Tim Harford The Undercover Economist

Since You AskedSince You Asked

My column ran in the Financial Times comment section on Saturdays between 2011 and 2014.

Since You Asked

Popular perceptions exposed by numbers

What the public believes can be very far from reality, writes Tim Harford

‘A new survey by Ipsos Mori for the Royal Statistical Society and King’s College London highlights how wrong the British public can be . . . ’ Press release, July 9

That seems a bit harsh.

In fairness to the British public, the claim isn’t that we are always wrong. It is that when we are wrong we are very wrong indeed.

How wrong?

By a factor of 10, 15 – or more. Ipsos Mori was asked by the RSS to find statistical howlers and the market research company duly produced a list of its 10 favourite examples. These emerged from surveying more than 1,000 people, and focusing on areas Ipsos Mori had reason to suspect give us trouble.

So the pollsters set the Great British Public up for a fall?

No, they highlighted known weaknesses. For instance, everyone who has been paying attention knows two things about crime: it’s falling, and most people don’t know that it’s falling. Crime is less than half what it was in 1995, and a fair bit lower than in 2007. Violent crime is falling, too. But when surveyed, 58 per cent of people didn’t believe crime was down. This is an extraordinary mass hallucination.

Perhaps the statistics are wrong. You know what they say – damned lies and all that.

All statistics have their limits but I would be truly flabbergasted if some vast statistical conspiracy (or cock-up) had hidden the fact that crime has been rising for years after all. The statistics on immigration are probably more questionable – after all, some immigrants are illegal and so likely to resist being counted. The official view is that 13 per cent of the British population was born overseas; attempts to allow for uncounted illegal immigrants put that figure as high as 15 per cent. But take a survey and people reckon the true figure is 31 per cent.

Do they not know about the official figures, or do they not believe them?

Both. People don’t know about the official figures but when Ipsos Mori enlightened them, many were sceptical. And this matters. Ipsos Mori also found that three-quarters of people felt that too many immigrants were coming to live in the UK. Joe Public has spoken, and he says: “In my fevered imagination, there are too many immigrants around.” Sort that out, politicians.

Ah, well. Do politicians encourage these errors or pander to them?

A chicken and egg question, I fear. Some misperceptions are very convenient for the government. For instance, presented with a list of major spending categories – the National Health Service, defence, pensions and so on – people will tend to identify “interest payments on the national debt” as the biggest item. In fact it’s well down the list, less than half the cost of the NHS. And a substantial minority of people think Jobseeker’s Allowance costs the exchequer more than state pensions do. In reality, pensions cost 15 times more than JSA. People think that capping benefits at £26,000 a household will save a lot of money; it won’t. These misperceptions do play into George Osborne’s political strategy.

Come on, then – what’s the biggest error of all?

It’s probably not the most important error, but in sheer orders of magnitude, our view of underage pregnancy is pretty wrong. We think 15 per cent of girls under the age of 16 get pregnant each year, a figure that strains the limits of biology. The official statistic is that 0.7 per cent of girls aged 13-15 have either a live birth or a legal abortion. We have a grim view of some corners of British life, and fortunately that grim view is utterly wrong. One bright spot: people generally believe that their own area is closer to the way they like it with lower crime, lower unemployment, better policing, fewer immigrants. It’s the rest of the country they worry about.

That’s all very nice – but it doesn’t alter the fact that the British public are about as wrong as anybody can be about some basic facts.

You think so? You obviously haven’t heard of quantitative finance. The chief financial officer of Goldman Sachs commented, at the beginning of the financial crisis, that the investment bank was seeing “25 standard deviation moves, several days in a row”. It’s not totally clear what he had in mind but given some reasonable assumptions, it simply meant that Goldman’s mathematical models were wrong by, oh, 215 or 216 orders of magnitude – that is wrong by a factor of a trillion trillion trillion etc . . . with a total of 18 “trillions”. “Perceptions are not reality,” says the RSS. Well, quite.

Also published at ft.com.

Since You Asked

A statistical needle in a bureaucratic haystack

The data aren’t useful because they’re spread across a gazillion spreadsheets, says Tim Harford

‘Finding government statistics is not easy. Both expert users and occasional users struggle to navigate their way through the multiple places in which statistics are published.’ UK House of Commons public administration select committee report, May 2013

How hard can it be to find a few statistics? And since when is this a matter for a parliamentary committee?

You’ve obviously never tried to use the Office for National Statistics website. Try a simple-sounding query – such as what households are currently spending in a week, or retail price inflation for the past 50 years – and you are highly unlikely to get anywhere using the search window. It’s like Google on an acid trip, throwing several thousand random results at you.

