The Pin Factory Blog

I would like to introduce you to Skwire's First Law:

Politicians are asshats.

We should note that there is no Skwire's Second Law.

In somewhat more detail:

And I want to talk about how Skwire’s law—though simply expressed—is not merely a sigh of exasperation, a political version of “boys will be boys.” It’s a manifesto condensed into three words.

Saying that politicians are asshats means that you acknowledge the deep truths of public choice theory. It means that even if the occasional politician supports a policy you like or gives a speech you admire, you know enough not to turn him or her into a hero. We can debate, as my friends and I have on Facebook, whether asshats become politicians or politicians become asshats. I don’t think that debate much matters, because I think both parts of it are true. Politics is a machine that turns good people and good ideas into bad ones, and turns bad people and bad ideas into worse ones.

Politics is a system that attracts not only people who want to help, but people who want to control. And once those people—good or bad, helpful or controlling—are in the system, they use it to further their ends. And that means that they will take money from people most of us wouldn’t shake hands with. And that means that they will tell us that they do not believe in spying on the American people or in a government that operates in secrecy, while they continue spying on the American people and locking up or hounding anyone who questions that secrecy. And that means they will tell us they want to help care for the helpless while they make it illegal for charities to feed the starving. And that means they will tell us they are deeply concerned about unemployment while they raise more and more barriers to entry-level jobs. And on and on.

None of this is accidental. None of this is a flaw in the system. This is how politics works. And this is why politicians are asshats.

This is clearly and obviously true in its entirety. However, we do have this problem that there are some things that must be done. There are even some things that must be done that must be done by government: they simply require the monopoly of force and legal pressure that government alone can provide. There are even some thing that it is highly desirable that government should do: the provision of certain public goods comes to mind, the intervention necessary to deal with certain externalities perhaps.

But the fact that governments are led by politicians, that politicians are asshats, means that we want government only to be doing those things that both must be done and can only be done by government. We'll get on with the rest of our lives, that vast majority and very extensive part of the rest of our lives, entirely free from the influence of asshats.

If you would be so kind that is.

It's been remarked that pre-1914 the only regular contact with the State the average Englishman had was with the local bobby and the postman. Sounds about the right sort of level really, although now that we know how to privatise the postman perhaps even that was too much.

Today we've launched two betting markets to try to use the 'wisdom of crowds' to beat government economic forecasters. Here's the press release we sent out:

The Bank of England’s economic forecasts have been wrong again and again. To counter this, the free market Adam Smith Institute is today (Wednesday 28th August) launching two betting markets where members of the public can bet on UK inflation and unemployment rates, taking the government’s experts on at their own game. The markets are designed to aggregate individual predictions about the economy’s prospects to use the ‘wisdom of crowds’ to beat the predictions of government experts.

The launch coincides with Mark Carney’s first major speech as governor of the Bank of England and follows his announcement earlier this month that the Bank will consider both inflation and unemployment when deciding monetary policy.

The markets (which will be run by bookmaker Paddy Power and can be accessed here) offer these odds:

UK Inflation on 1st June 2015
7/1 - 2% or Less
3/1 - 2.01 - 3.00%
9/4 - 3.01 - 4.00%
5/2 - 4.01 - 5.00%
7/2 - 5% or Greater
                     
UK Unemployment rate on 1st June 2015       
9/2 - 5% or Less
3/1 - 5.01 - 6.00%
15/8 - 6.01 - 7.00 %
5/2 - 7.00- 8.00%
5/1 - 8% or Greater

Bookmaker odds tend to be far more reliable than expert opinions about sports, politics and the Eurovision Song Contest, because betters have a strong financial incentive to bet in a dispassionate way and betting markets collect the judgments of thousands of different people, eliminating individual biases.

Even if no single member of the public can beat the experts, collecting the local knowledge of thousands of people in betting markets allows for a much broader set of data points, weighted according to the strength of people’s beliefs. The Office for Budget Responsibility already collects around two-dozen expert predictions, but this is nothing like the kind of volume needed for the ‘wisdom of crowds’ effect to take place.

