Quote of the day

“I find economics increasingly satisfactory, and I think I am rather good at it.”– John Maynard Keynes
Showing posts with label evaluation. Show all posts
Showing posts with label evaluation. Show all posts

Sunday, 27 December 2020

More on social capital

 RICHARD LAYARD AND GUS O’DONNELL

Build back wellbeing and you will truly level everyone up

Richard Layard and Gus O’Donnell
The Sunday Times
Share
Save

The prime minister’s top post-Covid new year’s resolutions are probably “build back better” and “level up”. But what constitutes better, and what should we actually level up? We believe a better world would be one in which people were more satisfied with their lives — in which they felt more worthwhile and happier. And levelling up would mean helping those who were most unhappy to lead more fulfilling lives. All this needs to be done in a sustainable way appropriate for the country hosting the next global climate change conference.

In a word, Boris Johnson’s aim should be the wellbeing of the people, now and to come. This shift of aim would make a huge difference to his policy priorities. He would focus more on what matters most to people — their mental health and physical health, their children, their family stability, their work and community life and food on the table. These are the social capital in our lives, and they affect our happiness much more than the physical infrastructure around us.

So building back better should not be mainly about roads, railways and buildings. It should be about spending more on mental health, child wellbeing, skills, youth services, family support and care of the elderly. And, of course, combating climate change, which will destroy the wellbeing of future generations.

These arguments are not just hunches. They are based on decades of serious research about what matters most to people, and about how their lives can be improved at least cost to the exchequer. People vary hugely in their satisfaction with their lives, and this is the fundamental inequality that calls for “levelling up”. Research shows that surprisingly little of the variation in wellbeing is due to economic inequality. Very much more is related to the huge variation in mental and physical health, and in the quality of relationships at home, at work and in the community.

Fortunately, there are effective ways in which we can help with these problems, and they are not hugely expensive compared with large capital projects. For example, 50% of people with crippling depression or anxiety disorders will recover with a course of modern psychological therapy costing about £1,000. This is the kind of area where extra spending should go.

Or take schools. If you want to predict if a child will become a happy adult, the best predictor is not their qualifications but their emotional health. Small amounts of money could transform the development of child wellbeing in schools, but plans to introduce mental health support workers to schools still cover only a third of the country. Most expenditure on mental wellbeing pays for itself by cutting the numbers on disability benefits, reducing crime and raising productivity. And Covid has yet again revealed its critical importance.

Many examples of the huge shift in priorities we need were given in an excellent report by the all-party parliamentary group on wellbeing economics. And the mechanism to make the change is already in place. For the government’s spending priorities are meant to be evaluated using the Treasury’s green book. This already says that the objective is “social wellbeing”.

It is hugely in the government’s interest to make this shift. For powerful new research shows that re-election depends more on the wellbeing of the people than on income or jobs. Both the Organisation for Economic Co-operation and Development and the EU now call on member countries to “put people and their wellbeing at the centre of policy design”. Three countries do this explicitly — New Zealand, Scotland and Iceland. They are all small countries led by women. Now is the time for a large country led by a man to follow suit.

Professor Lord Layard is co-author of Can We Be Happier? (Penguin, 2020) and professor of economics at the London School of Economics. Lord O’Donnell is a former cabinet secretary and chairman of Frontier Economics

Saturday, 27 July 2019

Government spending and waste/inefficiency

You know how, in the early days of your Economics course, Fiscal Policy is taught as "when the government spends it creates jobs and produces significant gains"? While I am not advocating you drop that view and become cynical of government (that is for you to develop - or not - as you mature), I do advise you to be able to evaluate the value of some government spending. FREER is a new part of the IEA, and it has published a report into inefficiency in government departments and spending projects. There are rumours that not only is Crossrail late and over-budget, it also has issues with the platforms being too low for the trains; this is something the French encountered after spending nearly £4.5bn on trains that now cannot be used. Here is a taster (from the report) of commons committees questioning some of the "culprits":

The Charge Sheet

“The Public Accounts Committee continues to have serious concerns about the cost and delivery of the Emergency Services Network (ESN) […including] the delivery timetable, potential overrun costs, and the absence of detailed contingency plans.” Public Account Committee preamble, www.parliament.uk

“It is disappointing to us to see a programme that at first seemed so promising unravel so quickly and fall victim to the same project management issues that we see so frequently across Whitehall.” Public Accounts Committee report: ‘Crossrail: Progress Review’, 3 April 2019, p.4

“Just so I am clear […the Disclosure and Barring Service] took a service […] ‘modernised’ it and productivity dropped off a cliff by a half. It has now got a little better, and we are about to go through a total reprocurement to use the same system, which you are concerned is architecturally flawed, in order to get us back, potentially to close to where it was before it was touched. Is that the summary?”

