Friday, 4 April 2014

Ghosts, Ghouls, and Government Expenditure

Economics is silly. If you don’t believe this, either you haven’t studied it, or have studied far too much of it. It often makes a lot of assumptions, some of them frankly ridiculous. This is done because it simplifies things enormously, and we still get meaningful results relevant to theory. In models of the macroeconomy, for example, we often take a single representative agent that maximises their utility over an infinite time horizon. This is clearly unrealistic, but where economics comes in conflict with reality, economics wins.

Our representative agent is infinitely lived - a pitiless individual, without love, fear, and condemned to maximise their overall consumption with mindless determination for all eternity. We are talking about zombies here. Not only that, but our economically representative zombies are surprisingly rational, with a greater knowledge of economic theory than would be expected from the recently disinterred, and the ability to solve present value Hamiltonians in the time it takes to say ‘Braaaaaaiiiiins.’ Our economy, ladies and gentlemen, is represented by the infinitely hungry and infinitely lived zombie of Milton Friedman.

Despite his longevity not everything is smooth sailing for zombie Friedman. Although effectively immortal, zombies are not immune to the ravages of time, and they view their arm hanging by the thinnest rags of rotted flesh with the same pleasure as we do. So the zombie Friedman values his present consumption more than he values his consumption in the future, when it’s possible that he quite literally won’t have a leg to stand on, and will instead be so much cognisant mush of flesh and sentient bones. So, he places a discount rate on the future, and prefers to have his consumption now.

You might be tempted to ask, why does the zombie Friedman not smooth his consumption over his death-time? Surely there has to be a market in which he can buy insurance against the ravages of time; a brain bond to secure interest against his withering infinite life? The truth is that in our alive-ist society, it is very difficult for zombie Friedman to access these markets. It is hard to buy health insurance when the pre-existing condition of being dead is enough to send twittering actuaries scuttling over statistics with alarm; and while blood banks exist, these have been the well-established domain of vampires rather than zombies. It is difficult to make a living when society worries that you’re already dead.

Facing discrimination from all sides, and unable to access the free markets he fought so hard to establish, death for zombie Friedman continues much as it always has: a relentless maximization of consumption in all time periods, broken only by the occasional face-off with werewolf Keynes for territory, or when he kicks Headless Hayek in the nads.

Saturday, 28 December 2013

Punintended Consequences

Last night I came across a peculiar type of word play called Tom Swifties. The pun takes its name from the abundantly adverbial series of Tom Swift books, which featured a child prodigy and his inventions (a legion of ghostwriters expanded the series to over 100 books since its inception in 1910, with the most recent being released in 2007). The multitude of authors often went to great lengths to avoid repeating the word ‘said’, embellishing stories with enough adverbs and synonyms to keep a nascent thesaurus industry afloat. Instead of being ‘said’, things were ‘explained’, ‘stammered’, ‘cried’, or ‘demanded'; said 'hotly', 'crossly', 'happily', or '<insert adverb here>-ly'. 

In the 1950-60’s a type of pun developed, where the adverb was linked to the dialogue. 

"I used to be a pilot," Tom explained. (ex-planed)
"Why is it so dark in here?" Tom said delightedly. (de-lighted) 
“It keeps my hair in place,” said Alice with abandon. (with a band on)
“I like a subtle play on words,” said Tom pungently. (pun-gently) 

The best tend to involve multiword puns and names.

“Who invented radium?” asked Marie curiously.
"The Red Sox didn't need the Babe", said Tom, ruthlessly.
“I’ll just have to kill the king,” Reggie sighed.
“I’m not going to drown in Egypt,” Tom said, deep in denial. 
“You should have brought a parachute,” Tom airily explained. 
"Ready or not, here I come!" Tom ejaculated prematurely. 
"I wish I had some flowers," said Tom lackadaisically. 
“Alright, I’ll give you back the pick-up I borrowed,” said Tom truculently.

Lists can be found on the Wall Street Journal and TV Tropes

Tom Swift is also the origin of the name ‘TASER’ (Tom A. Swift’s Electric Rifle), which was named for ‘Tom Swift and His Electric Rifle’ (1911). 