These markets follow the CIA’s attempts to use betting markets to anticipate geopolitical crises, which were short-lived because of public objections. In future, the Adam Smith Institute will use these markets to compare betters’ judgments about the direction of the economy to those of government forecasters.

Sam Bowman, Research Director of the Adam Smith Institute, said: “No individual can know enough about the economy to make a really reliable prediction about it. By combining the local knowledge of thousands of people, betting markets can outpredict any panel of experts. If these markets catch on, the government should consider outsourcing all of its forecasts to prediction markets instead of expert forecasters.”

Rory Scott from Paddy Power said “Mr Carney – forget your fancy financial models; let’s see where the great British public put their pound instead. Failing that, perhaps the solution to topping up the Bank of England coffers is to take advantage of Paddy Power’s 7/1 for inflation to be 2% lower come June 1st 2015.”  

Various people seem to have various ideas about the merits or not of the high speed railway line to the North, HS2. Three little comments that stand out from the crowd for me:

Britain's construction and engineering industries need a more stable pipeline of work if they are to stay "right at the top of their game" following major works such as the Olympics, the boss of Crossrail has warned. Andrew Wolstenholme, who is overseeing the £14.8bn rail project across London, has laid down the gauntlet to ministers, claiming a "lack of continuity" is endangering the country’s competitiveness and threatening to push up prices. "If you see where UK infrastructure is right now…the reputation we are gaining to deliver on time, on cost and of high quality is building,” said Mr Wolstenholme. “UK plc is right at the top of its game in delivering these major works." But he added: "What we need to do is find ways to bring the pipeline forward… so that the industry is presented with a continuous pipeline of these major projects."

Nothing surprising about that. Man who makes his living doing infrastructure projects thinks that lots of infrastructure projects is a very good thing. I could be convinced that lots of opportunities to scribble on the internet would be a very good thing I'm sure.

The Institute of Directors (IoD) has urged ministers to abandon the "grand folly" of the £50bn HS2 high-speed rail project, saying little more than a quarter of its members believe it will prove value for money. The IoD's head, Simon Walker, said the business case for the line linking London with Birmingham, Manchester and Leeds over the next 20 years "simply is not there".

Also not a surprise there. That business case for the project has been looking pretty ropey for some years now. And then there's this:

I want the schoolchildren of the North-west to be captivated and inspired to take up careers in construction and engineering, and for the students at universities in Liverpool, Manchester, Leeds, Sheffield and Birmingham, to have the opportunity to choose where they work once they graduate. HS2 is a 20-year programme that could transform the skills base of the country. We lament how few young people go into engineering and science. Today more than a quarter of our science, technology, engineering and maths graduates go on to take non-engineering jobs. The project will be beacon for any young person looking to the future and deciding what to study. Through building HS2 we have a golden opportunity to expand greatly an engineering skills base that for years we thought could ebb away entirely.

Building lots of railways will encourage lots of people into studying how to build railways. And I can see that as a valid and unsurprising argument as well.

But when we put all three of the points together we get something rather different. We should build lots of these infrastructure projects because we're getting better at doing so, even though hte projects themselves are of no value, in order that we will encourage the next generation to train as people who can build infrastructure projects.

At which point presumably we'd have to continue subsidising infrastructure problems that aren't worth building in order to keep these newly minted engineers employed. Becasue, you know, we're really rather good at building things that don't make sense to build.

It's really not the most convincing of arguments when taken in the round, in the whole, is it? Indeed, I rather get the feeling that we'd all be made richer by people training to make and build the goods and services that are worth more than their production cost rather than those that are worth less.

