Holiday

I'm going away on holiday tomorrow, and am unlikely to have much internet access, so won't be blogging for the next couple of weeks.

Drought Fears, Hosepipe Bans and Bad Economics

There was a story reported by the BBC this morning about concerns over water shortages in the North-West of England due to an exceptionally dry few months.

We are told in the report to take showers instead of baths in an effort to conserve water and that we may be facing the prospect of 'hose-pipe bans' in the near future.

There are a couple of problems with this analysis and with the way of thinking which underlies it:

First, it is questionable whether or not showering rather than bathing actually uses less water.  There are a number of variables which impact on this:

How big is your bath?

How much do you actually fill your bath?

How powerful is your shower?

How long do you spend in the shower?

Without answers to questions such as these we can't say for sure which uses less water.

This, however is a moot point.  Banning use of hose-pipes is comparable to banning particular types of shower-head.  Everybody suffers as a result of the ban because no-one was willing to cut back on their own water consumption.

People seem to forget that we pay for water.  If there is not enough water it is because the price of water is inflexible to changes in supply and demand.  For any other free-market commodity if the supply were to dry up* like this the price would increase, people would cut back their own consumption and there would be no shortage, no need for a ban.

The problem is our water isn't priced appropriately.  The rate you pay for the water coming out of your taps is paid alongside your Council Tax and is linked not to the quantity of water used, but to the value of your property.  If you have a big house and live in a nice area you are likely to pay more for your water consumption, even if you use less, than someone living in a crappy one-bedroom flat in a dodgy part of town.

The appropriate response to a water shortage is not to institute a ban on certain types of usage, but to have an appropriate system of pricing water:

• Water consumption should be charged per unit used.
• The price charged per unit should fluctuate dependent on prevailing market conditions (i.e. water should cost more in summer and less in winter).

People would then adjust their consumption accordingly and, assuming you don't live in the Atacama desert, there should be no fear of there ever being a shortage of water.

* Excuse the pun.

Piracy

I recall a discussion I had with my brother recently where we got talking about piracy (the software/music/film kind; not the pieces of eight/walking the plank/jolly roger kind).  He seemed to be conflicted on the issue: on the one hand he thought that piracy was rightfully illegal, on the other hand he defended the illegal downloading of films, his grounds for doing so being that the format of the illegally downloaded films was much more convenient than DVD or Blu-Ray (I shall not bore anyone with the details).  I pointed out that this is not a moral defence, merely a convenient justification for what he sees generally as morally reprehensible behaviour.

Chris Dillow puts forward a much better defence of the behaviour here.

Putting aside the double-think that seems to be required of my brother to hold these two conflicting positions simultaneously, I am conflicted over what position to take, both generally and in my current situation.

Generally, I can see there are both benefits and costs of piracy affecting a whole range of different people.  It hurts very famous, but not necessarily talented, artists, music labels, promoters and retailers.  Although, the benefits to the consumer must outweigh these damages:

If an artist fails to sell 1000 CDs due to piracy they (and everyone along the supply chain) are worse off by the profit they would have made on those 1000 CDs.  However, 1000 consumers who would have bought the CD, but downloaded it illegally for free are all better off by the value of the CD.  In addition, many more people who would not have bought the CD, because it was priced higher than they valued it, will also download it and be better off by whatever value they attach to it.

It's impossible to know how many people who download a CD would or wouldn't have bought it if they couldn't download it, so it's impossible to know exactly how much consumers benefit by, only that it is at least equal to the cost to the music industry.  It also benefits young, lesser known and talented artists.

Specifically, there is a film out in cinemas at the moment which I would like to see and would be willing to pay for a cinema ticket to do so.  However, none of my local cinemas are screening this film, in fact no cinema anywhere near me is, so for me to see it now would require a round-trip of approximately 5 hours plus the cost of transport (be it train, bus or fuel for the car).  This is a considerably greater cost (in money, time and effort) than merely the price of a cinema ticket.  What to do?

