Ye Shiwen Blasts the Field

Late last evening, I read the ever-informative article written by Nate Silver in which he explains why a couple of disciplines in the Olympics 2012 are more likely to produce record-breaking performances than others. In that piece here, he mentions that swimming has advantages in the sense that the records have improved at every edition of the games. In his view, swimming is one of the sports disciplines in which the intense application of technology and discoveries of science could still generate performances   that lead to regular records. he states that other disciplines such as the sprints and field events are very close to the barriers of human physiology and capability and this explains the longevity of the records there.

What surprised me about the analysis is that Nate Silver completely did not mention the fact that while his model states that there is still scope for record performances in swimming, it is also one discipline that raises eyebrows about use of performance enhancing substances.

Consistent with Nate's expectation, China' Ye Shiwen shattered in the record in the 400 metres individual medley in world record time. As Andy Bull reports here, the impressive performance was so off the charts that it raised eyebrows about the swimmers integrity. A number of coaches have dissected the performance and note that it looks suspicious because of the unduly strong finish which beats the male swimmers winner in the same event in addition to the huge performance gains that the winner attained in the last few months.

One must be circumspect in assessment of this single performance but I still think that the performance is an outlier. This young athlete is truly gifted and has worked hard and deserves her reward. that notwithstanding, I would like to see a more objective analysis of her finish which could have blown away the competitors in the equivalent male race. I echo the emerging consensus that this performance was unbelievable and that its not the last time it will be analyzed.   

Making Mathematics Necessary

In this very insightful and erudite opinion piece in the NYT, Andrew Hacker asks questions about the oft-repeated view that learning mathematics is indispensable for high school and college students. he cites very interesting facts that for the US, the  difficulty in mastering the mathematics curriculum is a leading cause of failure to matriculate. He therefore makes the sensible view that for all its unquestioned utility for students, the mathematics curriculum is too dense and acts as a barrier to educational attainment for students. 

The author's sensibly questions the design of the curriculum and the abstract concepts conveyed in trigonometry, calculus and algebra. While it may be impolitic to mention, he demonstrates that for most students, most of the abstract concepts are unlikely to be used after graduating from school. For most colleges, mathematical ability is called upon even for courses in which it has no direct relevance such as history and art merely to screen out a large number of applicants. He wonders instead why the curriculum has not been designed to demonstrate clearly the applications of these subjects in a way make them more understandable and readily usable for students. In particular, he suggests that subjects such as "machine tool mathematics" are not only likely to hold the interest of students but are more effective in sharpening the cognitive capability of students to apply them. 

The most potent part of his argument is that by insisting in mass education of students in a dense and dry curriculum, the schools, colleges and nations are misapplying scarce skills. This piece leaves it to designers of education curriculum in mathematics to design them in ways that catch the interest of students without generating massive failures. To my mind, mathematics is too important for education managers to give up on most of society. the graphic that accompanies the story shows that young scholars do not want to drown in numbers. 

Steven Pinker on Prediction

Image from amazon.com

"Social scientists should never predict the future: its hard enough to predict the past". Steven Pinker, in The Better Angels of Our Nature. P. 278.  

Whither the Spectators at the Olympics 2012?

As a student of economics, I have keenly observed the progress of the London Olympics 2012 and was greatly impressed by the originality of the opening ceremony. Like every edition of the games, it has been spectacular and a showcase of the economic power of the host nation. But the reason that the games are held is to ensure that the competition begins and this has had less than spectacular results over the last three days. viewers on television were inevitably struck by the low attendance to the events  yesterday. Understandably, the press called public attention to this fact since a number of people were unable to get tickets to attend events that were now being played in empty arenas. If nothing else, the empty stadiums led to the declaration that a number of tickets were issued to "accredited Olympics family members", in reference to individuals affiliated to Olympics movement who failed to attend sessions for which they had taken up tickets. A host of solutions are being floated out as covered by the Daily telegraph here.

This state of affairs reveals to me that the Olympics movement is particularly impervious to economics reason for two reasons. First, it chose a very poor mechanism for distributing tickets and thereby denied genuine spectators the opportunity to watch events that they valued. The lottery system used in assigning seats was purported to ensure that coverage would go out as widely as is possible but it instead ensured that individuals with connections "the family" got tickets that they obviously did not value at all. Secondly, the Olympics movement persists in using sub-optimal mechanisms because it is a monopoly and prices its events without competition.

To my mind, because the commercial rights to the games are aggressively marketed and defended, it is pretentious to cite the need to ensure proper spread of tickets by resorting to the ballot system. Its far better to auction tickets and use the funds to support broadcast and other ways for public to view the games and make it clear that this is the most efficient mechanism. There would be less angst if people failed to get tickets due to their unwillingness to pay auction prices because the people who win those tickets would not stay out of the events after having bought the tickets. So I award a grade "A" for the opening but a plain "D" for the game around tickets that leaves the stadiums empty.   