It can’t be that hard.

I recently sat down with one of the UK’s finest economic journalists, Evan Davis of the BBC, and we tried to get the results we wanted either through the search window or by trying to second-guess the tormented mind of the person who constructed the branches of the database’s hierarchy. It was hopeless. Even when Mr Davis used his expertise to shortcut the process, we found ourselves thwarted at every turn. (As an aside, Google delivered the correct result in seconds.)

I am sure Chris Giles, the FT’s economics editor, would not be defeated so easily.

Perhaps not, but Mr Giles testified to the public administration committee and took the trouble to run through, step by step, just how difficult it would be to find the answer to a simple, practical statistical question – such as whether unemployment today is lower or higher than it was in the mid-1990s. For an expert user, who knows that the relevant code for the data in question is MGSX, finding an answer to that question is slow and awkward. For a more typical user, finding an answer might be impossible.

Let’s return to the question of why a parliamentary committee should care?

It’s encouraging that MPs do care, because professional researchers at the Commons library will do all the hard work for them and they need never do battle with the ONS website. Most other people have to do the leg work themselves; and, if the ONS site is hard to use, they will turn to other sources, which are more likely to be wrong or to contain partisan spin.

Why is this such a hard problem?

I suspect the ONS is making it look harder than it really is, but making statistics accessible isn’t a straightforward task. Our official statistics have their own longstanding categorisation system, which makes little sense to the lay person, so a user-friendly navigation system must help someone sidestep that. There’s a lot of data available, in principle, and there are many different ways in which users might reasonably want to see them presented, not to mention the difficulty of dealing with synonyms such as “family spending” instead of “household expenditure”. All that said: the ONS website is a national embarrassment.

Should I conclude that other countries make a better job of this?

The US’s Fred database (short for Federal Reserve Economic Data) is well-respected for being comprehensive and easy to use. The World Development Indicators, under the guardianship of the World Bank, are impressive if fiddly. But the truth is that this stuff isn’t terribly easy.

I thought the government was going to release more data. Does that mean the problem will get worse?

Demand for data can only rise, so the ONS needs to get its house in order. But the government’s “open data” plan is a somewhat separate issue. That sort of data released could contain almost anything – for instance, the real-time location of every bus in London, to enable applications and websites to help people plan their journeys. Handy stuff – but processed official statistics, which are quality-assured, are something different.

Aren’t government departments and councils meant to be releasing highly detailed data about what they’re spending?

They are – for every item more than £25,000. But the data aren’t very useful at the moment. They are often a bit unreliable and spread across a gazillion spreadsheets. There are many such problems but, as with the ONS website, we are promised improvements in due course. The journey of a thousand miles begins with a single step, as they say. I’ll grant the government this much: the steps have been in the right direction.

Also published at ft.com.

Since You Asked

Why weird science is all in a day’s work

Stories of the formula for the perfect penalty kick are cheaper than an ads, writes Tim Harford

‘People who have surgery towards the end of the week are more likely to die than those who have procedures earlier on, researchers say’ BBC.co.uk, May 29

This is presumably the National Health Service’s equivalent of Detroit’s lemons. If you buy a car that was assembled on a Friday afternoon, woe betide you . . . 

It is conceivable surgeons operate after a boozy Friday lunch. A more plausible explanation is the NHS is short-staffed at weekends and so if your surgery leads to complications you may be less likely to get prompt attention from experienced staff. Several studies have suggested it’s not a great idea to be stuck in hospital over the weekend, but there has been a suspicion the problem may not be the staff but the patients. Those who rock up for emergency surgery at three o’clock on a Saturday morning may just be different sorts of people with different conditions, compared to those who arrive at lunchtime on Wednesday. This research looked at planned surgery, not emergency surgery, which (one hopes) removes that source of confusion.

I’m sceptical. Haven’t we heard “researchers say” all sorts of things about different days of the week?

“Researchers say” the strangest things, at least according to the newspapers. You may be thinking of the “Blue Monday” equation, which purported to show the last Monday in January was, scientifically speaking, the year’s most depressing day.

That’s the one!

It’s nonsense. Harry Frankfurt’s essay “On Bullshit” pointed out while a liar knows the truth and is determined to conceal it, the bull merchant has no interest in whether something is true or not. This particular piece of nonsense is arbitrary pseudoscience.

Researchers publish nonsensical pseudoscience in the media all the time. Which is why I was sceptical about the “don’t get sick on Friday” study.