I have four options:

1. I could spend a considerable amount of my time, effort and cash travelling to see the film now.

2. I can wait until the film is released on DVD, usually a few months after cinema release, and either buy or rent it then.

3. I can forgo seeing the film at all.

4. I can download the film illegally and watch it for free from the comfort of my own home.

If I decide that the cost of getting to see the film at the cinema isn't worth it in this case, but I do still want to see the film, that rules out options 1 and 3.

Out of my two remaining options the most convenient is option 4, whilst the only legal option is number 2.  Of course, just because something is illegal is not an argument in favour of it being illegal.  If I accept Chris's argument and my own cost-benefit analysis above there is no reason why piracy should be necessarily illegal from a utilitarian standpoint.  The argument that still stands in favour of the illegality of piracy is a libertarian one concerning intellectual property rights.

Those who are strict utilitarians won't necessarily have any problem with piracy, for those of us who do there are applications which allow us to purchase music legitimately (i.e. iTunes, Spotify), but on our terms (you can by specific songs, not just albums and the singles artists/record producers choose to publish) and from the comfort of our own homes where we can receive and enjoy the product instantly.

My analysis and my brother's experience suggests that there is a potential market for something similar to iTunes for films.

Around the Internet: May 2010 Edition

I've decided to include an 'Around the Internet' section on the blog with some of the more interesting/unusual links and websites I've come across each month.

Here's the selection for this month, enjoy:

• Amazing transforming apartment in Hong Kong (hat-tip to Tyler Cowen)
• Cat cafes in Tokyo
• The Coastline Paradox (hat-tip to Tyler Cowen again)
• Conflict Kitchen (hat-tip to Eric Crampton)
• The Great Hedge of India (hat-tip to Tyler Cowen yet again)
• Lexicalist (A demographic dictionary of modern American English)
• Optical Illusion: Magnet-like slopes
• Optical Illusion: Ferrari Car Wash

A hat-tip is owed to Richard Wiseman for both optical illusions.  I'm sure a hat tip is owed to people for the cat cafes and Lexialist links too, but I can't remember to whom, apologies.

The Armchair Economist

Earlier in the year I read a book called 'The Armchair Economist' by Professor Steven E. Landsburg*.  I enjoyed the book immensely and for the most part agree with Professor Landsburg's conclusions, but as an rank amateur as an economist not everything is crystal clear to me and I have a couple of questions on points made in the book.

I have emailed these questions to Professor Landsburg today, if I receive a response to any of the points I will post the reply here also (with permission of course).

Query 1: The Indifference Principle (Chapter 4)

With regard to the discussion of the indifference principle and the tipping of bus-boys Landsburg points out that bus-boys cannot be the beneficiaries of changing social attitudes towards tipping them, neither can the restaurant owners benefit.  This is because neither bus-boys nor restaurant owners are in possession of a resource in fixed supply.  If you want an explanation of why I'd recommend getting your hands on a copy of The Armchair Economist.

My query is this: how is this argument affected by minimum wage laws?

My initial thoughts on the matter are that legally binding minimum wages artificially inflate earnings at the lower end of the income spectrum; this leads to higher wage bills for owners/managers of low-paid workers (think supermarket shelf-stackers, fast-food workers, etc.), unless of course they cut staffing levels.

If they cut staffing levels they are worse off than they would have been otherwise since they are spending the same money on staff, but have less staff, who will presumably be stretched more thinly, less work will get done, there will be more problems with poor customer service/staff stress/etc.  The people out of work due to employers having less positions to fill also lose out here.  The beneficiaries appear to be the people working minimum wage jobs, if they still have a job it will be paying more than it would have been otherwise.

If the employers maintain staffing levels at what they would have been without the minimum wage law anyway they are still worse off, as they will have a higher wage bill and hence lower profits.  No-one will be out of work and everyone working in minimum wage jobs will be earning more, so would again appear to be the beneficiaries of this policy.