 “Yes, because that is the sensible way to go about it.” 
Exchange between Public Accounts Committee and the Head of the Disclosure and Barring Service reviewing their flawed ‘Modernisation’ Programme which cost £220 million more than expected, 11 March 2019

“If the project is too complex to provide a name as to where the failure is, why is the project not too complicated to provide bonuses to those at the top when they haven’t delivered?” 

“I don’t think you are comparing apples with apples in that regard.” 
Exchange between Public Accounts Committee and the former Chair of Crossrail reviewing their £2.8 billion cost overrun, 15 May 2019

“Do you think, as the head of the civil service, that we have the wrong people in the wrong jobs? Do we have a lot of very senior civil servants who are interested in policy and not at all interested in project management?” 

The Executive Summary (to read more click this link):

The UK public sector currently struggles to provide IT and project management. From NHS Records to the Emergency Services Network, and from the Disclosure and Barring Service to e-borders, the Government has been responsible for a litany of project management, delivery, and implementation failures stretching back over many years. On their own, these failures occasionally make the news — buried after the latest political intrigue and guaranteed to elicit no more than an eye roll from most.
Yet each one of these failures matters: they represent a forgone opportunity for change, a promise to the public not being realised, or spending not achieving what it was intended to do.

Indeed, government institutions seem rather flat-footed when it comes to project management. Repetitive failure matters more when, for much of the last decade, the Government has been making the case for spending restraint. When your pounds need to stretch even further than before, the ones you actually spend should be done so wisely. And, given that the political narrative has recently (regrettably) swung towards raw spending totals and inputs, the focus on how we spend, or what we achieve, has been lost at the very top. Prime Minister’s Question Time has recently felt like an arms race, characterised by evermore inflated amounts to spend, and little focus on how we spend it.

And that is why the travails of public-sector project delivery are so frustrating. In the last couple of years, the select committee I sit on (the one charged with overseeing that value-for-money test), Public Accounts, has dealt with nine separate instances of project failures, costing the taxpayer over £7.5 billion pounds and collectively causing 34 years of project delays. That’s £7.5 billion of money that has effectively been written off. Or, in crude terms, money that could have funded a penny off corporation tax for a year, the building of 21 new hospitals, the funding of 17,000 new police officers for the next ten years, or the ability to plug the socialcare gap for the remainder of this parliament.

 Of course, project failure is nothing new. The public are relatively inured to poor project delivery precisely because they have seen decades of it before. And, whilst those at the most senior level of politics have failed to focus on value for money, there has been a valuable continuing effort further down to build on the greater commercial focus first applied by Francis Maude in the 2010–2015 parliament. Credit should go to those people for some successes. This paper neither seeks perfection nor full success in project delivery. Yet, we need a renewed approach to the reduction of project failure in the public sector. We need to decrease inefficiency, to reform public-sector delivery mechanisms properly, and to shift the focus back on to how we spend money, rather than just how much.

“[…] Well, my background is not in programme and project management. I would not say every permanent secretary has that […]”
Exchange between Public Accounts Committee and the Head of the Civil Service, 1 April 2019

“Neither the Army nor Capita tested the fundamental changes to the recruitment approach prior to its introduction.” National Audit Office Report: ‘Investigation into the British Army Recruiting Partnering Project’, 14 December 2018

“We also found no clear or shared understanding of what constitutes value for money in nuclear decommissioning.” National Audit Office Report: ‘The Nuclear Decommissioning Authority: progress with reducing risk at Sellafield’, 20 June 2018

Friday, 1 September 2017

Albert Edwards - yes, THAT Albert Edwards!

Serendipity (again); do read this article, it is one of those non-mainstream views that opposes current orthodoxy, and therefore gives you some really good material to impress the examiner with your evaluation skills:

Albert Edwards: I was wrong, I was too optimistic!

'Shocking slump' into outright deflation

Permabear Albert Edwards
Fed should begin to tighten interest rates
Société Générale's bearish analyst Albert Edwards has said the mounting evidence which suggests inflation has already slid into deflation will result in the US 10-year treasury yields converging with Japan and Germany at around -1%, and the next recession will be deeper than even he previously thought.

Permabear Edwards (pictured) said if one looks at core Consumer Price Index (CPI) inflation then it highlights a "shocking slump" into outright deflation over the past six months.

Despite this, however, the analyst said the Federal Reserve should still begin to normalise interest rates in order to accommodate for the next inevitable recession.

He said:  " If I were a Fed Governor I would be pretty shocked/concerned/bemused at inflation developments this year."