The problem is we constantly read that “researchers say” one thing or another. Perhaps that phrase once conveyed something meaningful – that experts had conducted a rigorous study on a topic and that we didn’t need to worry with the details, but could skip to the punchline. If so, public relations companies have hijacked the phrase, using it as a vector to infect the nervous systems of journalists and their editors. The Blue Monday study was paid for by a travel agency. Other nonsensical equations have been commissioned by ice cream makers, lingerie manufacturers, supermarkets and bookmakers. Some academic is persuaded to attach his good name to the sorry affair – and the definition of “academic” is often very loose. Nobody cares. Stories breathlessly relating the discovery of the mathematical formula for the perfect penalty kick, the perfect pair of breasts or the perfect weekend are routinely published. They are cheaper than paying for advertising.

But you’re going to tell me that the hospital mortality study was different, because it wasn’t sponsored by some corporate PR outfit?

You’re missing the point. The real flaw with Blue Monday wasn’t that it was commissioned by a corporation. It was that it had no scientific content. Science isn’t just whatever emerges from the mouth of someone with a tenuous university affiliation. Science is a process. The hospital study is part of that scientific process. It identified a hypothesis of importance. It gathered data – more than 4m inpatient admissions for every hospital in England over the course of three years. It analysed the data, with enough statistical power that the observed patterns were enormously unlikely to be the result of chance. It found an effect that was large enough to be of real practical concern. The research refers to, and supplements, previous studies in the area – and future studies will refer to, and supplement, this one. It was peer-reviewed and published in the British Medical Journal, an organ with a reputation to defend.

So the research checks out.

With apologies to Star Trek, I’m an economist, Jim, not a doctor. But it looks solid to me. Whether the BMJ study ultimately turns out to be correct, it is a world away from Blue Monday or the equation for the beer-goggles effect. Yet to the casual consumer of newspaper reporting, the difference is far from clear. So now half the country is credulous about pseudoscience, while the other half is disbelieving of perfectly good research. It’s all far more disheartening than a Monday morning.

Also published at ft.com.

Since You Asked

Loose money in all that spare change

The disappearance of small coins will be little noticed, writes Tim Harford

‘There is a wish among the German population to keep hold of the small coins. can personally only join that opinion.’ Jens Weidmann, Bundesbank president, quoted in the German newspaper Bild

Why is a German central banker bothering to campaign for the retention of the euro cent? It’s not as if anyone is proposing scrapping them.

Actually, the European Commission has proposed exactly that.

Oh.

They have a case: one and two euro-cent coins are expensive to make, relative to their face value. And they are useless things, as are the British penny and the US cent.

But people don’t want to see these coins disappear.

There does seem to be a psychological barrier. This is most obvious in the US, which did away with the half cent back in 1857, when it was worth quite a bit – 14 modern cents, after adjusting for consumer prices. Relative to the wages of the day, the half cent was worth almost a dollar in today’s money. It was no small thing to get rid of the half cent when people were only paid a few cents an hour. Nevertheless, the coin was withdrawn and everyone survived. Modern pennies, because they feel like some kind of foundational building block of the monetary system, have clung on stubbornly.

And why not? We like them.

No, we hate them. Actions speak louder than words. People don’t use these coins as money, for the excellent reason that they’re not terribly useful as a medium of exchange – too heavy and too difficult to count when purchasing anything but the tiniest item. The reason that so many euro cents have to be minted is that people get the things in change but don’t then spend them. They end up down the back of sofas or gathering lint in people’s belly buttons.

Isn’t that Gresham’s law or something?

It’s actually a weird inverted form of Gresham’s law, which says that “bad money drives out good”. When two coins with the same face value are circulating, people will tend to spend the coins with lower metallic value and keep the rest. The commemorative John F. Kennedy half dollar, for instance, was 90 per cent silver when first minted in 1964. Later half dollars contained less, then no silver. Gresham’s law predicts that the silver half-dollars will not circulate – and indeed, they do not. According to the website Coinflation, the melt value of a 1964 half dollar is $8. But the situation with the euro cent is the reverse: people hold on to them not because they are too valuable to lose but because they are too trivial to use.

Or they are popped in a charity collection box. Charities have a lot to lose if small-denomination coins are abolished.

The cost of keeping these coins in circulation has been €1.4bn since 2002, according to the European Commission. We should be able to figure out a cheaper way to encourage donations.

But the euro cent is hardly the least valuable coin in the world.

