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Every single IT guy, every single manager …

by Daniel on September 23, 2014

I’m sure that this point has been made somewhere or other in the general debate on email spying and the NSA/Snowden revelations, but in my opinion not often enough or forcefully enough. People who want to dismiss the whole thing as “no big deal” are, in my view, totally underestimating the scale of the blind trust that’s required of them. In other words, even opponents of ubiquitous surveillance (like Kieran in this worked example) tend to assume that the institution which has access to your information is the institution which collected it. But that’s not necessarily the case at all.

The Leveson Inquiry in the UK demonstrated that the Police National Computer could be accessed by more or less any tabloid journalist with a phone and an account with a crooked detective agency (which served as the conduit to crooked insiders). The Manning and Snowden revelations, whatever else they’ve shown us about the world, have made it clear that mid-level employees can get access to huge amounts of top secret data as long as they’ve got the wit to smuggle it out on a thumb drive.

So the question is not so much “do you trust the CIA/NSA/MI6/etc?”. It’s “Do you trust every single sysadmin working for these organisations? Every single analyst? Every single middle manager?”. The CIA might not be interested at all in my dull mobile phone conversation metadata, but someone else might – the Leveson inquiry was told how the UK’s PNC was used by one copper to check out his daughter’s new boyfriend. In terms of our personal data, the kind of uses which the agencies want to be allowed to make, while worrying enough in themselves, are the tip of the iceberg. And all the policies which might prevent it from being accessed by blackmailers, tabloid journalists, nosey neighbours and basically anyone else, are themselves top secret and not subject to any sort of legal oversight.

This isn’t a conspiracy theory, as you can see; it’s based on the fact that big and complicated systems are set up to malfunction, particularly if they are able to declare themselves above any regulation at all. And the way in which this particular system is set up to malfunction is easily predictable and potentially very damaging to innocent people. I am personally not at the stage where I trust every single person who might be hired for a low level IT job in a security agency, and I’m not sure that I trust an entirely opaque set of safeguards with no accountability either.

The second stage of my travelogue finds me and the family in the French Alps, heading to the Italian lakes. Shortly after finishing this, I set off for Venice to take a ferry down the Adriatic …

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Thanks to P O’Neill in comments to my last post, for suggesting both the idea for this poor-man’s Friedman travelogue and its title. The first installment comes to you from the youth hostel in Grindelwald.

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The end of a glittering career ….

by Daniel on August 16, 2014

And so, as readers of my Twitter account might be aware, I’ve had a life event recently. As of today (I’m posting this from the WiFi at Geneva airport) and for the next year, I am doing less of the stockbroking, and more of the travelling round the world with my family.
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The biggest game in town

by Daniel on December 24, 2013

I never really got round to writing a proper Christmas sermon this year, but given that it’s been kind of topical recently, I thought I might have a go at explaining one of the phenomena of online political debate which is as persistent as it is puzzling – that is to say, why does everything end up turning into a flamewar about Israel?

Consider, reader, a person who is a bit of a nut. His very favourite thing in the world is to have arguments on the internet about the politics and government systems countries he will never visit. There are two issues in the world which he regards as massive injustices which cry out to heaven for redress – the Russian occupation of Chechnya, and the military junta in Burma/Myanmar. He also, broadly, supports the cause of the Palestinians, but this really isn’t much of an issue for him; he’s much better informed and much more concerned about Chechnya and Burma.

So why, when the NSA takes a snoop over this fellow’s online output, does he seem to spend all of his time arguing about Israel and Palestine?
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I wrote this in late September 2011, to explain to my circle of friends why I thought we were in the state we were in. It’s by way of background to my latest post on secular stagnation, so I’ve disabled comments on this one.
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“When you write down all the good things you should have done, and leave out all the bad things that you did do, that’s memoirs” – Will Rogers

“Secular stagnation” is doing the rounds as a theory of why we’re in the mess we’re in, after this Larry Summers talk, which Paul Krugman is claiming basically summarises ideas that he’d also been talking about for the last few years. I am not sure about the extent to which anyone can claim priority on this though – as Krugman says, Summers is basically giving a clear expression of a set of ideas which have been ubiquitous for a long time, to the extent that I was making jokes along that line, ten years ago. I will follow Krugman in saying that I also had been thinking about a similar explanation of things since 2009, set out in cursory form here and in greater detail here[1].