However confident the Fed is of a self-sustaining-recovery, there is growing evidence of a slide into outright deflation.

"Deflation did not need another US recession to emerge. It is already here. The longer the current credit excesses are allowed to continue, the deeper the next recession and deflationary bust will ultimately be."

The permabear went on to say the current tight US labour market would normally produce an upturn in wage and CPI inflation instead of the deflationary pressures which have been occurring.

Edwards said he originally believed this uptick in wage and CPI inflation would cause the Fed to raise rates which would end in a surprise recession.

However, he said: "This is exactly what I expected to occur at the start of this year and I thought it would be that recession that would tip the US into outright deflation but I was wrong. I was too optimistic!

"Although wages have accelerated due to the tight labour market, the last six months has seen consistent downside surprises."

The permabear said he still expects his Ice Age thesis, which has predicts US and European 10-year bond yields will converge with Japan, to occur with the "downward crash in US yields likely to be particularly shocking".

Furthermore, Edwards' said his prediction of a mid-1990s Japan-style crash occurring in the West will come to pass, despite the "best efforts" of policymakers.

"In the mid-1990s I witnessed first-hand the hubris of Western commentators who claimed that Japan's post-bubble slide into deflation was a one-off example," he said.

"My former colleague and Japan guru, Peter Tasker, and I came to the conclusion that hubris of Western commentators would turn to nemesis.

"Japan's post-bubble experience of sluggish economic growth was due to debt retrenchment followed seamlessly by deteriorating demographics.

"We felt both factors would also combine to push the West into a similar deflationary bust, despite the best efforts of policymakers."

Thursday, 4 May 2017

AI, jobs, disruption & shocks

John Mauldin | May 03, 2017
When Robots Take All of Our Jobs, Remember the Luddites
If you don’t think the transformation we’re embarked upon is a profound one, consider this: Within two decades, half the jobs in this country may be performed by robots. What then of our unemployment rate and social safety net? Opinion is divided: Will the next technological wave further skew the wealth distribution toward the uber-rich, or will it ultimately create more entrepreneurial and job opportunities than it destroys?
There is an interesting historical precedent for our situation, an era during which the technological firmament shifted just as abruptly as it is here and now. In the United Kingdom in the year 1800, the textile industry dominated economic life, particularly in Northern England and Scotland. Cotton-spinners, weavers (mostly of stockings), and croppers (who trimmed large sheets of woven wool) worked from home, were well compensated, and enjoyed ample leisure time.
Ten years later, that had all changed. Clive Thompson, the author of today’s Outside the Box, tells us what happened:
(I)n the first decade of the 1800s, the textile economy went into a tailspin. A decade of war with Napoleon had halted trade and driven up the cost of food and everyday goods. Fashions changed, too: Men began wearing “trowsers,” so the demand for stockings plummeted. The merchant class—the overlords who paid hosiers and croppers and weavers for the work—began looking for ways to shrink their costs.
That meant reducing wages—and bringing in more technology to improve efficiency. A new form of shearer and “gig mill” let one person crop wool much more quickly. An innovative, “wide” stocking frame allowed weavers to produce stockings six times faster than before: Instead of weaving the entire stocking around, they’d produce a big sheet of hosiery and cut it up into several stockings. “Cut-ups” were shoddy and fell apart quickly, and could be made by untrained workers who hadn’t done apprenticeships, but the merchants didn’t care. They also began to build huge factories where coal-burning engines would propel dozens of automated cotton-weaving machines….
The workers were livid. Factory work was miserable, with brutal 14-hour days that left workers – as one doctor noted – “stunted, enfeebled, and depraved.”… Poverty rose as wages plummeted.
Enter the notorious Luddites. Angry workers began to fight back, destroying the hated wide stocking frames and cotton-spinning machinery and even killing factory owners. Soon they were breaking at least 175 machines per month, and within months they had destroyed some 800, worth £25,000—the equivalent of nearly $2 million today.
As we know, the owners retaliated, the English government intervened decisively, and the Luddite rebellion was crushed. However, says Thompson,
At heart, the fight was not really about technology. The Luddites were happy to use machinery – indeed, weavers had used smaller frames for decades. What galled them was the new logic of industrial capitalism, where the productivity gains from new technology enriched only the machines’ owners and weren’t shared with the workers.
The owners had taken to heart Adam Smith’s The Wealth of Nations, published a few decades earlier, in which Smith makes the case for a laissez-faire, free-market economy. In the ensuing centuries we have seen a seesaw battle between labor and capital, and it certainly appears that capital now has the upper hand; but clearly, the Industrial Revolution did lift all boats: It is inconceivable that we could support our present global population without our machines.
But will the Information Revolution that gave us computers, the internet, and social media – and the AI Revolution that is about to give us self-driving taxis and trucks and robot baristas – continue to lift our lower and middle classes, or further disempower and impoverish them?