Summary: Signs that the US economy will remain weak in H2 2013 are multiplying

What the chart shows: The chart shows the level of orders for US for and shipments of durable goods (ie, manufactured goods intended to last for some years) excluding defence and transport

Why is the chart important: The Federal Reserve has made it clear that it intends to start the process of tapering – reducing – its quantitative easing sometime this fall – most likely in September. This is a sign that the Fed believes that the US economy has now gained enough traction. While most likely a correct assumption, there are also an increasing number of signs that growth during the second half of 2013 will remain below trend (estimated at 2-2½%). One of these is the weakness in durable goods orders, even when excluding the volatile defence and transport data. Both orders and shipments (the data used for GDP calculations is based on shipments, not orders) are barely above their levels when the Great Recession began. This confirms other data, including business surveys, which point to weak, although still positive, corporate activity – and hence output growth.

Imprisonment is the archetypal restriction on liberty, the paradigm case. Liberty is such an important constituent of individuals' lives that we need exceedingly powerful reasons to throw people in prisons, even if all they did was restrict liberty, like the village in the TV series The Prisoner. But it's increasingly obvious that prisoners are not just unfree, but systematically brutalised in the most shocking ways, as illustrated in this barnstorming call to arms from Christopher Glazek in nplusone magazine:

America’s prison system is a moral catastrophe. The eerie sense of security that prevails on the streets of lower Manhattan obscures, and depends upon, a system of state-sponsored suffering as vicious and widespread as any in human history. Dismantling the system of American gulags, and holding accountable those responsible for their operation, presents the most urgent humanitarian imperative of our time.

The numbers, on prison rape particularly, are truly disturbing:

In January, prodded in part by outrage over a series of articles in the New York Review of Books, the Justice Department finally released an estimate of the prevalence of sexual abuse in penitentiaries. The reliance on filed complaints appeared to understate the problem. For 2008, for example, the government had previously tallied 935 confirmed instances of sexual abuse. After asking around, and performing some calculations, the Justice Department came up with a new number: 216,000. That’s 216,000 victims, not instances. These victims are often assaulted multiple times over the course of the year. The Justice Department now seems to be saying that prison rape accounted for the majority of all rapes committed in the US in 2008, likely making the United States the first country in the history of the world to count more rapes for men than for women.

It is a radical piece, arguing for the complete abolition of prisons:

If, in the popular imagination, the primary purpose of prisons is to keep us safe from (the vanishingly small number of) people like Charles Manson, then we should simply kill Charles Manson. Prison abolitionists should be ready to advocate a massive expansion of the death penalty if that’s what it takes to move the discussion forward. A prisonless society where murderers were systematically executed and rapists were automatically castrated wouldn’t be the most humane society imaginable, but it would be light-years ahead of the status quo. (Interestingly, unlike rape, homicide has one of the lowest recidivism rates of any crime—you can only murder your wife once—suggesting that death row inmates may pose less of a security risk than other categories of offenders.)

Obviously his article is focused on the USA, and uses US statistics—typically the UK system is seen as far less brutal, perhaps because we do not have the deep-seated racial angle seen in the US, and/or because our drug laws are enforced in a slightly less draconian manner. Having said that, according to the Howard League for Penal Reform's new Commission on Sex in Prison the data isn't widely available to make that sort of judgement.

But even if the UK is much better than the US, and even if we don't want to go the whole way to abolishing prisons, the matter is clearly of huge significance, but at the same time bizarrely underreported by most sources, despite the fact that around the world millions of people are in prison (e.g. in the USA, the prison population is bigger than any city except New York, Los Angeles or Chicago). Surely there must be a better way to deal with crime than forcing 15-year old petty thieves together with violent gangs who repeatedly rape them until they kill themselves?

By 2014, the Financial Ombudsman Service is expected to have grown its headcount 20 times since it was inaugurated 10 years ago with 200-300 people. The FOS is merely responding to the level of complaints and is not to blame. The chief executives of our financial institutions, notably the banks, are. Their leadership is reminiscent of that by our generals in WW1. It is a strange way to celebrate that centenary.

In 1914, Britain was a, maybe the, global military power although Germany, since Bismark, had developed superior land forces. Nevertheless, complacency was rife, Britain ruled the empire and the war would be over by Christmas. In the event it lasted four years and needed US intervention, principally because our generals refused to recognise, still less learn from, their mistakes.