Mistaken Diagnosis of Music Piracy

A considerable number of blog posts here have been muses about the futility of trying to completely extinguish all illegal sharing of music in the form of digital files. In my view, the main labels in the music production industry are so obsessed with cutting out and impeding networks that allow for exchange of files that they are completely ignoring the people who purchase music or other digital entertainment content. Bill Oremus states in this blog post on Slate Magazine that a leaked document suggest that an organization representing the music industry has found out that most music piracy happens offline. The implication is therefore that even if all illegal downloads were taken out, it would hardly make as much difference.

To my mind, this suggestion is difficult to confirm but irrespective of its veracity, it still supports my strong hunch that the industry is concentrating on the wrong thing. Music sales are not going down because of piracy as much as is claimed. The enormous effort being applied to stopping sites and suing site owners is legitimate but is not connected to ensuring that sales will recover. As a supporter of entrepreneurs, I am at a loss that the industry is more interested in symbolic shows of strong law enforcement without asking whether this is the correct answer to the business problem that they face. Clearly, the music industry is barking up the wrong tree.

Let Plumbers Take Pay in Cash

Faucet 2 clipart
from Clker.com

I consider it sensible economic policy for every government to levy taxes on goods, services or income only where it can collect a majority of those taxes. Therefore, while I am not of the view that payment of taxes is equivalent to slavery, I think that a government ought not to announce a tax rate and then further burden the citizen with the duty to ensure that that tax is collected as conveniently and promptly as is possible. With those views in mind, I am not as sympathetic to the near demand by the Secretary of the Exchequer of the UK government in his preposterous claim here that citizens who pay plumbers in cash are engaged in immoral acts because it makes it easier for the latter to evade or avoid tax payments. 

More recently, governments have been correctly concerned with the operations of tax havens which may support practices that are illegal in terms of tax evasion. That aside, most tax evasion occurs simply because of unduly complex characterization of what is taxable and what is exempt in addition to trying to capture transactions for which the existing tax collection model is a poor fit. despite my real sympathy with the need to collect taxes to cover deficits and close up the debt position, I am reluctant to accept this ranting by public sector officials that all citizens should bear the burden of ensuring that the revenue service catch every penny.

To my mind, citizens should not be forced to write cheques and avoid the convenience of legitimate cash transactions in order to ensure traceability for the revenue services. Perhaps its just time to ask that governments should discuss plainly whether levying a tax that is this difficult to collect is good use of the legislative authority. The remedy comes back to creating moderate tax rates and simplifying the tax system and ensuring that government is run from the resulting revenues. Its not too clever to levy taxes and ask citizens to help with the thinking about ensuring absolute compliance. Just simplify the tax code.

  

Belated Tribute to Elinor Ostrom

Source: http://www.nobelprize.org/nobel_prizes/economics/laureates/2009/ostrom-photo.html

I was speaking to an undergraduate student of economics who was surprised at my mentioning that Elinor Ostrom was the first female Nobel laureate on in Economic sciences. The purpose of this blog post is not to express my surprise that this student was unaware of this important first in economics, but that this fact has not been sufficiently covered in popular press.

As a professional with a a distinguished career and who is classified as a political scientist, Elinor Ostrom was deservedly awarded the prize in 2009 in conjunction with Oliver Williamson.

To my embarrassment, I realized that I had not announced the award on this blog in 2009 as I have often done for other Nobel prize winners in that category. This left me with the delicate issue of blowing Elinor's trumpet rather late especially since she sadly passed away about a month ago. In short, she received the prize, " ..for her analysis of economic governance, especially the commons". Here is the link to her Nobel Prize Lecture delivered on December 8, 2009. In short, her work responds to the economic aphorism, "tTragedy of the Commons", and shows presents real examples in parts of the world where societies adopted sophisticated systems to ensure coordinated utilization of such resources. Here's social scientist who tests theories through empirical means and provided a serious counterfactual to one of the most common responses to handling common resources. 


Addition: Here's the article from the NYT announcing her passing on. 

France Introduces Overtime Tax

France recently had an election that brought in a new and seemingly less haughty leader by the Name of Francois Hollande. It would lead one to consider that this taciturn gentleman would be more aware of the complexity of economic policy but that is evidently not so. Seeking to implement a campaign promise, the new leader has sought to fortify the already bad policy of the 35-hour week by reversing the tax advantage for working beyond this limit. Kim Wilsher's article in the Guardian reports on the unbelievable policy change that raises taxes for working longer.

This tax constraint on individuals that seek to work beyond the prescribed 35-hour week makes no sense since this policy has not led to the creation of more employment. In my understanding, the 35-hour week was instituted to ensure that employment is available for many more people than would be the case in the event that a portion of the work force chose to work for longer periods. That argument is based on the fallacious assumption that every economy has a fixed amount of work available which should be distributed to reduce employment levels. Students of economics recognize this as the "Lump of Labour Fallacy". One would wonder why even after this restriction, a political party would choose to restrict those who may want to work beyond that limit from making extra income. Discouraging work has never created more employment so perhaps the government should justify this as an attempt to collect more money. Good luck with that.   

Are Hollywood Studios Aware of Epagogix?