When Robots Take All of Our Jobs, Remember the Luddites
By Clive Thompson
Originally published in Smithsonian magazine, January 2017
What a 19th-century rebellion against automation can teach us about the coming war in the job market
Is a robot coming for your job?
The odds are high, according to recent economic analyses. Indeed, fully 47 percent of all U.S. jobs will be automated “in a decade or two,” as the tech-employment scholars Carl Frey and Michael Osborne have predicted. That’s because artificial intelligence and robotics are becoming so good that nearly any routine task could soon be automated. Robots and AI are already whisking products around Amazon’s huge shipping centers, diagnosing lung cancer more accurately than humans and writing sports stories for newspapers.
They’re even replacing cabdrivers. Last year in Pittsburgh, Uber put its first-ever self-driving cars into its fleet: Order an Uber and the one that rolls up might have no human hands on the wheel at all. Meanwhile, Uber’s “Otto” program is installing AI in 16-wheeler trucks—a trend that could eventually replace most or all 1.7 million drivers, an enormous employment category. Those jobless truckers will be joined by millions more telemarketers, insurance underwriters, tax preparers and library technicians—all jobs that Frey and Osborne predicted have a 99 percent chance of vanishing in a decade or two.
What happens then? If this vision is even halfway correct, it’ll be a vertiginous pace of change, upending work as we know it. As the last election amply illustrated, a big chunk of Americans already hotly blame foreigners and immigrants for taking their jobs. How will Americans react to robots and computers taking even more?
One clue might lie in the early 19th century. That’s when the first generation of workers had the experience of being suddenly thrown out of their jobs by automation. But rather than accept it, they fought back—calling themselves the “Luddites,” and staging an audacious attack against the machines.
**********
At the turn of 1800, the textile industry in the United Kingdom was an economic juggernaut that employed the vast majority of workers in the North. Working from home, weavers produced stockings using frames, while cotton-spinners created yarn. “Croppers” would take large sheets of woven wool fabric and trim the rough surface off, making it smooth to the touch.
These workers had great control over when and how they worked—and plenty of leisure. “The year was chequered with holidays, wakes, and fairs; it was not one dull round of labor,” as the stocking-maker William Gardiner noted gaily at the time. Indeed, some “seldom worked more than three days a week.” Not only was the weekend a holiday, but they took Monday off too, celebrating it as a drunken “St. Monday.”
Croppers in particular were a force to be reckoned with. They were well-off—their pay was three times that of stocking-makers—and their work required them to pass heavy cropping tools across the wool, making them muscular, brawny men who were fiercely independent. In the textile world, the croppers were, as one observer noted at the time, “notoriously the least manageable of any persons employed.”
But in the first decade of the 1800s, the textile economy went into a tailspin. A decade of war with Napoleon had halted trade and driven up the cost of food and everyday goods. Fashions changed, too: Men began wearing “trowsers,” so the demand for stockings plummeted. The merchant class—the overlords who paid hosiers and croppers and weavers for the work—began looking for ways to shrink their costs.
That meant reducing wages—and bringing in more technology to improve efficiency. A new form of shearer and “gig mill” let one person crop wool much more quickly. An innovative, “wide” stocking frame allowed weavers to produce stockings six times faster than before: Instead of weaving the entire stocking around, they’d produce a big sheet of hosiery and cut it up into several stockings. “Cut-ups” were shoddy and fell apart quickly, and could be made by untrained workers who hadn’t done apprenticeships, but the merchants didn’t care. They also began to build huge factories where coal-burning engines would propel dozens of automated cotton-weaving machines.
“They were obsessed with keeping their factories going, so they were introducing machines wherever they might help,” says Jenny Uglow, a historian and author of In These Times: Living in Britain Through Napoleon’s Wars, 1793-1815.
The workers were livid. Factory work was miserable, with brutal 14-hour days that left workers—as one doctor noted—“stunted, enfeebled, and depraved.” Stocking-weavers were particularly incensed at the move toward cut-ups. It produced stockings of such low quality that they were “pregnant with the seeds of its own destruction,” as one hosier put it: Pretty soon people wouldn’t buy any stockings if they were this shoddy. Poverty rose as wages plummeted.
The workers tried bargaining. They weren’t opposed to machinery, they said, if the profits from increased productivity were shared. The croppers suggested taxing cloth to make a fund for those unemployed by machines. Others argued that industrialists should introduce machinery more gradually, to allow workers more time to adapt to new trades.
