Remind us again why government should run all the schools

This story might cause a little pause for thought:

One of the most vivid arithmetic failings displayed by Americans occurred in the early 1980s, when the A&W restaurant chain released a new hamburger to rival the McDonald’s Quarter Pounder. With a third-pound of beef, the A&W burger had more meat than the Quarter Pounder; in taste tests, customers preferred A&W’s burger. And it was less expensive. A lavish A&W television and radio marketing campaign cited these benefits. Yet instead of leaping at the great value, customers snubbed it.

Only when the company held customer focus groups did it become clear why. The Third Pounder presented the American public with a test in fractions. And we failed. Misunderstanding the value of one-third, customers believed they were being overcharged. Why, they asked the researchers, should they pay the same amount for a third of a pound of meat as they did for a quarter-pound of meat at McDonald’s. The “4” in “¼,” larger than the “3” in “⅓,” led them astray.

That story’s too good to want to check if it’s actually true or not. But if it is then why would we continue with an education system that has had more than a century to try to get things right but has manifestly failed to do so?

Quite, Gove and others are onto the right sort of policy, freeing the education system as much as possible from that dead hand of said state.

What joy, it’s Marianna Mazzucato again

This time she’s running a conference telling us all how it’s absolutely vital that the UK economy be planned the way that Ms. Mazzucato thinks it ought to be. Which is, if we are fair about it, a plan that rather ignores one of the most basic economic points about economies:

This is encouraging news and shows that the UK is hopefully on the path towards ‘rebalancing’ away from an economy biased towards financial services, towards growth of innovation and productivity in the ‘real economy’.

Hmm. For this to be either true or desirable we’d need to show that we actually have an economy biased towards financial services.

The key problem that he and other international policy makers have is to make sure that such rebalancing tackles finance on two equally important sides. On the one hand, rebalancing so that finance funds the real economy. This means addressing the dire situation that figure 1 shows below, i.e. the degree to which finance has been financing itself leading to the exponential rise in the value added made up of financial intermediation, compared to that of the real economy (everything but finance and agriculture).

Hmm, so, OK, finance has been a greater part of the value added in the economy in recent times. It’s still difficult to understand why this is a bad idea.

The second key issue that rebalancing must address is not just how to get more value added from the ‘real economy’ and less from ‘financial intermediation’ (finance financing finance), but also how to de-financialise the real economy itself!

Hmm again.

So, back to this question of whether the UK economy is in fact excessively financialised. And there’s two parts to that question. In the general economy we’re no more financialised than other advanced economies. We have roughly the same sized pensions industry, insurance and retail and commercial banking industries, mortgages, savings products and all the rest. And we need only invoke Maslow’s Hierarchy of Needs to see why a richer nation might want more of such financial activity. Once the basic needs are met we move on to wanting to have security which is exactly what savings and insurance do for us.

But it is also true that the total financial sector in the UK is larger than it is in most other countries. Almost nowhere else has anything even remotely comparable to The City. but to say that is a problem would be to make the poor departed spirit of David Ricardo cry. For we do seem to have a comparative advantage in being the financial marketplace for the world and that’s an advantage that we should be exploiting.

So if we look at the domestic economy we don’t seem to be excessively financialised. And if we look at the total economy that financialisation is about our successfully selling services to Johnny Foreigner. Neither of which are obviously problems that require solutions. Making Ms. Mazzucato’s conference, and possibly the good professor herself, somewhat redundant.

Ahhrgh! Terror! The robots are coming to take our jobs!

We’ve another one of those little horror stories that the robots are coming to take all our jobs. This is a follow up, concerning Europe, on a US report that decided that near half of all jobs could simply disappear to the robots (who are coming to take all our jobs, recall) in the next couple of decades. Sadly, both reports fail to note one obvious and simple fact:

Having obtained these risks of computerisation per ISCO job, we combine these with European employment data broken up according to ISCO-defined sectors. This was done using the ILO data which is based on the 2012 EU Labour Force Survey. From this, we generate an overall index of computerisation risk equivalent to the proportion of total employment likely to be challenged significantly by technological advances in the next decade or two across the entirety of EU-28.

The answer being, no not 42, more than 50% of all jobs are threatened by technological obsolescence in the EU over that next couple of decades.

Is this something we should be worried about? Clearly the authors of the paper think it worth bringing to our attention, but is it actually worth worrying about?

Well, no. Because even the most slerotic of European economies is going to destroy and create more jobs than that over that same time period.

Using the UK as a rough example, there are around 30 million jobs in the economy. 3 million of these are destroyed each year: around 10%. The economy also creates around 3 million jobs a year. Roughly you understand: and a recession isn’t, in general, when more jobs get destroyed, a recession is when fewer jobs get created, that’s what makes the unemployment rolls go up.