Indeed not. The More or Less programme on the BBC looked into this in 2012 and found a number of absurdly small-value coins. A jar of 500 of Tanzania’s smallest coin, the 5 cent piece, was worth just one British penny. There were 1,300 Burmese pya to the penny. The lowest-value coin in the world was Uzbekistan’s 1 tiyin.

How much is that worth?

One hundredth of a som, which as I am sure you know means that the tiyin was worth about one-three thousandth of a penny.

Has any country withdrawn small-denomination coins?

Various economic basket cases have, yes: Sweden, Australia, New Zealand and the home of the next Bank of England governor, Canada. New Zealand’s smallest coin is the 10 cent piece, worth more than 6 euro cents or 5 pence. The most valuable smallest coin of all is the Norwegian krone, worth more than 13 euro cents or 11 pence. The Norwegian economy has coped.

Things are awfully expensive in Norway. Perhaps people are right to fear inflation if these small coins are eliminated.

There’s a question of cause and effect here. Are things expensive in Norway because the country abolished smaller denominations, or were smaller denominations abolished because things were expensive? Don’t worry about inflation: the effect of scrapping small coins is unlikely to be noticeable, and inflation in the eurozone is low anyway. I don’t think the bastions of small-denominationism – Tanzania, Myanmar and Uzbekistan – suggest there is anything especially prophylactic about keeping our smallest coins.

Also published at ft.com.

Since You Asked

Mile-high bid to step up to a better class

Auctions seem a fine way of assessing willingness to pay, writes Tim Harford

‘For those seeking a way out of the economy cabin, a number of airlines, including Virgin Atlantic, Etihad, Austrian Airlines and Tap Portugal offer a facility whereby you tell them what you are prepared to pay to get upgraded.’
Financial Times, May 15

Am I supposed to be impressed? Isn’t the normal method of being upgraded to pay for it?

I think the distinction here is that traditionally, the customer – or the customer’s employer or client – pays the sticker price to fly business class or first class. This new scheme invites the customer to suggest the price. The airline will sit on that bid for a while, see whether better offers come in and, depending on how busy the front of the aeroplane is, will accept or reject the offer.

I see – that is a change.

Yes, but not a big change. A well-designed auction flushes out information about what people might be willing to pay, and charges accordingly. In some markets that is a very useful innovation, but there’s a reason why Tesco doesn’t run auctions when you pop in to buy milk.

It’s too much hassle, of course.

Partly that – although it is possible to run auctions incredibly quickly and cheaply in some circumstances. Every time you type in a search term on Google, the company runs a quick auction to decide which adverts to display. But Tesco doesn’t need to bother trying to figure out how to run auctions because it already has a fantastic amount of information about willingness to pay in general. It may also have information about your own shopping habits through which it can offer selective discounts.

And the same must be true for airlines.

Yes. Airlines are always tweaking the prices of their seats on each particular flight as the departure date looms and the plane starts to look full or empty. The auction may generate a bit of extra information, and therefore a bit of extra cash, but it seems marginal. My theory is that airlines want to differentiate between people who insist on flying business class and people who are willing to take a chance that they will not. A good way to offer different prices to these people is to sell some seats upfront and others in a more opaque auction.

Still, you’re making auctions sound rather passé.

This idea seems passé, but auctions certainly aren’t. The Bank of England uses auctions to determine how to inject liquidity into the banking system, for instance. This is a challenge because the problem is multidimensional: the BoE could offer loans backed by all sorts of different collateral, but would rather lend against safe collateral than riskier stuff. The potential interest rates at which the loans might be made depend on how desperate the system as a whole is for liquidity, but the spread between loans on safe collateral and loans on dodgy collateral should also vary depending on demand. Paul Klemperer, an economist at Oxford university, calls this general problem a “product mix auction” and has figured out a way to make the process run instantaneously, rather than dragging out for weeks as government auctions of yesteryear used to do.

It’s a long way from Sotheby’s, though. Or for that matter, a long way from eBay.

Both Sotheby’s and eBay accept proxy bids that come into play only when needed, and that is the key to Prof Klemperer’s scheme. And Sotheby’s could use a product mix auction to sell off a wine cellar, full of cases of similar but not identical wines. But you are right: auctions are becoming automated and a lot of auctions take place without us puny humans knowing. Your electricity supplier may soon be installing a computer that will vary the price of electricity by the second, and if prices are high some of your appliances will drop out of the bidding: the lights will dim, the fridge will allow the temperature to rise a little, the immersion heater will wait for a more propitious moment. An auction is a natural way for the computers to determine who gets priority.