Monday, 28 October 2013

A Brand of Inequality

I don’t blog very often now (which is excellent news for anyone who reads my newsfeed - Facebook is classy enough without my thoughts making their way into the congealed soup of 9gag gifs and duckface drivel). However, occasionally something comes alone which I feel deserves a response. In this case, that response is to Daniel Katz’s take-down of the now famous Russell Brand interview by Jeremy Paxman. 

While Katz’s unsheathed barrage is entertaining and thought provoking, my eyebrows rivaled Paxman at his trivial treatment of inequality. 

Katz begins the argument by taking a case of trickle down economics and follows it up by arguing that poverty isn’t such an issue in advanced economies because even the poorest will earn well above the arbitrary international poverty line ($1.25 USD at purchasing power parity, the “condition so limited by malnutrition, illiteracy, disease, squalid surroundings, high infant mortality, and low life expectancy as to be beneath any reasonable definition of human decency.”) as if relative poverty didn’t exist.

While it would be worth two of Paxman’s eyebrows to discuss this issue here, I’ll instead be a good economics student and give a simple  model which illustrates intuitively why we should be concerned about inequality at the policy level. 

We’re going to assume a couple of simple things:
  1. A person’s utility is determined by their income. 
  2. Utility is a decreasing function of income. 
  3. Each individual has an identical utility function.
Utility is an economic concept which can be understood in a couple of ways: as a person’s happiness, the ability to affect their desires, their welfare. 

The first assumption is simple enough: a person’s happiness depends on their income. 

The second assumption is again fairly simple: we are happier with more income, but our happiness increases at a slower rate as our income increases. Going from $0 to $10,000 makes us happier than going from $90,000 to $100,000, or $990,000 to $1,000,000. This is a fundamental result from the branch of economics happily called Happiness Economics. 

The third assumption: people react to income as a whole identically. This is not strictly true - a monk in Tibet probably has a different view of money than a French aristocrat - but it’s the best way to think about it. By treating everyone by a single representative individual, we can ignore the effects of age, gender, ‘whether they prefer a rainy day at the beach or a sunny day at the park’, favourite colour, and whatever other spurious factor you could think of. 

In this, I’m disagreeing with Nietzsche: 

“In a better social order the hard work and misery of life will be allotted to the man who suffers least from it, that is, to the dullest man, and so on step by step upwards to the man who is most sensitive to the highest, most sublimated kind of suffering, and therefore suffers even when life is most greatly eased.”

Whether an aristocrat or a penniless philosopher, there is no reason to suppose that you’ll like money any more or less than anyone else. 

These three assumptions lead to the social welfare function:

Welfare = U1 + U2 + ... + U

Where Uk is each individual’s overall happiness or utility. 

What we find is income is optimally distributed when we have complete equality (when the marginal utility of each individual is equivalent).

Before we start a revolution

There’s a fourth assumption: that the total amount of income is fixed. Katz actually addresses this point arguing that wealth is not a zero-sum game. When income is completely equal (a doctor, and an economics student being paid the same regardless of their actions), economic incentive is removed. 

The incentive to become a civil engineer, or work as a labourer, is removed entirely when we have pure income equality, to the point where doing it would be out of pure altruism or interest. It might be cynical, but a society with pure equality would (almost certainly) lead of a collapse of income and overall welfare. Pure inequality (all income belonging to a single individual) would similarly lead to a collapse of incentive. Some inequality is required to act as incentive for individuals to increase welfare as a whole. 

That’s not even close to say that we should ignore the issue of inequality. Inequality is only beneficial to the point that it leads to an increase of overall social welfare. If we pretend that inequality is an issue that doesn’t require explicit intervention, then we implicitly imply that any action to reduce inequality will reduce social welfare overall. It’s an overly optimistic view of current inequality which itself deserves a pair of Paxman’s Eyebrows. 

I’ll finish this post with a thought experiment, which I hope shows the difference between economic efficiency and social welfare.

If society could choose between a billionaire receiving an million dollars, or five hundred individuals receiving a thousand dollars each, which would make society society better off?  