Today the City is a, maybe the, leading global financial centre, although New York has developed strongly.The battlefield now is the financial services marketplace.

In any trade and industry, consumer complaints are an important performance measure. Most companies try to ensure that consumer experience is positive, complaints are few and those that do arise, are dealt with by the companies themselves.

In the year to March 2013, the FOS received over 2 million initial enquiries and complaints from consumers of which half a million turned into formal disputes, an increase of 92% on the previous year. Sixty-two per cent of those were with just four banking groups. On average, FOS found for the consumer on about 50% of occasions, and just 20% for building societies. For the four large banks, however, they found for the consumer 80% of the time.

Do these four CEOs even recognise, still less learn from, these mistakes? It would appear not.  The causes of the complaints may be some years back but that is not the point: it would be quicker, cheaper and better business to resolve today’s complaints internally today. Marketing academics have long established that consumers whose complaints are well handled become more loyal whereas those who do not receive satisfaction become more dissident.

Compare FOS with the Advertising Standards Authority, not a direct match of course, but relevant. According to the 2012 Report, across all consumer markets the ASA only received 32,000 complaints about 19,000 advertisements and promotions, 94% fewer than the FOS. Bear in mind that these are direct, not filtered by the brand companies dealing with any themselves.  Of these only 11.5% were decided in favour of the consumer, compared with 50% on financial marketing and 80% against the big four banks.

On three times (101,000) the occasions, the ASA was spending its time helping the advertisers and promoters prevent complaints. FOS has no wish to bash banks and would much rather be helping them to install best practice in dealing with complaints and, better still, helping banks screen their new offers to ensure they do not give rise to legitimate complaints in the first place.

Unfortunately, like WW1 generals, the four big bank CEOs seem reluctant to learn anything.

There's a certain sector of the chatterati that likes to slag off supermarkets. It's quite appalling how they ship food all over the place, how it's all the same bringly good quality. They set up out of town, the nasties, and thus drain the life out of the high street. We should all go back to patronising our local butcher and baker and sear never to have anything to do with a corporate behemoth ever again.

What these people don't seem to grasp is that there's a reason that we have supermarkets. And no, it's not because we all save time by going shopping in great big lumps rather than continually. Rather, it's because only in such a large and capital rich system can we have an efficient logisitics chain. And it's that logistics chain which is the real value to us all:

It hoped foreign supermarkets like Tesco and Walmart would come in and revolutionise India's backward agricultural sector. Forty per cent of all Indian produce rots on clunky bullock carts and rough baked roads before reaching the market. When they arrive, farmers get a tiny fraction on the retail price as as they pass through at least five agents, each taking their cut. Of the eighty rupees per kilo they were selling for last week, the farmer's share was just eight. India needs new smooth roads, cold-chain storage and modern transport logistics to replace sweaty bullock carts, and direct sales from farmer to retailer to stabilise prices, increase farm incomes and reduce food inflation - one of the country's most politically sensitive issues.

There have been other reports which make a very similar point. In the poor world, and one of the reasons these places are poor is because of this lack, some 50% of food rots somewhere between field and plate. In the rich world there is also waste, yes, but it's more that we consumers buy too much which we then don't eat. And let's be honest about it, having too much food in our fridges is a very much better outcome than having not enough food in the house. And that is the difference between having the supermarkets and not having them. Those logistics chains might mean that we ourselves are so inundated with food that we waste some portion of it. But that's a much better result than not having enough food to be able to waste it.

The question for today: are we actually ruled by fools?

Half a million households in flood-prone neighbourhoods will see annual insurance bills rise by up to one third, even after they have been subsidised by policyholders across the country. Ministers have reached a new deal with insurance firms they claim will protect hundreds of thousands of people whose homes are at risk of severe water damage, and who struggle to afford insurance on the open market. When the new scheme was first announced in June, householders were promised that there would be no increase in bills in general. But an analysis of the new plan, conducted by government officials and independent experts, has found that every home insurance policy holder in Britain faces increased bills.