I, for one, welcome our new silicon masters. Anything else?

You can already auction off your time to the highest bidder through Amazon’s “Mechanical Turk”, an online marketplace for small tasks requiring a bit of human judgment. It’s possible that sort of thing might become more widespread. On which point, I’ll have to leave you. This conversation was pleasant enough but I’ve just received a better offer.

Also published at ft.com.

18th of May, 2013Since You AskedComments off
Since You Asked

Proof that leaders need to look the part

We expect successful people to be attractive, writes Tim Harford

‘Governor Chris Christie, who once famously called himself “the healthiest fat guy you’ve ever seen”, disclosed Tuesday he had secretly undergone weight-loss surgery, a major new step by the potential Republican presidential contender to address both his health and a political vulnerability.’
Associated Press, May 7

I always thought Governor Christie was too fat to be president.

You shouldn’t judge a book by its cover, even if it is a padded cover. Mr Christie claims the surgery cialis was for health reasons anyway.

I’m sure I don’t know the inside of Mr Christie’s mind, even if I do now know more about the inside of his abdomen than I care to. I just think the American electorate, like many electorates, judge politicians at least in part by their appearance.

That does seem to be true. Presidential elections are usually won by the taller candidate, for example. The last president to be elected who was shorter than the average American man was William McKinley; that was in the 19th century. Most presidents have good hair. Every president so far has had a penis.

Quite – none of these are terribly profound indicators of political competence.

Don’t be quite so sure of that. Nobody doubts that striking looks are an asset for a film star or a model. Perhaps they make other people more productive – people in sales, for instance. We do know that more beautiful people tend to earn more; slimmer people tend to earn more; taller people tend to earn more and better-groomed people tend to earn more. Maybe this is discrimination, or maybe beautiful people are better at their jobs. After all, we want politicians to speak persuasively. Why shouldn’t we want them to look persuasive, too? Or maybe something else is going on.

Such as?

It’s possible that physical appearance is correlated with something else we care about. People have made the same complaint about Mr Christie’s weight as they made about President Barack Obama’s nicotine habit: that it showed a lack of willpower. Admittedly, that’s not a very good argument – being fat is a pretty weak indicator of low willpower and one would hope that the campaign trail would provide a slightly better guide to a politician’s character.

Tall politicians win elections, but you can’t gain height through sheer determination.

Height is interesting for a different reason. There is a correlation between being tall and having a good job, and the natural explanation for that is some kind of discrimination. But the economists Anne Case and Christina Paxson argue that height is also correlated with intelligence, even for children. What seems to be going on is that poorly nourished children will tend to lose out both mentally and vertically.

I know some tall people who are pretty dim.

Of course you do. These are just statistical tendencies. When we make a snap judgment about someone because they are fat, or short or ill-groomed, we are doing both them and ourselves a disservice. Which leads to another intriguing possibility: that years of these unfair snap judgments make pretty people self-confident and ugly people shy, hesitant or bitter – and so the superficial judgments eventually become self-fulfilling.

That sounds very speculative to me.

There is some evidence for the idea, though. Two researchers, Markus Mobius and Tanya Rosenblat, confronted their experimental subjects with a series of maze puzzles, asking them to guess how quickly they could solve the mazes before inviting them to have a go. More beautiful subjects were more self-confident, but not actually any better at the task. So perhaps there is something in the idea that our appearance ends up having important effects on personality.

We’re faced with an embarrassment of riches.

True. There are many reasons why appearance may be correlated with success in life. But one study by the economist Daniel Hamermesh cleverly isolated the purely superficial effect. Professor Hamermesh looked at candidates who stood for election to an association more than once, and showed that their chances of success rose when they used a more flattering photograph.

Voters can be so superficial.

It is disappointing – especially since this should, in theory, have been the world’s most rational electorate: the members of the American Economic Association.

Also published at ft.com.

Since You Asked

Boycotts will not help Bangladesh’s poor

Human cost of an embargo would be higher than the recent factory collapse, says Tim Harford

‘The EU is considering moves against Bangladesh, including restricting trade access to the European single market, in an attempt to press the country to improve its labour practices after last month’s deadly factory collapse.’
FT.com, May 1

Quite right, too. The Rana Plaza collapse was appalling. Truly shocking.

It was. It is not the only thing that is shocking about Bangladesh, though. For every 1,000 children born there, 46 will die before their fifth birthday. The rate in the UK is five per 1,000, so you could say that Bangladesh’s lack of development is responsible for the other 41. Across Bangladesh, that is 123,000 preventable deaths a year, just of children. That’s one Rana Plaza collapse every weekday.

