Matt Nolan

Quote of the day: Sen on inequality and rhetoric

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I am currently disappointingly short on time, I apologise.  So I will take this chance to quote from smart people, in this case Amartya Sen on inequality again.  This time at the end of chapter one from ‘Inequality Reexamined’.

The tendency to assume away interpersonal diversities can originate not only from the pragmatic temptation to make the analytics simple and easy (as in the literature of inequality measurement), but also, as was discussed earlier, from the rhetoric of equality itself (e.g. ‘all men are created equal’).  The warm glow of such rhetoric can push us in the direction of ignoring these difference, by taking ‘no note of them’, or ‘assuming them to be absent’.  This suggests an apparently easy transition between one space and another …

But this comfort is purchased at a heavy price.  As a result of that assumption, we are made to overlook the substantive inequalities in, say, well-being and freedom that may directly result from an equal distribution of incomes (given our variable needs and disparate personal and social circumstances).  Both pragmatic shortcuts and grand rhetoric can be helpful for some purposes and altogether unhelpful and misleading for others.

The purpose of thinking about this is not to say there is nothing that should be done.  But instead that, as was made clear here, these moral issues are too important to just relate to some vague partially related factor and pretend we have a silver bullet.  If we genuinely care, we need to try to understand why and about what – instead of using ‘grand rhetoric’ to simply make others think about how thoughtful we really are 😉

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Matt Nolan

Links of interest

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Here are some links that I suggest people go and give a read if you haven’t already – they are all things I wanted to post about, but have decided to link without comment 😉

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Matt Nolan

The Economist on the GFC

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The Economist magazine has started a five part series on the Global Financial Crisis, and the lessons from it.  Should be a lot of fun.  Part one is here.  They conclude:

The regulatory reforms that have since been pushed through at Basel read as an extended mea culpa by central bankers for getting things so grievously wrong before the financial crisis. But regulators and bankers were not alone in making misjudgments. When economies are doing well there are powerful political pressures not to rock the boat. With inflation at bay central bankers could not appeal to their usual rationale for spoiling the party. The long period of economic and price stability over which they presided encouraged risk-taking. And as so often in the history of financial crashes, humble consumers also joined in the collective delusion that lasting prosperity could be built on ever-bigger piles of debt.

A lot of what they say in the article is true, although I will be honest that I don’t fully agree with their description of the lead up to the crisis … and as a result, will probably have some differences of opinion in terms of what I view as appropriate lessons.  However, I will leave all this for another time 😉 [Note:  Many of these things involve markets – but then many of the explanations involve only looking at “one side”.  This is common, but always a touch disingenuous IMO]

Feel free to discuss the GFC, and the description of the causes by the Economist, in comments below!

Will Taylor

Costs and (or lack of) benefits of transport projects

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Auckland Transport Blog have put up a post today discussing the costs and benefits of the planned transport projects in Auckland that the government is backing. I’ll discuss that in a second, but first there is something I want to get off my back regarding the assessment of transport projects.

BCR ratios (aka CBA by another name)

One thing that has always intrigued me when I hear about transport projects is that rather than talking about the “net benefits” from a “cost benefit analysis” (CBA), they talk about “benefit cost ratios” (BCR). Now the BCR is just the calculated benefits divided the costs (B/C). The surprising thing to an economist is that the BCRs are often < 1.

This means one of two things:

  1. The projects are money hole and shouldn’t be built (we get less benefits than we put in)
  2. There are significant non-quantifiable (or difficult to measure) benefits, and bureaucrats have made the judgement call that the non-quantifiable benefits are enough to tip the balance to give a true BCR>1. So there is some objective analysis, and some “gut feel”, but this can’t be avoided.

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Matt Nolan

Quote(s) of the day: Keuzenkamp on controls and data mining

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As I indicated here I am reading Probability, Econometrics, and Truth.  A nice outline of things, I’m enjoying it at present (I was 20% of the way through when I wrote this post over five weeks ago).

Two quotes I’d like to note down here: Read more

Infometrics

Lies, damn lies, and statistics

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Last week David Grimmond wrote (here and here):

However, despite the great informational power of statistics, bear in mind that sample based statistics are still always measured with error.

How often do we hear news items that note something like: ‘according to the latest political poll, the support for the Haveigotadealforyou Party has increased from 9% to 9.5%” etc, but then just before closing the item they state that the survey has a 2% margin of error.

If you are awake to this point you suddenly realise that you have just been totally misled.

With an error margin of 2 percentage points, you cannot make any inference about anything within a 2 percentage point margin.

After discussing this point he states:

One can react to this article in (at least) two ways: one could become a bit more relaxed about the significance of changes reported in statistics or one could seek improvements to the accuracy of statistical collection.

In what areas do you think the first option is appropriate, and in what ways would it be worthwhile to increase spending to improve accuracy?