The plight of the unemployed workers even attracted the attention of Charlotte Brontë, who wrote them into her novel Shirley. “The throes of a sort of moral earthquake,” she noted, “were felt heaving under the hills of the northern counties.”
**********
In mid-November 1811, that earthquake began to rumble. That evening, according to a report at the time, half a dozen men—with faces blackened to obscure their identities, and carrying “swords, firelocks, and other offensive weapons”—marched into the house of master-weaver Edward Hollingsworth, in the village of Bulwell. They destroyed six of his frames for making cut-ups. A week later, more men came back and this time they burned Hollingsworth’s house to the ground. Within weeks, attacks spread to other towns. When panicked industrialists tried moving their frames to a new location to hide them, the attackers would find the carts and destroy them en route.
A modus operandi emerged: The machine-breakers would usually disguise their identities and attack the machines with massive metal sledgehammers. The hammers were made by Enoch Taylor, a local blacksmith; since Taylor himself was also famous for making the cropping and weaving machines, the breakers noted the poetic irony with a chant: “Enoch made them, Enoch shall break them!”
Most notably, the attackers gave themselves a name: the Luddites.
Before an attack, they’d send a letter to manufacturers, warning them to stop using their “obnoxious frames” or face destruction. The letters were signed by “General Ludd,” “King Ludd” or perhaps by someone writing “from Ludd Hall”—an acerbic joke, pretending the Luddites had an actual organization.
Despite their violence, “they had a sense of humor” about their own image, notes Steven Jones, author of Against Technology and a professor of English and digital humanities at the University of South Florida. An actual person Ludd did not exist; probably the name was inspired by the mythic tale of “Ned Ludd,” an apprentice who was beaten by his master and retaliated by destroying his frame.
Ludd was, in essence, a useful meme—one the Luddites carefully cultivated, like modern activists posting images to Twitter and Tumblr. They wrote songs about Ludd, styling him as a Robin Hood-like figure: “No General But Ludd / Means the Poor Any Good,” as one rhyme went. In one attack, two men dressed as women, calling themselves “General Ludd’s wives.” “They were engaged in a kind of semiotics,” Jones notes. “They took a lot of time with the costumes, with the songs.”
And “Ludd” itself! “It’s a catchy name,” says Kevin Binfield, author of Writings of the Luddites. “The phonic register, the phonic impact.”
As a form of economic protest, machine-breaking wasn’t new. There were probably 35 examples of it in the previous 100 years, as the author Kirkpatrick Sale found in his seminal history Rebels Against the Future. But the Luddites, well-organized and tactical, brought a ruthless efficiency to the technique: Barely a few days went by without another attack, and they were soon breaking at least 175 machines per month. Within months they had destroyed probably 800, worth £25,000—the equivalent of $1.97 million, today.
“It seemed to many people in the South like the whole of the North was sort of going up in flames,” Uglow notes. “In terms of industrial history, it was a small industrial civil war.”
Factory owners began to fight back. In April 1812, 120 Luddites descended upon Rawfolds Mill just after midnight, smashing down the doors “with a fearful crash” that was “like the felling of great trees.” But the mill owner was prepared: His men threw huge stones off the roof, and shot and killed four Luddites. The government tried to infiltrate Luddite groups to figure out the identities of these mysterious men, but to little avail. Much as in today’s fractured political climate, the poor despised the elites—and favored the Luddites. “Almost every creature of the lower order both in town & country are on their side,” as one local official noted morosely.
An 1812 handbill sought information about the armed men who destroyed five machines.
(The National Archives, UK)
**********
At heart, the fight was not really about technology. The Luddites were happy to use machinery—indeed, weavers had used smaller frames for decades. What galled them was the new logic of industrial capitalism, where the productivity gains from new technology enriched only the machines’ owners and weren’t shared with the workers.
The Luddites were often careful to spare employers who they felt dealt fairly. During one attack, Luddites broke into a house and destroyed four frames—but left two intact after determining that their owner hadn’t lowered wages for his weavers. (Some masters began posting signs on their machines, hoping to avoid destruction: “This Frame Is Making Full Fashioned Work, at the Full Price.”)
For the Luddites, “there was the concept of a ‘fair profit,’” says Adrian Randall, the author of Before the Luddites. In the past, the master would take a fair profit, but now he adds, “the industrial capitalist is someone who is seeking more and more of their share of the profit that they’re making.” Workers thought wages should be protected with minimum-wage laws. Industrialists didn’t: They’d been reading up on laissez-faire economic theory in Adam Smith’s The Wealth of Nations, published a few decades earlier.