In this recent edition of the NYT's Magazine, Adam Davidson wonders how the movie industry makes it it's money. The interesting article goes through the organization of Hollywood and uses movies that largely show that the industry spends a lot of money in production and marketing but seems not to have a definite idea about what distinguishes commercially successful movie projects from the rest. For all the glamour, the article confirms my suspicion that commercial success for most movies is really rare, judging by the overall return on investment that is barely at 1%. Only Disney and Pixar, which both make animated movies seem to have strong brand recognition, to the extent that it matters.

What comes to my mind is whether the directors and owners is whether any of them have read my blog post here but more importantly whether they have heard from Epagogix. This firm has been known to have a quantitative prediction tool for assessing the likelihood of commercial success for movies based on the script. Among the findings of this tool is that it does not recommend the hiring of high-profile movie stars who are also expensive because they do not guarantee success for those movies. While I am unaware of published tests on this tool by Epagogix,  I am surprised that few people in Hollywood are using it keenly. So is it ignorance or have they tried it and found it unsuitable for their purposes?

Is the Goal Line Technology Cost Effective?

FIFA finally made the decision to allow for technology to be deployed during soccer matches to be able to tell whether the ball has crossed the line even if it does not get to touch the net. There has been wide demand for the deployment of some mechanism to assist umpires to make the correct decision but this organization has been reluctant to accept any change. At a meeting of FIFA's International Football Association Board last week, the organization made three decisions with the most profound being that on Goal Line Technology (GLT).  The effect of this unanimous decision is that the rulebook will be amended to include two approaches to support referees in making decisions about goals. Interestingly, the statement issued clarifies that the Hawk-Eye and GoalRef technologies will only be used on the goal line and nowhere else on the pitches.

One must applaud the fact that this decision was made after appropriate testing of the technology in order to determine their fitness for the game and thereby reflect evidence based decision making. As a person who watches a moderate number of soccer matches at club and international level, I am wondering whether these technologies are cost effective. I am not privy to any data but understand that soccer is a low-scoring game hence the number of instances in which the technology will be required is less than 10% of all competitive soccer matches. Does this justify the deployment of these machines during on all professional soccer matches? My hunch is that it is not cost effective since only a small number of matches present a scenario that requires a decision that will be improved by GLT .      

What Happened to Intrade on Obamacare?

The idea behind the design of information markets such as Intrade and a few others is that they aggregate information from a diverse crowd of people and thereby, attain accuracy by errors on either side of a question canceling out. David Leonhardt therefore writes about the most important policy decision of the last few weeks where Intrade in particular was wrong by a large margin. As the article states, the US Supreme Court made a majority decision that affirmed the constitutional fitness of the health care mandate.

Being one of the largest decisions this year and one on which the incumbent president had lots of skin in the game, it is essential to consider the fact that Intrade in particular was so far off. David Leonhardt mentions that information markets are not perfect and may have been affected in this instance by the thinness of the market and may have reflected a very narrow set of views to the exclusion of the alternative views. It appears that on the part of the Obamacare, the participants reflected too much of those who information suggested that the mandate would be declared unconstitutional.

And yet in spite of the confirmed error in this instance, I think that the chatter about this miss is still uninformed. To my mind, confidence in information markets is based on the fact that the collection of view that generates its information is bound to be more accurate that individuals who hold court as "the experts". Thus information markets are bound to have a better predictive record than these experts but that is not to state that they are infallible. So the total failure in calling out the outcome of the case is still embarrassing to me, but I think that few experts had it as clearly too.  Intrade only appears to have made it look like it was not even close because with a 65%-70% threshold, Intrade in particular performs very well.

The lesson of this event is that the experts claiming that information markets are imperfect are not saying anything new. On the other hand, the cheerleaders of information markets must always state clearly that they tend to be far more accurate than experts and that usually is good enough but does not mean they are infallible. 

Is Another Oil Boom Coming ?

The price of petroleum has in the last five years been higher than it has been higher than the average in the earlier years. As usual, this gave the ammunition to people who maintain the idea that the world is consuming too much of the world's resources another opportunity to argue that the world had reached the Peak Oil. This is the imagined state where the demand for oil overtakes supply capability, with the result that oil prices rise to unprecedented levels. On its face, this theory appears as a sensible position simply because every natural resource that is not renewable is liable to depletion at some time.  Thus the dependence of the world on petroleum energy would be in peril if demand was to permanently outstrip supply.

And yet those who make this argument most forcefully fail to account for a couple of factors specific to the petroleum market and to other markets generally. Writing in the Guardian here, George Monbiot has come to the conclusion that most of the predictions on peak oil status have been proved wrong thus far. The more profound point that he makes is that the rise in the prices of crude petroleum led to the increased exploration and drilling and opened up new fields for exploitation. At the same time, rising prices provided ample incentives for the major crude oil producers to expand production and thereby ensure that supplies come to market.

Unlike the author, I am less saddened by the fact that supplies are available principally because the ability to utilize these resources for growth ensure that countries will be able to achieve income levels that demand cleaner energy and more efficient use of petroleum. Monbiot should perhaps recall that prices do not only work to regulate the supply of crude petroleum but that the same mechanism may be used for environmental protection. My hunch though is that the promoters of the peak oil theory will suspend it for another decade and dust it up again when prices go up momentarily.