The Pin Factory Blog

This isn't as much of a breakthrough as the Mail thinks I'm afraid:

ls 'survival of the fittest' finished? Scientists 'prove' that generosity - not selfishness - is the only way modern civilisation can survive

We've known for some years now that the correct solution to the prisoners' dilemma is tit for tat: as long as the game is running in repeated iterations. And given that life is a repeating series of interactions with very much the same people this is thus the winning strategy in life. If someone cooperates with you then cooperate back: if they do you over then do them over back. We also know from the ultimatum game that people will damage their own interests in order to enforce their vision of fairness. So there's no real surprise about the idea that cooperation works for human beings: we've seen both that in the way that life is actually lived it brings rewards and also that humans seem hard wired to punish those who do not.

Although this isn't really entirely true. For these games and studies have been done pretty much entirely with US students. That's the walking meat that most economists have unfettered accerss to after all. And we do find that when the same games are played with people from very different economies then the results are very different. Whether it is living in a cooperative society that changes the results or that the innate cooperation leads to the different society hasn't been worked out as yet.

However, as sure as eggs is eggs we're going to get someone writing a screed for The Guardian insisting that this finding shows that markets are all icky. You know the sort of thing, if humans naturally cooperate then we don't need all this competition stuff and so should have socialism under the guidance of the wise and all knowing. That group of wise and all knowing always, but always, including the writer and their friends. The problem with this argument being that markets are a form of cooperation.

Indeed, we can go further than that: it's this cooperation in repeated transactions plus the willingness to punish defaulters that actually makes markets work. Those replays of the two games in very different societies show that in generally non-market societies the results are different from those in market ones. And it is those very differences which make the whole idea of cooperating through markets work.

Thus, far from having found that we don't need markets because we naturally cooperate what we've actually found is that we have markets because we all naturally cooperate. Or rather, that those of us who live in market economies do, which is why our market economies work.

Danny Dorling is bemoaning the decision to abandon the census:

It is only because the census is our most accurate count of the population that we can tell, using it, whether mortality rates, university admission rates, employment rates or almost any other rates are rising or falling for particular groups in particular parts of the country over time. In calculating rates the numerators tend to be more reliably measured: deaths registered, students enrolled, or paying jobs in these three cases. Errors tend to be greater in the denominators, the population estimates. The census counts, corrected for estimates of under-enumeration, are the best denominators we have. An ID card system that relied on people being compelled to register their place of residence would be more accurate, but also far more intrusive. The most important task of the decennial census is in updating annual population estimates for small areas to remove systematic bias so that a huge number of studies and also funding calculations can be enacted.

We would expect Dorling to bemoan this for of course he's a social geographer. This is the very meat and drink of life to him.

However, Dorling is also something of a lefty (no, really, no kidding, he is) and like most of the English such he cannot abide knowing that something is going on somewhere without there being some government plan to make everyone do that thing in the approved manner. Which is why he insists that we should continue to do the census so that he and his mates can have the detail they desire to run our lives for us.

At which point we should remember the wisdom of Sir John Cowperthwaite out in Hong Kong. He refused to allow the compilation of GDP statistics on the grounds that some damn fool would only try to do something with them.

We also know that, as Hayek pointed out, the centre can never have sufficient information to be able to plan our lives for us. That census does give them the illusion that they do though. So, a very good reason for abandoning the census is so that no one does have, or even thinks they have, sufficient information to plan both the national and personal lives of us all. Another way to put this is that if they can't see any problems then they won't have any damn fool problems to try and solve them.

The great economist Ronald Coase has died at the age of 103. Vuk Vukovic explains what made Coase such an influential and profound thinker.

Yesterday, at the age of 103, one of the greatest minds of our time, Nobel prize winner and emeritus professor at University of Chicago Law School Ronald Coase passed away.

His contributions to and influence on economic science are of monumental importance. His groundbreaking research has set the stage for a joint field of law and economics, and has also influenced the new institutional revolution in addition to a number of other fields and areas of research in economic theory.

