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Bullshit from economists, Vol. MMCXIV

July 27, 2010 2 comments

According to some economists, apparently the monetary value of a statistical live year (VSLY) is somewhere in the six to seven figure range (see the appendix to this paper). A closely related statistic to the value of a statistical life (VSL), both are a near inevitable part of bureaucratic cost-benefit analysis. For example, there was a big hooplah a couple of years ago when the EPA changed its VSL from $7.8m to $6.9m – effectively decreasing the environmental regulatory burden on business. For example, if a regulation came with an annual cost of $500m to the economy, the old system suggests it would have to save at least 65 lives a year to be worth implementing, compared to 75 now*.

I would like to submit the thesis that these figures are bullshit. This may not be a controversial position, but I hope to quickly demonstrate that these statistics are pretty much inconsistent with the very premises that economists use to generate them (or at least have wildly implausible implications). The idea is this: people are rational, and their actual decisions ‘reveal’ their underlying preferences. Suppose I am at a grocery store that sells apples and oranges at the same price, if I buy an orange then that ‘reveals’ my preference for oranges to apples. In the case of the VSL and VSLY, economists look at people’s decisions concerning how much we are willing to pay for mortality risk mitigation. Now, if these dollar values of these ‘revealed’ preferences are to mean anything of interest, then they should imply that if I have value x at $100, then I should accept $110 in exchange for x. The key assumption is that people are rational, and by looking at the actual decisions people make, we can figure out how much they implicitly value things in a common currency.

For the sake of argument, let’s assume the VSLY is $300,000. The number doesn’t matter very much, but rather the order of magnitude. For my example, let us suppose smoking decreases the number of those statistical life years a smoker would live by 10 (again, order of magnitude is what matters). Now, whilst smoking may not be the activity would one want to point to as a paradigmatic example of rational economic thinking, but it strikes me the decision to try and quit smoking (and how hard to try) is as good a candidate as any. It’s certainly as good as the kinds of decisions economists put into VSL(Y) models. Now, since lots of people today don’t either think of quitting or trying that hard to quit smoking despite being quite aware of all the risks, if they are rational economic actors then the revealed value to them of smoking/not trying hard to quit must at least be something in the region of $3m ($300,000 VSLY times 10, for the years they are likely to lose). That is to say, if they are rational then if the value of smoking less than the value of the life-years they lose due to smoking, then they will at least try and quit (even if this proves impossible). Given that there are people who don’t try, then the value of not trying must be at least equal to the value of the lost life-years.

Now, there was a time when people didn’t know the health risks of smoking, and indeed even believed it to be healthy. I am going to make the assumption that at that time we have no reason to think the value of smoking/not trying to quit would be less than it is today. I actually suspect we have reason to think it would be higher, given the social stigma currently attached to smoking compared to its former glorification. The significance of this is that revealed preference theory predicts that if you paid some young fellow (whose body could recover) back then the equivalent of $1m on the condition he successfully stopped smoking, he wouldn’t necessarily even try.

Huh?

Think about it. If he is rational and and is one of those who value smoking somewhere to the tune of $3m – well, that number is a lot bigger than $1m. It’s a no-brainer for Homo economicus! I submit that this result is overwhelmingly implausible. It is, however, an implication of revealed preference theory with the additional premise that the implicit value of not having to try and quit cigarettes is about the same sixty years ago as it is today. It is at least extremely plausible for it to be in the same order of magnitude.

So, it seems you have to either believe that your average Joe Schmo wouldn’t immediately leap at such a chance for $1m, believe the value of smoking has sky-rocketed since the time it was cool and trendy, or reject revealed preference theory. At this point, it might be complained that since decisions as to whether a costly regulation is worthwhile have to be made, we cannot but utilize these kinds of statistics in bureaucratic decision-making. This may or may not be true, but that doesn’t mean we should pretend these numbers are remotely scientific, or that they really reflect what it is we actually value.

*This is, strictly speaking, only correct in highly specific circumstances coupled with some even more highly dubious moral theory. I, however, cannot attest to the EPA’s actual decision making process and the way in which these figures are in fact used.

Reality Check – Or, How I Learned to Stop Worrying and Love My iPod

July 6, 2010 Leave a comment

I’m writing this blog post from my iPod, whilst watching a football match (in HD) on a television screen roughly the size of a dining room table, and I’m thinking about how pretty damn awesome ‘stuff’ has become. I still remember my first mobile phone, which I got at what then seemed the relatively early age of 13… and it was awful. Indeed, I am reminded of it’s sheer uselessness by the fact I currently use the cheapest phone you can buy (more on that in a minute) from Carphone Warehouse, and that phone kicks my ancient Motorola’s ass.

Not only has stuff gotten way better, but it has done so in quite unexpected ways. I was talking a couple of years ago with a friend who works in the communications industry, who observed that very few people actually saw the wireless revolution coming. No one thought fifteen years ago that something like my iPod could possibly do what it does. Indeed, the portable mp3 player only made its first appearance on the shelves in 1997.