Basically, the thesis is that since about the mid-1990s, it has been the case that it has only been possible to achieve anything like full employment in America during periods when the private sector has been chronically over-consuming and increasing its debt levels. The “natural rate of interest” consistent with full employment has been consistently negative all that time, and since there are good theoretical reasons[2] to presume that the natural rate of interest has some relationship to the natural rate of economic growth, this might be saying something rather depressing about the underlying growth potential of the developed world’s economy. And so on, and so forth.

Now it’s an interesting question, although not one on which I find myself with anything to say, as to whether we are stagnating secularly[3]. But the thing I do want to address is that, in the way in which the issue is being discussed historically, there is a lot of rewriting of the recent past.

Right from the start, you can see that there has been a lot of semantic drift in the word “bubble”. From having once referred to a specific model of how prices could depart from fundamentals in a rational expectations model, to referring to any general inflation of securities valuations, Summers and Krugman appear to be using “a succession of bubbles” to refer to “any period during which personal gross debt increased based on rising asset values”. As an opponent of linguistic inflation, I’m already prejudiced against this way of thinking of the economic history of the last two decades. But in describing the growth in debt as if it was a purely exogenous phenomenon, due to nothing other than animal spirits and irrationality, there’s a really dangerous kind of mistake being made.
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Sveriges Riksbank prize actually, blah blah blah

by Daniel on October 15, 2013

I have always been of the view that there’s no real point in getting too outraged about the Nobel Prize for Economics. For one thing – economics is an important subject which is bound to have an important prize, and it’s a good thing that this prize isn’t wholly in the control of the American Economic Association[1], because if it was it would be a whole lot worse. For another, on an objective look at the quality of the company which the Economics Nobel is keeping, I don’t think anyone can really claim it’s bringing the average down. The Peace Prize is a notorious joke, of course, but the Literature prize is also wildly eccentric, and even the Physics and Chemistry prizes are occasionally awarded to people who believe in ESP[2]. So let’s stipulate that the Balzan Prize and the Fields Medal are both really really good prizes, and that winning one of them is probably even better than having dinner with the King of Sweden[3].

So, the Fama/Shiller/Hansen prize, or as the vast majority of comment has it, the prize for “Fama, Shiller and that other guy”. What does it say about the state of economics? I think it encapsulates everything good and bad about the subject. First, the good.

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While in an unusually masochistic mood, I read all of Steven Pinker’s astonishingly wordy essay on science science science science did I tell you how much I love science? Just as there are few clearer signs that one cannot program a computer than to publicly call yourself a “hacktivist” and few clearer signs that you didn’t do statistics at university than to boast that you’re a “data geek”, Pinker, who made a perfectly decent academic career as a computational linguist, and then an absolutely stellar one by making up a load of rubbish about social sciences really sounds like he’s overcompensating for something. Everyone’s happy about the moon landings and curing smallpox and all that, but it really is a bit unseemly to imply that if you object to Pinker and his mates constantly gobbing off about things they don’t want to bother learning about, you’re in favour of unanaesthetised dentistry. The whole olive-branch-I’m-only-here-to-help thing is made particularly ridiculous of course, by the quite colossal strop that Pinker is still throwing even to this day about “postmodernism” and the way in which he reacts to the idea that scientists are human beings operating in a social context, and that therefore the things they do are a potential subject of sociological analysis.

Anyway, if you want to read a lot of very tendentious stuff about the role of science in literature and music, and if you want to be told that evolutionary psychology approaches and “the epidemiological dynamics by which one person affects others” (he means memes, but presumably has been told about the cat pictures thing) are much much more mainstream and universally accepted than they really are, then there it is. Because that isn’t really my subject here, more of an introductory toccata on the theme of run-on sentences.