It would be unfair to say he only made two major contributions since both of these (written 23 years apart from one another) not only won him the Nobel prize, but have continued to influence the economic science ever since. The first was his 1937 paper The Nature of the Firm where he introduced the concept of transaction costs in microeconomic analysis. He believed that firms exist because they economize on transaction costs - costs like market entry, acquiring information, managing a company, bargaining, etc. If these individual transactions can be reduced into fewer transactions by organizing a hierarchical body, then entrepreneurs will form firms.

With microeconomic theory at the time focusing only on production and transportation costs, Coase's inclusion of transaction costs was a breath of fresh air into economics. However, in 2009 Coase said he was surprised how much The Nature of the Firm was being cited since it was "little more than an undergraduate essay". Continue reading...

It is true that when we look at the Gini index and other measurements of that type then the United States is highly unequal by the standards of the advanced countries. It's also true that if we look with a fresh pair of eyes then it's not that unequal in fact:

Almost every single person in America has access to basic food, clothing, water and sanitation. I haven't been to states like Louisiana and cities like Detroit, but from what I can tell, nobody is scrambling for the basic necessities required for sustenance.

The US may indeed be unequal but it's only in the last 40 to 50 years that any society at all has been able to make such a claim. Something is being done right.

An almost-classless society: I've noticed that most Americans roughly have the same standard of living. Everybody has access to ample food, everybody shops at the same supermarkets, malls, stores, etc. I've seen plumbers, construction workers and janitors driving their own sedans, which was quite difficult for me to digest at first since I came from a country where construction workers and plumbers lived hand to mouth. Also, (almost) all sections of society are roughly equal. You'll see service professionals owning iPhones, etc. as well. This may be wrong but part of it has to do with the fact that obtaining credit in this country is extremely easy. Anybody can buy anything, for the most part, except for something like a Maserati, obviously. As a result, most monetary possessions aren't really status symbols. I believe that the only status symbol in America is your job, and possibly your educational qualifications.

It may well be that an Indian student isn't seeing everything in this society so new to him. But it is indeed true that while monetary inequality in the US is back up at the levels of the 1920s it simply isn't true that life as it is actually lived is as unequal as it was. That country, like others in the advanced capitalist world, has largely conquered the problem of providing the first set of Maslow's heirarchy of needs for all. After that the inequality in positional goods just isn't all that important.

The government's Lobbying Bill is a serious threat to free speech and will curb the activities of think tanks, charities and other groups whose participation in political debate is vital for the political system to work openly. That's why we've co-signed the letter from other think tanks, below, urging the government to drop this bill.

We wish to highlight our grave concern about the Government’s Lobbying Bill, a piece of legislation that poses a significant threat to legitimate campaigning freedom of speech, political activism and informed public debate.

Part II of the bill threatens the ability of charities, research and campaigning organisations to inform the public debate, fulfil their missions and raise awareness of important issues. The current drafting would capture a huge number of organisations who would not presently be considered as relevant to electoral law and who do not receive any state funding. It also threatens to dramatically expand the range of activity regulated far beyond any common sense understanding of commercial lobbying.

We do not regard the Cabinet Office’s assurances as sufficient given the widespread legal doubts expressed from across the political spectrum. It cannot be a prudent approach to legislate on the basis of assurances that enforcement will not be to the full extent of the law. The exceptions offered are unclear and unconvincing.

The lack of clarity in the legislation further exacerbates its complexity, while granting a remarkably broad discretion to the Electoral Commission. The potential tidal wave of bureaucracy could cripple even well-established organisations, while forcing groups to reconsider activity if there is a perceived risk of falling foul of the law. This self-censorship is an inevitable consequence of the bill as it stands.

We urge the Government to reconsider its approach and to urgently address the fundamental failings in this legislation.

Yours Sincerely,

Mark Littlewood, Director General, Institute for Economic Affairs
Simon Richards, Director, The Freedom Association
Tim Knox, Director, Centre for Policy Studies
Matthew Sinclair, Chief Executive, Taxpayers’ Alliance
Jo Glanville, Director, English PEN
Emma Carr, Deputy Director, Big Brother Watch
Eamonn Butler, Director, Adam Smith Institute

Ronald H Coase, the Chicago-based British Nobel economist, has died at the age of 102. I first met him in 1976 at the Mont Pelerin Society meeting in St Andrews, where he delivered a paper on 'Adam Smith's View Of Man'. But he was best known for his work on transaction costs and social costs.

