Better Explanations Are A Waste Of Time

NZIER economist Shamubeel Eaqub interacts with the public at large over at Interest.co.nz, discussing house prices in Auckland amongst other things.

The comments devolve into anti-economist derp, without any discussion of the actual topic at hand. The benefits of interaction with the general voting public are significantly over-estimated.

Comment sections on almost every website are terrifying. It’s amazing how illogical most participants are, and of course you have to be on the look out for someone invoking Godwin’s Law.

Social media and commenting on blogs has set back the progress of thought a generation. Too many stupid people are sharing their opinions and influencing others who won’t spend the time reviewing the literature, reading long books on the issue written by experts or even acknowledging that maybe, just maybe, someone has a more informed opinion than they do and should be at least considered before they explode in an outburst of derp.

This isn’t an endorsement of technology driven wonk-led policy formation. It’s more of a call to take a minute to think before participating in a discussion. Most issues are way more complex than they seem – and the intuitive, easy answers run the risk of being completely opposed to reality and how the world actually works.

The Problem With Better Explanations

The problem with “better explanations” is that they’re still tainted by political bias. No matter how hard the author tries, there’ll still be some slant in the line of questioning if it’s an interview or conclusions if it’s a detailed examination of an issue.

The conceit that the world can be made a better place, simply through “better explanations” of complex issues that cause substantial disagreement amongst “experts” who have spent their career on that specialist subject, is obviously stupid.

Reproducing Cliff Notes versions of complex issues for general consumption doesn’t actually increase the number of people who understand an issue or understand the risks of claiming to understand an issue when you actually don’t.

Smart people can be really stupid sometimes. Having a post-graduate education doesn’t always mean having a greater understanding of your subject matter. In fact, in very complex areas, the deification of qualifications over experience when it comes to policymaking in complex systems is extremely risky.

There is an awful lot of pretense at knowledge on the internet. This past fortnight, with the brainfarting I’ve read from all corners of the internet on the issue of high frequency trading, is a prime example.

I’m not sure what the audience for this sort of content is, but there’s something inherently wrong with “better explanations” and “making complex ideas more accessible”.

Occam’s Razor applies, but only up until a point. Many one-liners written by “trained and skilled” journalists miss the wood from the trees.

If there’s one thing that an education in economics has taught me, it’s that the assumptions underlying many models can easily break down if you ask the right questions.

We have to remember that a model of how the world works is still just a model and not a living, breathing, accurate representation of reality.

It can help us understand or explain something, but making the jump to clear policy recommendations or rules to alter market micro structure arrived at organically is dangerous business.

Non-Voters, Inequality, Cognitive Dissonance

I be rockin’ J’s or
I be rockin’ Taylors
I got lots of flavors, my kick game is major
More kicks than the players, call me up I’m scorin’
Hit it like a free throw, tongue out like I’m Jordan
Smiley, Miley, come swing the thing right by me
Gotta a joint if you wanna get stoned, got choppers if they wanna try me
Pro athlete I’m not no wannabe
Waitress asked how many bottles? I said 23

A million people didn’t vote at the last election. There’s nothing wrong with that!

But the cognitive dissonance amongst young people with regard to wealth and income inequality is the reason nothing will ever change.

For all of the emoting about how #inequality is such a bad thing, the main thing on their minds is how to make more money or get into the housing market where they can benefit from asset-price inflation courtesy of supply restrictions and willingness of banks to lend on property.

“Sent from my iPhone” is the impenetrable obstacle for the modern left. Their values are literally 180 degrees away from what many young people care about. There is no chance of breaking through consumerism and brand centric culture. The winner take all entertainment market has seen to that. Many good people on the left don’t even understand the basics of power distribution in society, sociology isn’t the bunk that I used to think it was.

Independent books, records, bands, fashion labels – whatever – they’re basically a rounding error when compared to mass market entertainment. Decentralised accessory marketing in the form of Instagram, Tumblr or Twitter is essentially an unpaid marketing job performed by millions of people around the world.

Behavioural change that rejects these ideas is the way forward for the people who hold these ideas, but they  run into a brick wall when they realise that for what they actually want to happen, they need to stop feeding the beast.

It’s almost like people arrive at political ideas without thinking how their day-to-day behaviour and that of their household is essentially underwriting the things they allegedly dislike. It’s funny to observe from the outside. Winners in winner-take-all markets will only earn higher rewards in the future IMHO.

Freedom Of Speech

Freedom of speech no longer means what most people would think it to mean. It doesn’t exist. If your opinion is not equal to the one the collective hive mind of Twitter believes is the correct one, you’ll face trial by social media. Homogeneity of thought doesn’t help the marketplace of ideas at all. Screaming louder than the other person doesn’t help highlight where their logic is incorrect!

The best argument against democracy can be found in the idea of trial by social media. Stuff comments, Twitter brainfarts, I can’t believe these people have an equal vote. I’m reminded of the Arthur Miller play “The Crucible” when I read about some of the antics of modern day Danforth-like Twitterati (at least as portrayed in the play) . How did so many people become so horrible and mean, when they don’t need to be to make a point? They could try education instead of character assassination?

Cost Efficiency And Warehouse-Scale Computers

“The Datacenter as a Computer” is a very detailed look at treating data centres as warehouse-scale computers. A massive data centre is treated as one big computer. A cool perspective for sure.

If you want a technical overview of how these massive data centres are put together, this is your weekend reading. There are also interesting points made about the economics of warehouse-scale computing.

