown's Pension Fund Tax Grab".

And now George Osborne, in his speech to the Conservative Party Conference, has promised to reverse in some unspecified way this "tax grab". He made this pledge in a speech heralding economic austerity for all, including pay freezes in the public sector. Reportedly the pledge got the biggest cheer of the whole speech.

Sometimes I think the Conservatives might not actually be worse than the present lot. Then they kindly put me right.

What constitutes an apology

2009-10-10T00:47:00.000+01:00

Geoffrey Pullum on LanguageLog described Gordon Brown's statement about the treatment of Alan Turing as a "genuine and direct apology for once". I disagree.

Here's my idea of what would have been a genuine apology:
As Prime Minister of Great Britain I am ashamed of the way Alan Turing was treated. The shame is heightened by my recognition of the great service he rendered this country during the Second World War. To Alan Turing I say: we're sorry, you deserved so much better.

Here's what Gordon Brown did say:
on behalf of the British government, and all those who live freely thanks to Alan's work I am very proud to say: we're sorry, you deserved so much better.

Humility, not pride, should be the tone of a sincere apology.

Dannatt and Wellesley

2009-10-10T00:17:00.000+01:00

Richard Dannatt, until a few weeks ago the head of the British Army, is to become a Defence Advisor to the Conservative Party. Apparently he and David Cameron cannot see why this is inappropriate so soon after Dannatt's public criticisms of the government made in his official capacity.

Dannatt is now Constable of the Tower of London, a ceremonial position. He remarked on television of one of his predecessors, the Duke of Wellington, that he had been "above politics". This is the politician who was forced to resign as Prime Minister when he lost a confidence motion over his opposition to the very mild electoral reform eventually introduced by the 1832 Reform Act, which abolished most of the "Rotten Boroughs" and extended the franchise to the wealthiest one sixth of the adult male population. Wellington was opposed to this reform on the grounds that "the country possessed, at the present moment, a legislature which answered all the good purposes of legislation—and this to a greater degree than any legislature ever had answered, in any country whatever".

Dannatt's belief appears to be that the country should be run by Old Etonians and retired Generals. Everybody else is too political.