“The writings of Dr. Adam Smith have altered the opinion, of the polished part of society,” as the author of a minimum wage proposal at the time noted. Now, the wealthy believed that attempting to regulate wages “would be as absurd as an attempt to regulate the winds.”
Six months after it began, though, Luddism became increasingly violent. In broad daylight, Luddites assassinated William Horsfall, a factory owner, and attempted to assassinate another. They also began to raid the houses of everyday citizens, taking every weapon they could find.
Parliament was now fully awakened, and began a ferocious crackdown. In March 1812, politicians passed a law that handed out the death penalty for anyone “destroying or injuring any Stocking or Lace Frames, or other Machines or Engines used in the Framework knitted Manufactory.” Meanwhile, London flooded the Luddite counties with 14,000 soldiers.
By winter of 1812, the government was winning. Informants and sleuthing finally tracked down the identities of a few dozen Luddites. Over a span of 15 months, 24 Luddites were hanged publicly, often after hasty trials, including a 16-year-old who cried out to his mother on the gallows, “thinking that she had the power to save him.” Another two dozen were sent to prison and 51 were sentenced to be shipped off to Australia.
“They were show trials,” says Katrina Navickas, a history professor at the University of Hertfordshire. “They were put on to show that [the government] took it seriously.” The hangings had the intended effect: Luddite activity more or less died out immediately.
It was a defeat not just of the Luddite movement, but in a grander sense, of the idea of “fair profit”—that the productivity gains from machinery should be shared widely. “By the 1830s, people had largely accepted that the free-market economy was here to stay,” Navickas notes.
A few years later, the once-mighty croppers were broken. Their trade destroyed, most eked out a living by carrying water, scavenging, or selling bits of lace or cakes on the streets.
“This was a sad end,” one observer noted, “to an honourable craft.”
**********
These days, Adrian Randall thinks technology is making cab-driving worse. Cabdrivers in London used to train for years to amass “the Knowledge,” a mental map of the city’s twisty streets. Now GPS has made it so that anyone can drive an Uber—so the job has become deskilled. Worse, he argues, the GPS doesn’t plot out the fiendishly clever routes that drivers used to. “It doesn’t know what the shortcuts are,” he complains. We are living, he says, through a shift in labor that’s precisely like that of the Luddites.
Economists are divided as to how profound the disemployment will be. In his recent book Average Is Over, Tyler Cowen, an economist at George Mason University, argued that automation could produce profound inequality. A majority of people will find their jobs taken by robots and will be forced into low-paying service work; only a minority—those highly skilled, creative and lucky—will have lucrative jobs, which will be wildly better paid than the rest. Adaptation is possible, though, Cowen says, if society creates cheaper ways of living—“denser cities, more trailer parks.”
Erik Brynjolfsson is less pessimistic. An MIT economist who co-authored The Second Machine Age, he thinks automation won’t necessarily be so bad. The Luddites thought machines destroyed jobs, but they were only half right: They can also, eventually, create new ones. “A lot of skilled artisans did lose their jobs,” Brynjolfsson says, but several decades later demand for labor rose as new job categories emerged, like office work. “Average wages have been increasing for the past 200 years,” he notes. “The machines were creating wealth!”
The problem is that transition is rocky. In the short run, automation can destroy jobs more rapidly than it creates them—sure, things might be fine in a few decades, but that’s cold comfort to someone in, say, their 30s. Brynjolfsson thinks politicians should be adopting policies that ease the transition—much as in the past, when public education and progressive taxation and antitrust law helped prevent the 1 percent from hogging all the profits. “There’s a long list of ways we’ve tinkered with the economy to try and ensure shared prosperity,” he notes.
Will there be another Luddite uprising? Few of the historians thought that was likely. Still, they thought one could spy glimpses of Luddite-style analysis—questioning of whether the economy is fair—in the Occupy Wall Street protests, or even in the environmental movement. Others point to online activism, where hackers protest a company by hitting it with “denial of service” attacks by flooding it with so much traffic that it gets knocked off­line.
Perhaps one day, when Uber starts rolling out its robot fleet in earnest, angry out-of-work cabdrivers will go online—and try to jam up Uber’s services in the digital world.
“As work becomes more automated, I think that’s the obvious direction,” as Uglow notes. “In the West, there’s no point in trying to shut down a factory.”