Saturday, 7 September 2013

Election Game Theory, Or Why You Probably Voted for the Sex Party

By now most of you will have voted. 

Because I am one of those infuriating people who treat election day as if it was boring man's equivalent of Christmas, I thought I’d go through one of the examples that came up in Game Theory last year, dealing with voting preferences. 

Consider the situation where you have two parties (Douches and Assholes), and an odd-number N voters (we’re not going to allow ties). Voters 1 to k strictly prefer the D to A, and voters k+1 to N strictly prefer A to D. 

Each voter has two possible options - they can either vote for D or A. 

We will take every other voter’s action as given. 

Each voter feels happy if their preferred party wins the election, and sad otherwise. 

We will examine one voter’s decision. For argument, say he prefers D over A.

There are three possible scenarios:

1. More than half of the other voters vote for D. 
Voting for D or A does not affect the result. D wins regardless of his action.

2. Less than half of the other voters vote for D. 
Voting for D or A does not affect the result. D loses regardless of his action.

3. Exactly half of the other voters vote for D. 
Voting for D or A does affect the result. The voter’s decision wins the election.

What does this actually mean? It means that the voter’s decision only decides the election in the case that votes are split equally between the other voters. Even though he strictly prefers D to A it would make no difference to the election if he voted A instead. In Game Theory, we would call the decision to vote A over D a weakly dominated strategy (it is no worse than voting for D in the situation that a clear majority is found without the voter, and strictly worse than voting D when the votes are split).

How does this relate to the current election? In many seats a clear majority exists before the day of the election (call this a safe seat - one which always votes a particular way). In these seats, the individual’s vote doesn’t actually hold that much weight. You’re just as well off voting for a major party, or something like the Sex Party. It’s in marginal seats where a swing can be expected that the election is truly decided. This is reason why the Greens often described as holding the balance of power in the Senate, and why this balance is so important. It’s all about being that  voter. 

Monday, 24 December 2012

The Little Boy

There once was a little boy, who when asked what he wanted to be in life, simply replied: ‘Happy.’

His teacher told him that he wasn’t likely to find happiness in a book, so he wandered into the streets to find someone who was happy.

He first came upon a couple of fisherman, who were telling stories as they cast out their lines. “They sure seem happy,” thought the little boy. So he bought a box of tackle, and cast a fishing line until the sun went down. But he didn’t catch a single thing, and couldn’t get the smell of bait from his fingers for hours.

The little boy then saw a pair of businessmen, who were laughing and smoking cigars as they carried their bulging wallets. “I’ll bet they are happy,” thought the little boy. So he shaved himself for an interview, and filled his wallet with stones until it bulged. However it soon weighed down his pants, and they fell off when he gave out his resume.

The little boy then saw some well-dressed socialites, going to a party. “They look so happy,” thought the little boy. So he bought himself a suit and a hat, and went out to a party. However the trousers didn’t fit well; they flapped around his ankles and tripped him at the entrance.

Then the little boy saw a drunk, singing to himself in the street. “Now there is a man who is happy,” thought the little boy. So he bought himself a bottle of whiskey, but just became sick, and passed out in the gutter.

Finally, the little boy saw a young couple, who were sharing an embrace in the sunset. "They must be happy!" thought the little boy. So he found himself a girlfriend, and immediately thought "Yes, I am happy." But the girl said "I'm unhappy," and promptly walked away.

Sunday, 16 December 2012


Nearby, a few children were playing a game. The sound of delighted shrieks pierced the air.

Melanie shivered.

Children disgusted her. In their eyes was contained a whole future: pain, suffering; the petty hatreds and jealousies of adolescence; the sex and revelry of their later teenage years and twenties; the prudishness of their thirties; the senility, sickness and despair of retirement. And somewhere in there would be the child’s own children, born after a condom breaks when they are nineteen, or in an elated pre-menopausal midlife crisis; the filthy cycle continuing like a plant that germinates, seeds, and bursts forth in fruit to wither. In their eyes was the future of every dick and sociopath, every pretentious child, every naïve romance and fantasy. And so it would continue, ad infinitum, until her own bones had long been shrivelled to dust.