Yes, it appears that we are ruled by fools.

There is no sensible argument that supports the idea that I, living one hundred metres above the flood plain, should subsidise the flood insurance of someone dim enough to live actually on the flood plain. Their tootsies are going to get wet every few years, mine are not. This is because they have decided to live where there is a risk of flooding and I have decided to live where there is not.

We want insurance costs to act as an incentive. Young drivers pay more in insurance that those mature in years like myself: those young drivers are more likely to have an accident and cost the insurers money. Convicted arsonists are quite likely charged more for their fire insurance: we want people at higher risk of flooding to pay higher premiums for flood insurance. Mainly to stop people being so damn stupid as to build houses where there is a high risk of flooding.

What is it about this extremely simple idea that seems to have beeen missed by those who claim the right to dispose of 50% of everything that the country collectively produces? And perhaps more to hte point why do we allow them to take 50% of everything when they're quite clearly off their collective rocker?

All will know that I am a very peaceful, calm and contented sort of chap. So it is with a certain sense of betraying that peaceful persona that I now need to tell you that I've entirely blown my top. It's not that the specific design of mobile phones that we are allowed to purchase or not legally is all that much of a concern to liberty and freedom. Rather, it's the entirely insufferable assumptions behind this mooted ban on certain models:

UK officials are considering banning the sale of small mobile phones designed to resemble car key fobs. A government spokesman told the BBC that it was discussing the issue with the National Trading Standards Board and the Serious Organised Crime Agency. In the meantime the NTSB has asked retailers to stop selling the products.

It is an offence to have a mobile phone in a prison. So yes, I can understand that the prison authorities aren't all that happy with the idea that easily concealable mobile phones are available out here in the free world for they might be so concealed and thus smuggled into the prisons where to have one is an offence. But that is where it should end: with the prison authorities being unhappy that they've now got to check people more intensively (and invasively) to ensure that these phones are not so smuggled. Even the thought that we should all be denied a fun little trinket because the prison authorities cannot stop smuggling is an outrage. An outrage that certainly I think that people should be fired for having even dared utter.

For this is entirely the point of this whole prison thing: it's not just that they inside them are not free it's that we outside them are indeed free. Free and at liberty to purchase any damn fool model of mobile phone, gadetry or tchotchke that our little hearts might desire. And it's most certainly not the job of those policing that dividing line between free and unfree to deprive us on the outside of our freedoms in order to make their lives easier.

I'm sure it's an offence to be out of your cell after locking up time too: but we've not got the bureaucrats roaming the country insisting that all of us go to bed at 9 pm do we? We are not denied cake because files can be hidden in it.

This attempt should be greeted with a very British flick of two fingers at whichever and whatever employee of the State you happen to meet next.

The only saving grace is that these fools are still ignorant of the Streisand Effect. The tech publications and boards are full of people who have only just found out about these mobiles and are buying them by the bucketful. And by morning there won't be a family member or associate of a prisoner who also doesn't know about them.

A quite delightful little story about tax and taxation. You might recall that a while back an IT contractor stole the list of banks account owners from a Swiss bank. And then sold it to the German government who used it to chase those naughty tax avoiders for the money they had avoided/evaded.

We might call this a victory for law and order or we might call this part of it such a victory. For the Swiss have now jailed the man for three years because what he did was indeed theft.

But the part that makes this such a wonderful story is this:

The 54-year-old German-born man appearing before the Swiss criminal court in a striped polo shirt and jeans, said that he had intended to use the bulk of a 1.1 million euro ($1.47 million) reward to pay off taxes he owed in Germany.

At which point I think we can all agree that tax rates in Germany are much too high. For look what happens: people are driven to theft just to be able to pay those taxes.

Update: I'm told by a trustde source that the reason he owes the tax is because he was on the list that he himself handed over. Which is really icing on it, isn't it?