So you think “don’t touch the precious sweatshops because they’re good for the economy and the economy is good for the little children”?

If the EU does impose some sort of sanction on the country, the human cost is likely to be far higher than that of Rana Plaza. Bangladesh has been a development success story; poverty is high but falling fast. Literacy and life expectancy are improving. That appalling under-five mortality rate of 4.6 per cent used to be far worse – 20 years ago, it was 12 per cent. When we see the pictures of the Rana Plaza wreckage, it’s easy to imagine a backdrop of stagnation, complacency and despair in which nothing ever changes, no matter how awful the tragedy. But the true context is a country making rapid improvements in nutrition, health, education and women’s employment. If the EU’s threat galvanises improvements in wages, working conditions and building standards – all of which Bangladesh can afford – then good. But if the threat were to be carried out, that would be a disaster, albeit one that will not be televised.

But we’re culpable here – western companies bought clothes from the Rana Plaza factories.

Are we now so obsessed with brands that human misery only counts when we can connect it to something we can buy on the high street? The most notorious example was when, in 2010, 10 workers at a Foxconn electronics factory in China killed themselves – a shocking fact that tarnished Foxconn’s most famous customer, Apple, and caused millions of iPhone owners to feel faintly guilty. But the factory employed an astonishing 400,000 people; so the reported suicide rate, rather than being shockingly high, was implausibly low, a sixth of the Chinese average.

I understand that rich-world consumers can frame all these tragedies as part of their own personal drama. That doesn’t mean multinational companies can get away without taking action.

What action do you want them to take? While a few, such as Primark, have said they will take some responsibility, others have distanced themselves from the disaster. There is a record here: Nike’s supply-chain practices have been under the human rights spotlight for many years, and the company has responded by trying to improve working conditions. It has found it difficult because the systems are complex, fluid and messy. Even if a local factory satisfies every demand for decent working conditions, it can easily outsource production to the likes of Rana Plaza. There is a risk that, while lesser brands (or non-branded industries) do as they please without scrutiny, high-profile companies decide it would be easier simply to pull out.

But that risk might persuade the Bangladeshi government to sort out local regulations.

Let’s hope so. And charities, or development agencies such as the World Bank, can add a carrot to that stick through what is known in the jargon as “capacity building” – that is, helping governments draft sensible regulations, put together a bureaucracy capable of enforcing them and so on.

One other thing: poor countries need to allow trade unions to operate – unlike in Bangladesh, where union activists have been harassed and even killed.

It’s not like an economist to back trade unions. I thought you were all Thatcherite?

There have been times and places where unions have been a force for chaos and stagnation. Bangladesh in 2013 isn’t one of them. Ultimately, whatever western consumers demand, what determines whether rules about working conditions are upheld is that workers on the factory floor have a voice and some power.

Also published at ft.com.

Since You Asked

The culture secretary has strange designs on an engine of growth

The UK minister responsible for the arts hopes cake can rescue a crumbling economy, writes Tim Harford

‘Maria Miller will tell arts leaders on Wednesday to stop moaning about government cuts and start making the case for how their organisations can boost economic growth.’
FT.com, April 24

Interesting. Any idea what the culture secretary means?

You mean, do I have any idea what she means, or does she have any idea what she means? The answer’s no, either way. Although she did say that “culture is able to deliver things which few other sectors can”, which suggests that she thinks it’s a bit like Federal Express.

She must have given some examples.

That’s the problem. Every example tells a different story. For instance, she was keen to talk about the £5m a year that the Yorkshire Sculpture Park contributes to the local economy, according to a report commissioned by the Yorkshire Sculpture Park.

The basic benefits measured here were that visitors to the sculpture park might spend money locally, and the park itself also spent money locally, perhaps by buying chocolate cake from Wakefield and selling it to visitors. There is no cost-benefit analysis, so no way of asking whether the Wakefield cake-baking industry might have been stimulated more effectively in another way. Nor is it clear how many of these cakes might have been bought anyway – or in some different part of Yorkshire or indeed the UK.

Still, it is undeniable: people visiting cultural attractions don’t just spend money in the gift shop, but in nearby hotels, restaurants and shops. There’s money to be made.

She must have had some broader vision of the economic value of the arts.

Perhaps. The Arts Council has published a handy guide for arts organisations figuring out their economic benefit and you would be surprised how much of it is about cake-sale uplift, although they do not put things in quite those terms. The guide also mentions that organisations which publish estimates of their value to the local economy do tend to get press coverage, so that’s good, I suppose.