One of the things that jumps out at me is how cheap IT infrastructure components are in the United States relative to New Zealand. Fixed costs cut both ways I suppose.

Kim Dotcom

This is getting ridiculous.

The man is clearly suffering from delusions of grandeur.

His alleged mistreatment of employees is gross.

His alleged Nazi sympathies are shocking in this day and age.

Remind me, what’s the big deal if he ends up in an orange jumpsuit?

He clearly seems able to conjure money from somewhere…

At first I thought he was hard done by, now I think he’s taking the mickey.

Let’s get this charade over and done with – what’s he going to do once he’s in an orange jumpsuit in California? Sue the New Zealand government? Really?

And the Internet Party? Well, what a disgraceful footnote in New Zealand political history that will become.

Another Reminder For People Who Think We Live In A Deregulated Country

Spend some time reading through “Regulatory institutions and practices“, a draft report from the Productivity Commission that looks at what it says on the cover.

One of the central stories the left try to tell is that since 1984, structural reform has devastated our regulatory institutions and because of that, #inequality, or something like that.

They conveniently leave out that New Zealand has a pretty decent regulatory environment – employing thousands of people and paying decent salaries that enable some level of self-actualisation.

They also leave out any discussion of compliance costs and what firms actually spend – or implicitly spend – on complying with regulation.

This isn’t a post about whether more or less regulation is better – I’m agnostic on that. What I’m concerned about is that the left continually make stuff up when it comes to how “deregulated” or “neo-liberal” the New Zealand economy is.

It doesn’t square with the data – it doesn’t square with reality, it doesn’t square with how firms interact with regulatory agencies and it doesn’t square with how average households interact with agencies like their local council or regional council.

If what the left were trying to say is true – what are they accusing the 14,000 people working in this portion of the public service of doing? Are they seriously trying to tell a story where New Zealand is some deregulated cowboy country where you don’t get any enforcement of what’s on the statute books or in delegated legislation? Really?

Hysteria around how far structural reforms went, coloured by political bias, doesn’t help anyone. In fact, it directly undermines the credibility of anyone who wants to discuss issues of concern like youth underemployment or the failure of many workers and industry groups to adapt to a globalised, hyper-competitive world.

The Opportunity

The opportunity is there for the taking. But in an election year, negative outlooks and doom-and-gloom predictions are a bit easier to push down the throats of the electorate.

Skill-biased technological change is happening all around the world, and it’s a global story not limited to San Francisco, New York or London. Just look at the explosion in households earning more than $100,000 per annum since the last census.

Thousands of little niche markets exist that have business needs that can be solved by someone with domain knowledge teaming up with people who have technical knowledge.

They don’t need a massive venture capital investment or time in an incubator. They just need to find a way to commercialise a solution to a problem without bleeding cash. It’s possible, it’s achievable and it’s amazing that more people aren’t thinking about these opportunities.

A key failure on the part of policymakers is thinking that these opportunities can be acted on by anyone. That, with the perfect mix of government subsidy and prodding, New Zealand can become a tech powerhouse.

It’s ridiculous. There’s already organic interest in the opportunities, there’s already a lot of Kiwis doing exceptional stuff in the “real startup” sphere as opposed to the “take grant money and bail” sphere.

The opportunity to build companies that have highly skilled workers who receive decent salaries is there for the taking. The level of startup capital required is lower than ever – a laptop and an AWS account are the new starting point.

It must be done, it can be done and it will be done. With or without the government trying to pick winners in the technology sector.

Government largesse isn’t the answer here – in fact, it puts the whole opportunity at grave risk because it stuffs up the market signals gained from entrepreneurial trial and error.

Foreign Investment

The New Zealand Initiative have published two pieces on foreign investment: “New Zealand’s Global Links: Foreign Ownership and the Status of New Zealand’s Net International Investment” and “Capital Doldrums: How Globalisation is Bypassing New Zealand“.

They are both excellent pieces of research that provide some interesting facts, including the conclusion that both inward and outward foreign direct investment flows have stagnated since about 1995.

There is also discussion of how New Zealand is actually quite strict when it comes to permitting foreign investment. We are actually one of the more restrictive countries in the OECD.

It doesn’t need to be this way. Bryan Caplan wrote about anti-foreign bias in The Myth of the Rational Voter, and it is a good phrase that describes how people under-estimate the benefits of interaction with foreigners.

Populism and economic ignorance go hand in hand. It is very good politics to criticise foreign investment. But how many people who complain about “foreigners buying everything up” are beneficiaries of globalisation in terms of how much utility they can obtain?

The prices of almost all goods and services that can be traded across borders easily are going down. The Reserve Bank thinks that most inflation pressure will come from non-tradable goods and services.

This makes sense – but a lot of New Zealanders are hesitant to accept how much they benefit from foreign investment. Overseas capital is basically a free lunch – in exchange for a lot of benefits that accrue to the host economy, profits and interest flow overseas.

New Zealand firms benefit from this when they invest overseas – and in the race to keep skilled people here and offer them opportunities – we can’t let anything stand in the way of making inward capital investment difficult.

Non-economists do not understand that investment needs to increase by several orders of magnitude to catch up to Australia and the countries policymakers dream about catching up to. It’s easier to get $1 billion from overseas investment than for New Zealand households and firms to stump up $1 billion in retained earnings/savings!

Economics, Technology, Wellington, NZ