I wanted to highlight this interview which Chris pointed out to me on Twitter, and which contains this quite startling passage, which was skipped over by the interviewer in such a manner as to suggest that it’s a mere commonplace of British university administration.
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by Daniel on July 6, 2013

So a while ago on Twitter, I saw this storify by @KateDaddie, talking about ethnic minority representation in the British media, in the context of this article by Joseph Harker in the British Journalism Review. As I am a notorious stats pedant and practically compulsive mansplainer, my initial reaction was to fire up the Pedantoscope and start nitpicking. On the face of it, it is not difficult to think up Devastating Critiques[1] of the idea of counting “#AllWhiteFrontPages” as an indicator of more or less anything. But if I’ve learned one thing from a working life dealing with numbers (and from reading all those Nassim Taleb and Anthony Stafford Beer books), it’s that the central limit theorem will not be denied, and that simple, robust metrics with a broad-brush correlation to the thing you’re trying to measure are usually better management tools than fragile customised metrics which look like they might in principle be better. Anyway, Kate asked me to come up with a simple probability model to give an idea of what sort of frequency of #AllWhiteFrontPages might be considered odd, and this is the way I went about it. This is being crossposted to the new Media Diversity UK blog.

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Welcome! Once more, I’m trying to help people understand how policies get made from the inside, and how something that looks like a dumb idea can often be the best choice out of a bad decision set, in the context of the ongoing Euro crisis. The last one was pretty didactic, in that I was aiming to steer people down a path to the decisions I thought were being under-rated. This time, what strikes me about the Cyprus policy agenda is the sheer amount of uncertainty and ambiguity; nearly every idea could end up succeeding brilliantly or failing horribly. So this time round, I’m introducing a large element of chance.

In this episode, as in the last one you are once again a representative of the Secret One World Government, and you have been temporarily flown in to pull the strings in the island of Surpyc, which is currently experiencing a bailout crisis…

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My annual kind-of-tradition continues this year, to the protests of all our long suffering readers. Thoughts on evidence, disagreement, knowledge and related matters follow, in suitably opaque and allusive style …

On not believing in Canada

I remember clearly when I first started along the road that led me to where I am today – the unfashionable and lonely position of an adult man, educated and well-travelled, who doesn’t believe in the existence of Canada. I was a kid at Sunday School, and the vicar was trying to talk to an awkward class of hard-nuts and smart-asses about the general concept of faith in the absence of empirical evidence.

“What about Canada?”, he asked us all, his thick Welsh accent muffled slightly by an impressive crop of nostril hair. “You’ve never been to Canada! You’ve never seen Canada! You’ve never even met anyone who’s been to Canada! But you believe in Canada, don’t you, Davies?”.

He cast his gaze around the room, having to swivel his neck a bit as something like a dozen of us were called “Davies”. I elected myself as the spokesman and made what seemed to be the obvious response:
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Black Swans, Fat Tails, and me

by Daniel on November 7, 2012

Sooooooo, this is a thing that happened …

And the moral is that if you’re in a mood where you’re likely to insult your favourite authors on Twitter, don’t count on them not finding out about it in this modern and interconnected world. I was clearly in an unusually difficult mood that day, as I also managed to piss of Steve Randy Waldman by describing his latest thesis on macroresilience as “occasionally letting a city block burn down in order to clear out the undergrowth”. As with the Taleb quip, I kind of stand behind the underlying point, but almost certainly wouldn’t have said the same thing to the guy’s face, so sorry Steve. In any case, by way of penance I will now write a few things about resilience and unpredictability. Starting with the point that I found “incredibly insightful” in the Taleb extract most recently posted.

The point I really liked was on p454 of the technical appendix (p8 of the .pdf file), which is something I ought to have realised myself during a couple of debates a few years ago about exactly what went wrong with the CDO structure. Translating from the mathematical language, I would characterise Taleb’s point as being that the problem with “fat tails” is not that they’re fat; it’s that they’re tails. Even when you’re dealing with a perfectly Gaussian or normal distribution, it’s difficult to say anything with any real confidence about the tails of the distribution, because you have much less data about the shape of the tails (because they’re tails) than about the centre and the region around the mean. So you end up estimating the parameters of your favourite probability distribution based on the mean (central tendency) and variance (spread) of the data you have, and hoping that the tails are going to be roughly in the right place.

But any little errors you make in estimation of the central tendency are going to get blown up to a significant extent when you start trying to use your estimate to try to say something about the 99th percentile of the same distribution. Which is kind of a problem since we have a whole financial regulatory infrastructure built up on “value at risk”, which is a term effectively meaning “trying to say something about the 99th percentile of an empirically estimated distribution.”