Let’s have some other examples. You’re being mean now.

The culture secretary pointed out that our cultural fame helps foster trade relationships. Perhaps that’s true, but Germany seems to be doing pretty well on the old trade-relationship front despite the fact that its cultural image revolves heavily around Beethoven and Wagner.

Ms Miller was proud of the fact that Norman Foster’s architectural practice is doing well in Hong Kong. She celebrated the fact that the Buxton opera festival had a turnover of £1m, although if economic value is the topic, profit is typically a more interesting number than turnover. And she mentioned that the musical Matilda looks like doing jolly well on Broadway – well done to the Royal Shakespeare Company – while Skyfall, the latest James Bond movie, made an awful lot of money.

If you can see the overarching link between these examples, you’re doing better than I am.

Wasn’t Skyfall produced by Sony anyway?

I think so. Ms Miller also said that “arts and culture are now thought to be as valuable to Merseyside’s economy as The Beatles and football”. Apart from suggesting that The Beatles don’t count as culture, I have absolutely no idea what that means. It may be the cakes again, or something else.

You seem very cynical about funding the arts.

I’m not one who is cynical. The cynic is the person who deploys an economic methodology that cannot distinguish between a museum and a rollercoaster. It is worth asking, though, whether arts funding really constitutes the seed capital that the culture secretary and arts grandees sometimes like to talk about.

I’m looking at a list of the 32 organisations that have received more than £5m from Arts Council England. Opera, ballet, symphony orchestras and theatres all but run the show – mostly venerable institutions. Giving millions of pounds to the RSC, the National Theatre and the English National Opera may be worthwhile; it hardly constitutes “seed funding”.

But the RSC did produce Matilda and the National Theatre produced War Horse.

True. And if you add a few other famous cultural creations – Bond movies, The Lord of the Rings, Harry Potter and a cornucopia of Jane Austen adaptations – it’s hard to avoid the conclusion that the real source of ideas is the British novel, which seems to me to be resolutely unsubsidised.

Also published at ft.com.

Since You Asked

Fine for my backyard, not my neighbour’s

Perhaps we should simply scrap planning permission altogether, writes Tim Harford

‘Eric Pickles has promised a hasty rethink of proposals to let homeowners bulldoze their back gardens without planning consent in another setback for government efforts to streamline the planning process.’
FT.com, April 16

I am never entirely reassured by the words “hasty” and “rethink” in proximity.

Proximity is what this is about – Mr Pickles, the local government secretary, was trying to pass a law that would enable people to build substantial home extensions without planning permission.

How substantial?

Eight metres, which would consume my entire back garden and half of the garden beyond that. But the idea looks like it will be modified, because many Conservative MPs, local councillors and others don’t like it. Zac Goldsmith, who has led the rebellion, said it was a “recipe for community disharmony” and suggested instead that developments should go ahead by default if neighbours did not oppose them.

Sounds reasonable.

Sounds nonsensical. Moving from a scheme where you decide what you build in your garden to a scheme where your neighbours decide what you build in your garden may change what gets built, but does nothing to reduce community disharmony. The same people will argue about the same things. Close neighbours often have conflicting interests about development – which is one reason why we have planning rules in the first place.

So what is Mr Pickles trying to achieve?

He wants more building. British homes are prohibitively expensive because we haven’t built enough of them – new homes are being built at about half the rate that new households are forming. What’s more, it’s a good time to make up some of the shortfall. The economy is depressed and construction activity would be a good stimulus. Unfortunately the government’s attempts to kick-start construction have not yet borne fruit.

Don’t lose hope. Perhaps George Osborne can delay the recovery so that Mr Pickles can make a difference.

Ha! Perhaps. I wonder, though, whether Mr Pickles shouldn’t think differently about planning reform. His current proposals will benefit homeowners with plans to expand, rather than large developers – whom journalistic ethics require me to describe as “canny”.

What would you suggest?

The basic problem is simple enough. The market tells us there is a huge pent-up demand for building new homes – converting some shops and offices, but in particular building on green space. However, we are wary of letting the market allow any building without planning permission, because of the possible spillovers – new developments can clog roads, raise the risk of floods or simply look ugly. Building new luxury homes all over Hyde Park would be profitable in its own right but awful for London; a similar, if gentler, consideration applies to building in any field or garden. And so we have rules aimed at figuring out what should be allowed.

And do they work?