Coase introduced the idea of transactions costs in 1937. Before then, most (mainstream) economists simply assumed that trade and commerce were costless. In fact, he noted, the costs of simply making the deal might be higher than the price of the good or service itself. People need to gather information about what they are buying and whether they can trust the supplier, they have to put time and effort into striking a bargain, they might have to draw up contracts and monitor the service they get.

This idea spills over into how we deal with social costs. The fact that transactions are not costless means it makes a big difference who is blamed for externalities. To take his example, a fence could prevent a rancher's cattle from destroying a farmer's crops. But how can they agree who should pay for it? If the farmer has to bear that cost, the farmer will build a fence to keep them out. If the rancher has to compensate the farmer, the rancher will build the fence.

This in turn had important consequences in terms of the public choice economics of James Buchanan and and Gordon Tullock and others. Welfare economists had looked at 'market failure' and concluded that government must intervene to correct it. But they assumed away the transaction costs of making political decisions. And when you look at those, the corruption, the rent-seeking, the interest group politics and all the rest, you find that the outcome might be even less desirable than what the market can do.

During the closing weeks of 2012, Labour MP Hazel Blears claimed to have attracted cross-party support for a private bill that would have effectively made advertising for unpaid internship positions illegal. Thankfully for those that are eager for valuable work experience regardless of short-term financial rewards, her calls to effectively exclude tens of thousands of would-be interns from pursuing their preferred vocation fell upon deaf ears. The bill has since faded into obscurity.

Monday saw Nick Clegg criticise the movement to protect interns from themselves, with his spokesman citing potential “unintended consequences” - such as the creation of a “black market” for unpaid internships - as grounds for opposing the ban. Speaking to Graduate Fog, the Deputy Prime Minister’s spokesman explained:

“We want to bring an end to the ‘who you know not what you know’ culture. But there are possible unintended consequences of legislating on this issue – it could actually be entirely counterproductive and force these valuable opportunities back on to a kind of ‘black market’ where the vacancies are filled by people with the best connections.”

I don’t think that Hazel Blears and co. harbour a desire to deny all but the well-connected a chance to hone skills that will help them to secure preferential employment. Nonetheless, in the words of Milton Friedman, “one of the great mistakes is to judge policies and programs by their intentions rather than their results”. The result of prohibiting advertising for unpaid internships would be the substitution of meritocracy for nepotism.

The rhetoric surrounding unpaid internships has, for the most part, been overwhelmingly negative in tone: skewing the debate towards the emotive rather than the factual. Whilst more reasonable detractors cite cases of interns being treated poorly by employers (and there are a number of such cases), oft-repeated comparisons to “slavery” are hyperbole at best, and callously trivialise the plight of millions of actual slaves living in the world today.

An individual choosing to be paid in experience rather than money should be allowed to do so, free from a coercive state severing access to the former option through banning certain job advertisements. The appropriate response of those who rue interns lack of access to paid employment should be deregulating the labour market, rather than denying young people the opportunity to improve their future job prospects by acquiring indispensable knowledge and skills.

Extrapolating general ‘anti-internship’ sentiments from a few extreme cases masks the true story: one of a practice that provides saleable skills, easier access into highly competitive professions, networking opportunities, and a plethora of other benefits. At present, I am lucky enough to be completing an unpaid placement at the ASI; hopefully, the constructive nature of such a placement is evidenced by the very existence of this blog post. I don’t claim that every intern will be as lucky as me in his or her remit, but I do know that I am definitely not alone in gaining substantial benefits from an unpaid internship.

One of the things that irks my choler, yanks my goat if you like, is this idea that the medieval peasant led a life of incredible leisure, had to work vastly less than we poor saps ground down under capitalism have to. It's entirely nonsense of course:

Plowing and harvesting were backbreaking toil, but the peasant enjoyed anywhere from eight weeks to half the year off. The Church, mindful of how to keep a population from rebelling, enforced frequent mandatory holidays. Weddings, wakes and births might mean a week off quaffing ale to celebrate, and when wandering jugglers or sporting events came to town, the peasant expected time off for entertainment. There were labor-free Sundays, and when the plowing and harvesting seasons were over, the peasant got time to rest, too. In fact, economist Juliet Shor found that during periods of particularly high wages, such as 14th-century England, peasants might put in no more than 150 days a year.