The deep point I see here is that it’s not worth getting worked up about “fat tails” specifically, or holding out much hope of being able to model financial (and other risks) better by changing one’s distribution assumptions. A little bit of model uncertainty in a normal context will do all the same damage as a massively fat-tailed underlying distribution. And the thing about model uncertainty is that it’s even more toxic to the estimation of correlations and joint probability distributions than it is to the higher percentiles of a single distribution. Even at this late stage, it really isn’t obvious whether the large movements in CDO values in 2007-9 were caused by a sudden shift in default correlation[1], a correlation that had been misestimated in the first place, or by an episode of model failure that looked correlated because it was the same model failing in every case.

The basic problem here is that in a wide variety of important cases, you just don’t know what size or shape the space of possible outcomes might have. At the root of it, this is the basis of my disagreement with SRW too – because we have so little reason to be confident at all in our ability to anticipate the kind of shocks that might arrive, I always tend to regard the project of designing a “resilient” financial system that can shrug off the slings and arrows as being more or less a waste of time. So, should we give up on any sort of planning?
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What the hey, let’s keep this theme rolling …

One of the responses to Henry’s post, from Scott Lemieux’s has a passage which (though probably meant rhetorically rather than literally) really perfectly exemplifies what I see as one of the biggest problems with lesser-evilism.

But, the argument seems to run, at least Romney would generate more opposition from Democrats when he committed similar and worse abuses. I believe this is true. But to carry any weight that would justify the repeal of the ACA, the overruling of Roe v. Wade, the gutting of environmental and civil rights enforcement, massive upper-class tax cuts, etc. etc. etc. it’s not enough that there be more opposition; it must be the case that this opposition be effectual. And it’s overwhelmingly clear that, in fact, this increased opposition would be extremely ineffectual.

The “Ect, ect, ect” bit there could have been a much longer list, but even at that length it seems implausible on the face of it. Recall, Obama’s whole strategy was based around abandoning all other priorities such as carbon tax, an effective stimulus bill, half his nominations, most of the financial sector reforms and so forth, all to concentrate on passing health care. And he only got about half of that – the version passed was something he’d specifically camapigned against as not being anything like radical enough. So given that, how are we to suppose that President Romney would be able to push through an agenda five times as radical, including the ultimate third-rail issue of abortion? You would have to believe that under a Democratic administration Congress is a sclerotic, obstructionist institution which prevents all possibility of effective government, but as soon as the Republicans get in it becomes a streamlined ideological machine.

Which is in fact not far from what’s being argued here and it’s really quite frightening. Part of the case for persuading people to vote to keep the Democrats in government is that they’re so terrible at being in opposition. Specifically, their very weakness and incompetence in carrying out the business of politics is being used as an electoral asset. That’s not a cool rhetorical ju-jitsu move; it’s nightmarish. Similarly, the case has been advanced that the time for the liberal wing of the Democrats to express their opinions is at the primary stage, but there wasn’t a primary this time – the economy was so weak and the administration so unpopular that nobody wanted to risk weakening the candidate further.

This is the problem with lesser-evilism – it’s very vulnerable to strategic behaviour. If all you care about is the gap between parties, you can increase it either by making your own party more attractive to vote for, or by making the other side look even worse (either by strategically weakening your ability to resist them, or by being somewhat adventurous in your claims). This is really just a specific case of Henry’s general point that in the long term, one is unlikely to change the behaviour of any self-aware entity by constantly rewarding it for going on in the same way.

Predistribution – a bad idea whose time has come?

by Daniel on September 26, 2012

I foolishly promised a few people that I was going to write something about “Predistribution”, which would not normally have resulted in actually writing anything about it, except that Chris then wrote his piece and I felt I ought to enter into the lists on the somewhat more sceptical side. In as much as it isn’t just a bit of industrial policy combined with “all things bright and beautiful” (More education! More skills! But who will empty the bins in this hi-tech utopia[1] and how much will they be paid and why?), predistribution appears to be, as Chris says, an attempt to make all sorts of regulations and interventions in the economy do the work of a redistributive tax and benefit system. I don’t like this idea, basically for reasons to do with the fact that even after it all, I’m still an economist at heart. But the fact that I don’t like it doesn’t mean, in and of itself, that it might not be the best idea going in Britain today – after all, all the other politically live proposals might be worse. Read on, for a discussion of all these issues … [click to continue…]