Not really. Casual observation suggests that planners allow all sorts of monstrosities while imposing a huge cost on homeowners – although probably not on “canny developers”, whose knowledge of the intricacies of the planning system is a barrier to pesky competitors.

So what is to be done?

We could scrap planning permission, of course – the system was introduced in 1947 and it’s far from clear that the UK’s cityscapes have improved since then. But I suspect most people believe the island is too crowded to return to pure libertarianism. A more practical approach could retain the existing system, which gives planners widespread authority to determine what is best for a local area, but use market signals to persuade planners to approve more.

How might that work?

One proposal, floated by the think-tank CentreForum, would allow councils to reap the financial benefits of granting planning permission – which in some parts of the country can increase the value of agricultural land to a few million pounds per hectare. The landowner enjoys all that windfall – why should that be so? The duly motivated council would still be democratically accountable; considerations of safety, environmental hazard, congestion and aesthetics would remain on the table; and local taxpayers would benefit from local development. And yet we’d see more houses. All without fighting with the neighbours.

Also published at ft.com.

Since You Asked

The ins and outs of organ donation

If we automatically put people on the donor register we’d presumably see more transplants

‘NHS achieves ground-breaking 50% increase in deceased organ donors’
National Health Service press release, April 11

That’s good news.

Absolutely – although about 1,000 people a year die waiting for an organ. Half of those who receive kidneys wait more than three years, and being on dialysis is not fun. So we need to do more. And it turns out that economists are experts on allocating scarce resources.

You are about to propose a market for human organs?

No, I think we can agree that the idea of a market for live kidney donations is a non-starter. Except in Iran.

Iran?

Yes, buying kidneys is legal in Iran. Can we move on? Proposal number two is to establish a different way to exchange kidneys. The idea is simple: many patients have friends, spouses or siblings who are willing to donate a kidney but cannot because of incompatible tissue or blood types. In 1986 Felix Rapaport, a leading transplant surgeon, floated the idea of putting together patients and donors to allow each donor to give a compatible kidney to the other donor’s loved one. Even now the idea is called “paired donation” because “exchange” might sound too much like a market.

But surely nobody could object to such a thing.

It has caught on and been made more effective by the efforts of economists such as Al Roth, a recent Nobel laureate based at Stanford University. They have designed algorithms to maximise the number of successful transplants. Another idea, the brainchild of a surgeon, Michael Rees of the University of Toledo, is to set up long chains of donations, beginning with a single altruist who is willing to donate a kidney to a stranger without needing to enter some sort of paired donation arrangement.

Are such schemes making their way over to the UK?

They are indeed; we have several kidney sharing schemes here. But they are small compared with the number of people waiting for kidneys. And it is not so easy for a living donor to offer a heart or a lung.

Any other brilliant economic ideas?

Here’s a curious observation, from a 2003 paper written by the behavioural scientists Eric Johnson and Daniel Goldstein: in countries where people must opt out if they don’t want to donate their organs, “consent” rates are typically close to 100 per cent. In countries such as the UK, where people must opt in to become donors, consent rates are much lower. This leads to the natural observation that if we just automatically put people on the donor register unless told otherwise, we’d see more organ transplants and more lives transformed. Wales looks likely to adopt this position.

And rightly so, I’d say. Thank goodness for behavioural economics.

Not so hasty. It’s not at all clear that presumed consent would help. Many deceased donors were never on the register and many people on the register end up not being donors. One of the reasons why more transplants are taking place is because the NHS is getting more competent – and has clearer legal authority – at making sure they happen. This means identifying donors, persuading families to give consent and even performing procedures on patients who are not yet dead.

So a lot of this is actually about medical practice and bureaucratic efficiency?

Of course it is. And what families feel about it is also important. If we fill our donor registry with auto-enrolled donors, will that really persuade distraught families to support transplants? In any case, behavioural economics suggests a more elegant alternative.

Do tell.

Prof Johnson and Dr Goldstein are often cited in favour of presumed consent. But they also discovered that if you demand a yes or no answer, most people willingly join the register. You don’t need to sneak them on to it by default: you can just request that they express a preference. Since July 2011, people applying for driving licences in the UK have been faced with just this choice. The majority of new donors now arrive on the register in this way, although disappointingly the “not now” answers outnumber the “yes” or “already registered” answers by more than two to one. But, encouragingly, a new trial will be experimenting with different prompts, words and images with the aim of discovering what approach works best. That’s good. When doctors and nurses are trying to win approval from grieving families, it will be far more helpful if people are registered donors by choice, not by default.

Also published at ft.com.

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