The employers could pass on the additional cost of paying higher wages to the customer, by charging higher prices, but one thing I do recall from my own economics education (a single 1 semester class in my 4th year of university) is that a seller can set either the price which a good/service is sold at, or the quantity sold, but not both.  Raising prices means selling less, and presumably the business owners have already set their prices at, or close to, the level which maximises profit.

Whichever outcome occurs in terms of staffing levels, there is another effect minimum wage laws would appear to have.  By artificially inflating the wages of certain jobs they make those jobs more desirable relative to other low-paid (but above minimum wage) jobs.  If it lures people to work in supermarkets instead of in bars for example then the supply of bar staff is reduced; surely then bars have to offer higher wages as well?  Does this effect exist in reality?  If so, how far does it spread through the economy?  Do minimum wage laws then effectively bid-up the wages of everyone?

Query 2: Why I am not an Environmentalist (Chapter 24)

The subtitle of this chapter is "The Science of Economics Versus the Religion of Ecology".  The gist of Landsburg's argument is that environmentalism is flawed because it turns matters of preference into matters of morality and instantly assumes the moral high-ground.  I follow this argument and agree with the general conclusions.

What I am confused about is Landsburg's position on recycling.  He points out that recycling paper eliminates the incentives for paper companies to plant more trees and hence forests shrink.  This is perfectly true, but surely the purpose of such recycling is not to maintain larger forests?  Recycling paper does not appear to me to be of particular importance, more interesting to consider the recycling of plastic or metal.  Unlike paper, which is made from a renewable resource (wood pulp), metal and plastic are finite resources (there is only so much metal in the World, the same is true of oil, the refining of which produces the raw materials for plastic manufacturing).  The purpose of recycling metal and plastic then, seems to be a sensible method for making the most out of these resources, rather than just dumping them in landfills.  Needlessly dumping valuable resources makes the World a poorer place (this is in contrast to burning money - see Chapter 7 of The Armchair Economist).

Landsburg of course points out that time is also a valuable resource, but the time it takes to rinse out a can or bottle and then throw it into a bag (instead of a different bag, in the bin) is minuscule.  The real question, which hasn't actually been resolved, is therefore: what is worth more - the time it takes to rinse out a plastic bottle or the plastic itself, which can then be used for some other purpose?

* Actually, I read two of Professor Landsburgs books simultaneously, the other being 'More Sex is Safer Sex' - I'd highly recommend both of them.  I don't yet have a copy of his latest offering 'The Big Questions', as a price-sensitive consumer I'm waiting for it to come out on paperback.

Proportional Representation and Minorities

This post is somewhat in response to a recent post over on Left Foot Forward by Dr Omar Khan, who is the senior policy researcher for the Runnymede Trust.

Dr Khan raises the question of how proportional is PR for black and ethnic minority people?

First I feel it necessary to point out that Dr Khan is either being slightly sloppy in his approach to this topic, or is intentionally trying to mislead by mentioning the AV (Alternative Vote) system, on which the coalation goverment has agreed to hold a referendum in the following context: 

According to Nick Clegg in his first speech as deputy prime minister this week, more proportional systems provide better representation for underrepresented groups, but the evidence (internationally and in the UK) on this point is more complicated, especially for the ‘AV’ (alternative vote) system on which the Coalition Government has agreed to hold a referendum.

[Emphasis is Dr Khan's.]

I'd like to give Dr Khan the benefit of the doubt here - he does admit in the very last paragraph of the article, even if only briefly and in parenthesis, that AV is not in fact a proportional voting system at all.

Whilst this may be slightly misleading, it is not however the main objection I have with Dr Khan's article.  The main objection I have is the entire premise on which the article is built - that we should have a voting system which inevitably leads to us having more BME (Black and Minority Ethnic - Dr Khan's term) MPs.

Whilst I have no objection to there being more BME MPs I think there is an unhelpful obsession with race underlying this premise.  His argument seems to be that if 10% of the general population comprises BME people then roughly 10% of our parliament should consist of BME MPs.  I don't know about Dr Khan, but I don't choose which candidate to vote for based on race.  I prefer to choose who to vote for based on candidates policies, track record and my opinion of whether or not they could do a good job.