So the claim is that 50% of jobs in the EU might get destroyed by robot competition in the next two decades. And yet we would expect, just as a straight line estimate, that the EU economy will destroy and create four times as many jobs as that over that same time period, 200% of the current static workforce.

Even if this is something that we want to worry about it’s a worry at the margin, it’s a little bit more of a known and understood process that we can in general observe that we can deal with, rather than some horrific step change in our lives that we’ll have trouble adapting to.

There is one more point here. If you do want to worry about this it’s important to note that it’s not large companies that create jobs, it’s new and small ones. So, if you want to make sure that the robotic unemploymentaggeddon doesn’t in fact carve a swathe through Europe you’ll need to reduce the regulatory and legal burdens that new companies face in establishing themselves. Deregulation, ease of entry into the market, these are the solutions even if you do want to panic.

A masterly piece of political game theory

This is a subject of some controversy so please, put aside your thoughts, passions and logic on the subject itself, abortion, and instead just think about the political tactic being employed here.

In general in the US it is the left that is strongly in favour of the right to abort. In general again, it’s generally the conservative right that is against. Also, again in general, it is the left that is in favour of detailed and sometimes expensive regulation of activity and it’s the right which is against. So, what would be a useful political tactic if you were against the general availability of abortion? Quite, regulate it:

The last restriction under the law goes into effect Sept. 1. All abortion clinics at that point must have upgraded their facilities to ambulatory surgery centers. Busby says many can’t afford it and more will close.

“This would basically force all the clinics to become mini-hospitals,” Busby said. “They have to have hallway widths a certain length, and a janitor’s closet, male and female locker rooms, which is completely unnecessary – and a bunch of other regulations that are really not appropriate or do anything to increase the safety of one of the safest procedures in the country.”

Pro-life groups supported the law, saying it would protect women by making abortion safer. At the time of the passage of the law, The Texas Tribune quoted Republican state Sen. Donna Campbell saying: “There’s nothing in this legislation that will close a clinic. … That’s up to the clinic. If they want to put profit over a person, that’s up to them.”

The right has been saying for years that regulations can be expensive and those who would regulate have been shouting that that’s nonsense for the same amount of time. Rather a case of the biter bit.

Sadly, of course, no one is going to learn anything from this. Certainly not those who generally propose regulation: for do note that while they argue that clinics should not be subject to this level of regulation they’re not, not at all, arguing that mini-hospitals can be trusted to work out whether they need a janitor’s closet for themselves. Still regulation for thee even if not for me.

Mariana Mazzucato’s extremely strange economics

Mariana Mazzucato’s got another installment of her rather strange economics in the paper. This is the follow on from the insistence that government funds all innovation. Here’s she’s decrying the rise of “finance” and how it doesn’t actually develop the economy and thus, well, and thus politicians should do it all for us I think.

One interesting little thought is that she doesn’t seem to have understood Piketty:

Indeed, the origins of the financial crisis and the massive and disproportionate growth of the financial sector originated in the 1970s, as finance became increasingly de-linked from the real economy.

It’s also true that Piketty doesn’t really understand his own data either. Yes, there has been a rise in the wealth to GDP ratio and yes, it did start in the 70s. For the US and UK this was a rise of about 150% of GDP. And yes, this has almost all been in financial assets. So we can indeed say that finance has risen in importance as a part of the economy.

But what has also happened is that pensions savings have risen by 150% of GDP over this same time period. That is, that the rise of finance seems very closely correlated with the baby boomers saving for their retirements.

It’s difficult to see this as a problem really.

Then there’s this entirely bizarre point she makes:

In the attempt to “rebalance” economies away from speculative finance towards the real economy, there have been proposals to reform finance so that it helps to fuel more innovation. Various measures have been tried to help those few small and medium enterprises willing to go after difficult high-risk investments, the backbone of innovation. Yet these reforms have been inadequate, slow and incomplete, with the proportion of profits from quick trades in the financial sector, rather than long-run investments, rising not falling. And one of the key tools for long-termism, the financial transaction tax, has still not been applied.

She seems not to have read the EU’s own report on the FTT (which I wrote about here). The EU itself states that the introduction of an FTT will reduce investment in business, so much so that the economy will actually shrink compared to where it would be without the FTT. So Mazzucato is apparently recommending a course of action, in order to increase investment, which we know will actually reduce investment.

It’s an odd policy world she inhabits, isn’t it?

The rest of it is just that we should have a Public Investment Bank and everything will be sweet. Which, given the things that politicians like to invest in (Olympics, HS2, Concorde, write your own list) is a very sweet but most misguided hope.