One of the children fell, scraping her knee. She burst out crying. Her mother rushed over, making hushing noises, while the other kids looked on awkwardly. The game had been extinguished instantly. The cries rose up to shrieks, which burst forth incessantly.

Get used to it, kid. For most of your life you’ll be searching for happiness, and it will always be taken in an instant. That’s the basis of a life. We were born in agony, brought shrieking into the world; most of us haven’t left that state, but have merely become quieter.

Melanie stared down at her coffee. It had grown cold. The milk would have a fatty taste, and a residue of sugar would have settled on the bottom. She left it, and turned to get up. She felt horribly aware of the mass of consciousnesses around her: most of the patrons had turned, awkwardly, towards the screaming girl. The scene concentrated them, channelled it like a flow, and Melanie felt sickened as it washed over her, aware that she was part of the maelstrom.

The screams rose, breaking to a coughing sob, before repeating. What a set of lungs on the child!

Melanie smiled wryly: perhaps she would take up singing. Her parents would make her take piano lessons, and she would be allowed to buy a violin in primary school after much begging. She would play for the grandparents each Christmas, and they would remark how proud they were after each recital.  She would take it in her head to start drawing; after a birthday present of a camera, she would attempt to become a photographer. She would soon convince herself that she had talent, and take pride in it immensely. Her friends would praise her, but she would deflect it deftly - “Oh, I’m quite terrible, really” – and drink in each compliment in secret.  She would read, of course, and dream, and write a diary – considering her thoughts both beautiful and unique. She would read Capote and Plath with rapture, and feel that they had been speaking directly to her. And her parents would be so, so proud when she got accepted to an Art school on a scholarship.

Eventually she would wind up sitting in a café listening to some brat scream.

Melanie bit her lip in a moment of self-disgust. She hadn’t meant for her thoughts to lead that way. A trace of lipstick had been left on her coffee cup. It seemed to her like dried blood.

By the playground, the child was settling down. Her mother was murmuring to her cheerfully, and she was laughing again.

Melanie walked away, a bitter taste left on her lips. 

Saturday, 8 December 2012

All Stations

Michael stood in front of the rail tracks, and jumped.


He flung himself out over the chasm that divided the station like a fissure; beyond the lines which demarcated safety, consistency – the certainty of not rushing headlong into a pair of headlights, of not having your legs sheared off by fifty tons of steel and screaming passengers.

He felt himself hit the metal of the track and sprawl out over the gravel; his legs hurt with the impact, and the breath was knocked out of him. His hands grazed, and he felt immediately dusty.

The metal was warm, and vibrated slightly under his fingertips. A woman screamed on the platform; there was the sound of panic and rushing feet.  Michael was aware of it only distantly, as if listening to a conversation underwater. A mother would no doubt be turning her kids away, and a man further on would have buried himself in his newspaper.

The sound of a horn cut everything out, like the apocryphal horn of Gabriel. The line vibrated violently, as if the horsemen of the apocalypse were upon the track, beating the steel with leaden hooves. The roar of the engines combined with the clack-clack sound of carriages on tracks; it’s preceded by a blast of air, drawn out from the tunnel with a leviathan’s fury. A guide-light glared red with uniocular malevolence.

The brakes crescendo to a wailing banshee shriek and Michael has a single momentary view of the driver, a face frozen in a mask of terror. It’s a sight that will forever lie suspended, inscribed upon the glass of an eye’s final glance. Michael’s voice joins in the scream, a mind cauterised of all but terror and regret.

* * *

There’s a brief rush of air, and the train passes harmlessly in front of his eyes. The driver toots the horn to announce its arrival, and a female voice intones over the intercom. “The train arriving on platform three is an airport train, running express all stations from Bowen Hills to Eagle Junction.” There is a hiss of air as passengers disembark. An attendant blows a whistle to that the station is clear, and the train resumes its motion. Michael feels as if he’s about to cry.

“Mum, why is that man standing there like that?”

“Shh, dear. It’s rude to stare. He’s probably just deciding which train to catch.”