I'm going to go out on a limb here - hopefully a pretty sturdy one though - and suggest that not all BME people vote for BME candidates (where there is a BME candidate standing in their constituency).  I would have thought that at least some of them have better reasons for voting for their preferred candidate.

I remember having internet discussions on a similar topic based around this post from UKPR.  The gist of my argument is simple: It is wrong to vote for or against a candidate based on your own pre-concieved prejudices of race, gender, sexuality, religion, etc.

You should vote for the best candidate for the job, wherever they're from and whatever colour their skin happens to be.

Kiva

For those of you unaware of Kiva, it is a website which facilitates micro-finance loans to poor people in the developing World by allowing lenders (i.e. you) to browse a list of entrepreneurs wishing to borrow money and then lend to whomever you wish.  Your money is then lent to the entrepreneurs via a micro-finance partner in the borrower's country.  The idea is that instead of giving people handouts, which can foster dependency, you are providing a means to help people get themselves out of poverty.

The Monkey Business Illusion

See if you can count how many times the players in white pass the ball:

Did you miss it?

Hat tip to Richard Wiseman.

Great Sentences

"It’s idiotic, hateful and destructive to put obstacles in the way of productive activity." - Steven Landsburg on Arizona's new anti-immigration law.

The Political Spectrum?

There's something about a lot of political discourse in the blogosphere that particularly irritates me: talk of 'the political spectrum', in particular use of the terms 'the left' and 'the right' by people of all sorts of political affiliation as both complimentary and pejorative terms.

The terms 'right-wing' and 'left-wing' have their origins in the French Revolution, where in the French Parliament, those who sat on the left generally supported the radical changes of the revolution, including the creation of a republic and secularisation; those who sat on the right supported preservation of the monarchy, aristocracy and the established church.

More recently the term left-wing has been used to describe ideologies as wide ranging as anarchism, social liberalism, social democracy, socialism and communism.  Similarly, right-wing has been applied to conservatives, reactionaries, aristocrats, monarchists and theocrats as well as those who support both free-market capitalism and some forms of nationalism.

The problem with this is that the terms are sufficiently vague so as to include such wide-ranging viewpoints that they are effectively rendered meaningless.  By the generally accepted definitions given above, anarchists for example, are both left and right-wing.

Rather than thinking in terms of a left-right political spectrum, it is probably more accurate to think in terms of a plain of political ideas, an idea perhaps best captured by the Nolan Chart.

There's an example of a Nolan Chart below.  This one has been rotated 45 degrees counter-clockwise so that the 'liberal' region is on the left and the 'conservative' region on the right.  If you like to think in terms of left and right-wing politics these correspond (very roughly) to the left and right sides of the diagram.


The x-axis (which runs along the lower right of the graph) represents economic freedom, whilst the y-axis (lower left) represents personal freedom.

An explanation of where some typical ideologies lie on the Nolan Chart:

• Communism can be considered to span almost the entire length of the lower left side of the chart, spanning both the statist (authoritarian) and liberal regions.
• Socialism lies next to communism, slightly further up and to the right on the chart.
• Liberalism, as should be apparent, covers the liberal area of the chart.
• Social Democracy sits in the middle of the liberal part of the graph.
• Totalitarianism and Fascism lie at the extreme point of the statist (authoritarian) region, at the very bottom of the chart.
• Conservatism and Christian Democracy lie in the conservative area.
• Libertarianism, obviously, covers the libertarian region.
• Anarchism sits at the extreme tip of the libertarian region, right at the top of the graph, with maximum economic and personal freedom.
• The centrist region contains many mainstream politicians and parties, combining more moderate ideas from many different ideologies.

In case you were wondering, the little star on the chart is where I personally sit on this measure of political ideology (as a self-described 'liberal with libertarian tendencies' I was hardly surprised by this result).  If you want to find out where you lie, try out this quiz; it seems to me to be quite accurate, despite only containing 10 questions, some of which are not ideally worded.