What Shor (and others, for there are others who make the same claim) has done is looked at the labour service expected of the villein and then claimed that this was the amount of work they had to do. Nonsense: this work on the lord's demesne was the rent payable for the peasant's own land to farm. Something which rather added to his workload of course, that farming his own land.

We might also point to the amount of household labour that had to be performed. Yarn had to be spun, cloth to be weaved. Cooking was over open fires: and that firewood had to be collected. Bread baked and so on and on. There was a recent report (rather exagerrated but still) which claimed that in the 1930s it took 65 hours of human labour a week to run a household. Today it takes 3. Things were worse back in medieval days.

And finally there's the obvious point that these villeins and churls were animal owning peasant farmers. And people who own animals just don't get 70 days off a year, you don't manage to go off and get pissed for a week and then expect to have live animals when you come back.

What has been done here is to mistake work in the market economy for all the work being done. As a vast amount of a peasant's work is not in that market economy (that's why they're peasants and why they're poor) then they've decided not to include that back breaking labour done inside the household as labour.

As to why this is all being trotted out:

As for the modern American worker? After a year on the job, she gets an average of eight vacation days annually.

The US is the only leading nation that does not have legislation as to how much paid vacation time an employee must get. There is thus a move to make such a law. Thus these rather tired misunderstandings of medieval lafe being trotted out, to aid in making that case.

But there's one more surprise here. If you look again at their argument it is that everyone does indeed get paid vacation in the US even though there isn't a law insisting that they must. Therefore, because everyone gets it already we must have a law. Why not, you know, just leave everyone to get on with it themselves?

Summary: German retail sales moving sideways

What the chart shows: The chart shows German retail sales in real (inflation-adjusted) terms, with an index where 2010=100

Why is the chart important: The euro area economy has recently surprised on the upside. Absent any new political or fiscal crises, activity should now expand, meaning the EA is out of its long recession. But future developments depend very much on demand in Germany. German retail sales are a very volatile series, which is prone to substantial revisions. Nevertheless, it is disconcerting that – in essence – the volume of German retail sales has moved sideways in a very narrow range over the past two years. Germany is also in recovery., But domestic demand remains sub-par and may not be enough to act as a growth engine for the rest of the euro area.

Is Spurs striker Gareth Bale really worth €100m? Plus whatever eye-watering salary his new employers, Real Madrid, will pay him? Isn't it immoral to pay footballers such enormous amounts for what is basically entertainment, when nurses (say), who do such an essential job, are so badly paid?

You can certainly discuss the morality of such questions, but pay is the outcome of a market process, not a moral question. If millions of people admire the skill of a footballer – or for that matter a singer, a guitar player, an artist, an actor, an architect—and are prepared to pay well to see that person in action, who has acted immorally? You might say that "society" should value nurses more than footballers, but value, like beauty, is in the eye of the beholder. It is a personal reaction to something. "Society" is not a person with values of its own: only individuals can value things. So if we are criticising the price that is put on a footballer, it is individuals that we are really criticising, those that voluntarily pay to see him. But none of those individual customers has acted unjustly or dishonestly or wrongly or immorally in any way.

When people start criticising how much different people are paid for different jobs, they are making a moral judgement about the distribution of rewards. The implication is that rewards should be distributed in some other manner. But who is to judge. But as the Nobel economist F.A. Hayek noted in The Road to Serfdom, how could we ever decide what would be the "fair" pay of a nurse, a butcher, a coal miner, a judge, a deep sea diver, a tax inspector, the inventor of a life-saving drug or a professor of mathematics? Appealing to ideas such as "'social justice" or "value to society" or "merit" does not give us the slightest help, because we all disagree on these things.

In free markets, people pay us for the goods and services we produce because they value those products. So market rewards do depend, very directly, on the value that we deliver to other members of our society. They reflect the scarcity and skill of the producers, the numbers of customers who want the service and the urgency and importance that buyers attach to it. That is a pretty good way of rewarding people's contribution to human life. If earnings are to be decided by right-thinking politicians and officials, the main gainers will instead be those groups with the best lobbying operations. Which won't be nurses.