Tuesday, 25 April 2017

High level thinking on economic issues

Here, in a nutshell, are a few ideas you might try to extend your answers with in a strong conclusion; luckily Moneyweek has summarised this information for you. The full article can be found here.

Escaping neoliberalism

WE CAN LOOSEN THE GRIP OF POPULISM
Stagnant economies and the rise of the populists have been the broad themes to emerge over the past few years, but few have delved into their causes, say James Montier and Philip Pilkington on GMO.com. Both have their roots in “neoliberalism”, the system of economic governance that arose in the mid-1970s and is characterised by globalisation, flexible labour markets, and a focus on maximising returns to shareholders at the expense of reinvestment and growth. Escaping from neoliberalism will  involve restructuring our economies on more equitable and sustainable lines. Here’s what we need to do.
First, stop trying to steer the economy with monetary policy while shirking the responsibility for maintaining full employment. Instead, the government should offer a fixed wage for any  labour that is forthcoming, which  will be the de-facto minimum wage. When unemployment is high, workers will flow into the government scheme and be outsourced to private charity groups and put to work on any number of jobs that are currently not done – cleaning rivers, helping the disabled, caring for the elderly, planting public gardens, and so on. When times are better, employers can lure workers back by offering higher wages.
Second, to mitigate the negative effects of trade globalisation, run a policy of import substitution. Governments should identify the products currently cheaply imported from abroad that could easily be made here. Then offer direct subsidies to companies willing to produce these products. This should be thought of as part of a broader policy of reindustrialisation. 
Third, frown on corporations that maximise shareholder value at the expense of investment and growth. This is really a corporate choice, not a government one, but corporations should be warned that they need to get their house in order before it’s too late – “populists have policies too, you know”.
Finally, unionise the workforce. Unions have been demonised for four decades, but they can play a fundamental role in ensuring that the distribution of income is fair and that the macroeconomy is balanced. “If policymakers fear striking workers and hot-headed shop stewards, they should look to the Scandinavian countries where capitalist worker-government relations are excellent because everyone treats one another with respect, everyone gets a seat at the table, and equitable outcomes are reached.”

Tuesday, 7 March 2017

Material to help you question the value of GDP as a measure:

GDP is not enough: economists and businesses demand new measure of inclusive growth

Angel of the North
National figures on economic growth fail to take into account of regional variations and ignore quality of life, such as the gap in life expectancy between Surrey and the north east of England, the Inclusive Growth Commission warned Credit:  ANDREW YATES/AFP

The quality of economic growth needs to be measured, not just the quantity, if the government is to understand exactly how GDP growth affects people up and down the country, economists have proposed.
Growth varies across the country with jobs and wages distributed unevenly, so the Inclusive Growth Commission (ICG) and the Royal Society for the encouragement of Arts, Manufactures and Commerce want the Office for National Statistics (ONS) to publish figures on quality of life alongside GDP numbers.
Traditional metrics of economic performance, such as GDP or at a regional level gross value added (GVA), are a poor guide to social and economic welfare,” said the ICG’s report.

“They also do not tell us anything about how the opportunities and benefits of growth are distributed across different spatial areas and social or income groups. Nor do they do a good job of tracking structural economic change, the sustainability of growth, or the human impact of shifts in the labour market.”

Local productivity, local incomes, the distribution of earnings, pay changes for the lowest paid and levels of regional economic inactivity could all form part of this new inclusive growth metric, said the ICG which is chaired by Stephanie Flanders, JP Morgan’s chief market strategist.

The Commission also includes former Rolls-Royce chief executive Sir John Rose and London School of Economics professor Henry Overman.

The recommendation comes at a time when the ONS is looking for ways to beef up its capabilities.
Other official bodies including the Bank of England are also trying to improve their forecasting models.

One problem linked to the idea of inclusive growth is that the economy has been growing and unemployment has been falling, yet wage growth has remained muted.

Bank of England officials are studying the problem closely, recalibrating their theories of slack in the economy and examining sources of wage growth.

Extra detail from the ONS on inclusive growth could help to shed light on the variance in pay and jobs in different parts of the country and the labour market.

The IGC also recommends the Chancellor merge a series of initiatives including the Local Growth Fund and the Life Chances Investment Fund into one Inclusive Growth Investment Fund, with a combined budget of £3.8bn per year.

As a result it could better coordinate investment to target the proposed new measure of inclusive growth, the IGC suggests.

Wednesday, 28 September 2016

The Myth of Progress - stretch and challenge evaluation

For those of you inclined to step up to the challenge of reaching the higher levels of Economics, here is an article that challenges the assumption that growth and progress are the norm, and will continue ad infinitum. As you should be aware now, you can have an opinion on whether this is correct or not, but if you do not examine both sides in an essay, but merely state one side of the argument, you are not hitting higher level analysis:


“In the sphere of scientific advance it is undeniable that there is progress:  that is to say, each generation builds on the knowledge acquired by its predecessor, and one by one the secrets of the universe are unlocked and exploited.  Of course, there is no reason why this process should go on forever, and it is quite conceivable that one day educational institutions will decline to such a point that the accumulated results of scientific investigation will no longer be passed on…It is a matter of wisdom, not expertise, of an imaginative grasp of the human condition rather than the search for theories with which to explain it.”


Roger Scruton, The Uses of Pessimism and the Danger of False Hope


The Myth of Progress

Optimism and hope for the future are not uncommon traits in modern America; a recent study has shown that Millennials, for instance, are more optimistic about the future than their older counterparts by the widest margin since surveys on the matter have begun.  This is hardly surprising if one considers that members of this generation have witnessed nothing but material progress in their relatively short lives.  The US economy, albeit with disappointing recent growth, has remained the envy of the world, and personal wealth has expanded in ways not easily quantified; for example, with just one handheld device, we can do immeasurably more with measurably less.


It is natural, of course, for people to assume that what has happened most recently will continue unabated.  It is difficult, in other words, for us to imagine a future in which the pace of progress stalls, and the material benefits of technological advances diminish.  But this unshakable faith in the future is not a capitalist ideal, but a Marxist one.  After all, since Marx did not believe in human nature, his philosophy assumed a linear progression of history in which human beings would be shaped by the material advances around them.


However, as Mr. Scruton notes above, human nature is very real; because we are fallible by nature, our lives and the world in which we live them must allow for periods of regress as well as progress.  It is, unfortunately, easier for us to destroy than it is for us to create.  There are countless examples throughout history of major declines in living standards.  In the immediate period following the fall of Rome, roads and cities fell into disrepair, and the bodies of the deceased were laid to rest in much shallower graves. Chinese civilization is so old, in fact, that it has witnessed multiple periods of major decline.


To those who say these are mere examples from ancient history, I would point to the century of relative decline for Argentines, once one of the world’s most prosperous peoples. Circa 1900, it was in the midst of the fastest recorded growth on record, and ranked higher than such nations as Germany and France.  Despite being spared the destruction those two nations experienced in two devastating world wars, Argentina is now poor because it squandered its prosperity through a combination of political corruption and policy error. 
 Relative to its peers, it has not recovered:








Consider, also, Venezuela.  After almost two decades of Chavism, – nationalization of industry, confiscation of assets, etc., – capital and intellectuals have fled Venezuela, leaving the populace desperate as their grocery stores are empty and their hospitals are without medicine.  This despite the fact that Venezuela has the world largest proven oil reserves, and has benefited from hundreds of billions of dollars in oil revenue over the last several decades.  Now, GDP per capita is dramatically less than it was 40 years ago:










It is a mistake, then, to assume that material progress is a given when in reality it has been a feature mostly of Western life.  This Gizmodo graphic of all the devices connected to the internet is just one small example of how much of the world’s wealth is concentrated in Western-leaning areas of the world:








In order to preserve our material well-being, it is imperative, therefore, that we understand the nature of progress itself.  Progress is not an inevitability toward which the whole of mankind is advancing, as Marx held.  Rather, it is the product of “the city,” the gathering of individuals from different tribes, religions, and cultures who have set aside those ‘identities of division’, if you will, in hopes of advancing their own material well-being.


As Roger Scruton puts it:


“The city is a community of neighbors who do not necessarily  know each other, but whose obligations come from settlement.  A neighbor, according to the Anglo-Saxon etymology, is one who ‘builds nearby’.  Citizens have settled side by side, and are bound by the many tacit and explicit agreements that they make with each other every day.  The city is the symbol and realization of the new form of reasonableness that emerges when the way of the tribe is left behind.”


Conversely, economic regression occurs when we revert back to the tribalism Scruton describes.  This tribalism is a mindset of us against them that leads to isolation both intellectually and economically.  It is no surprise, then, that the most successful economies are those who open themselves up to the community of ideas, welcoming thinkers and entrepreneurs into their communities rather than isolating themselves out of fear of the different.  The Venezuelas and Argentinas of the world have squandered their material and resource wealth by inadvertently or overtly driving off foreigners and their capital, those who  may be best suited to exploiting that wealth.  They have closed themselves off to foreign trade on the mistaken assumption that the division of labor among nations is a zero-sum game.


The point, of course, is to remind ourselves that progress is not inevitable, and we are fully capable of squandering the advances of our predecessors.  While history shows that we are resilient creatures and have overcome every obstacle from pandemics to world wars, it also reveals that a great number of our setbacks have been self-inflicted.  Therefore, when pondering the future and the policy choices that will shape it, it is necessary for us to be aware not just of what we might gain, but to consider carefully what we stand to lose.