But anyway, I write not to exalt the wonders of modern technology but to complain about our constant need to get the upgrade or the new piece of kit. This strikes me as completely the wrong focus, and we are all the poorer for it. Apple, for instance, tend to upgrade each line of product more than once a year. My complaint is not that the upgrades don’t represent a genuine technological achievement, which they often do, but that by the time we get round to buying the next big thing we still haven’t figured out all the incredible uses to which we can put the stuff we already have. I would contend that the awesome potential for SMS messaging has still not come close to being realised. The services are often there – e.g. Texting for train times and the like, but before it ever could (at least to my knowledge) become widely used we had this new amazing thing called the App. I am also constantly discovering new things I can do with my computer and new programs that can make my computing experience feel like, well, having a brand new machine.

Don’t get me wrong, I am as prone as anyone to the lure of new technology and general gadgetery. I came surprisingly close to getting an iPad – which given I possess both an iPod Touch and an expensive ultra-portable laptop is a bloody ridiculous waste of money. The latest thing to catch my attention is the MiFi, which basically acts as a mobile broadband hotspot for all your wireless capable kit*. But I also can’t help thinking that if I spent as much time figuring out new ways of using the stuff I’ve got as browsing for new stuff I could get, then I would probably be better off even if I ended up buying all of it. I also feel a kind offence that technology which has not yet even come remotely close to meeting its potential is discarded for something that is often just a slight upgrade.

So I’ve decided to make a resolution: for the next year, every time I feel like looking at new gadgets, or upgrading my laptop or iPod, I shall first find something cool that I can do with the stuff I already have that I never knew I could do. I find this assuages my desire for acquiring new ‘stuff’. One thing I already do to make my computer feel new is give the chassis a good clean every few months, and restore everything to factory settings. I’ll reinstall a lot of the programs I already had, but use the opportunity to inventory what I actually use as well as have a look around for new free software. Plus, since windows has an incredible ability to become clogged up with various errors and problems, I am always genuinely surprised at just how well my laptop performs when it has been totally de-cluttered. If you have a PC or laptop with Vista, you could do a whole lot worse than restoring it to factory settings and upgrading to Windows 7. I love the latest Microsoft OS, because the premise of the whole upgrade was to make the same basic concept work better, and to their credit it really does.

Which brings me to my final point: the mobile phone. The regular upgrade has made us far too obsessed with new features (like the ever increasing megapixels on the camera) and blind to the uses to which those features could be put. Sadly, it also seems that the vast majority of phones are now Internet and email capable, and that such services are now standard in pay monthly contracts (which, outrageously, are now almost all 24 months). I say sadly because I have no interest in having email on my phone. Why, you ask? Because when I start my job, I don’t want to be paying for the privilege of being reachable by email 24/7 – and if it has to happen, I don’t want to be the one to pick up the tab. What I’d really like is a phone that just does texts, calls and contacts really well, but sadly this product does not seem to exist. I still want to find out all the cool things I can do with just a text message.

I suppose this is all by way of saying: I’d take train times by SMS over emails from the boss anyday. I cannot help but feel that our incredible technological achievements are often matched by the poverty of our imagination in putting it to work in interesting and exciting ways.

Actually, I think that may be a bit unfair. The apps are out there, and the SMS services are available, but we as consumers spend far too much time thinking about the hardware. To this end, I would be more than glad if the precious few readers that grace my humble blog could tell me about some of their favourite iPod/iPhone apps, or freeware for the PC. I can say with confidence that such information has the potential to enrich me far more than if you decided to buy me a new phone.

Since we are currently reliant on finite natural resources for making all the new crap we buy, it strikes me that we cannot afford but to change our attitude. Stop worrying about that extra .3Ghz of processing power, and think about what you use it for. It may not be an exaggeration to say that future progress depends on it.

*How cool is that?!

UPDATE 3/9/2010: I just bought an iPhone 4… so sue me.

UPDATE 2: …and now I have an iPad, too. Bloody marvellous machine.

Categories: Idle Speculation

Confessions of a wannabe radical

July 3, 2010 1 comment

Over the last two years, I have expended an enormous and arguably unhealthy amount of energy on academic philosophy. For the most part, I have explored and defended views which I considered to be unconventional, unusual and – most of all – ‘radical’.

I would normally take some of the ideas developed in my previous post as an example of this. Those ideas form just a small part of a barrage of criticisms I have attempted to level at the currently predominant strand of political philosophy known as ‘liberalism’. My post actually begins with an unmistakably liberal premise; that it is prima facie wrong for coercion to be used to prevent an individual from doing what they want to do. This is mostly commonly construed (especially in non-academic discourse) as a basic ‘right’ to individual liberty. Whilst I titled my post ‘Justifying the state’, it was really about a very particular modern philosophical project – albeit one that is expressly concerned with what would be ordinary and even obvious ideas to us as members of liberal democratic societies.

Given said predominance of liberalism amongst not only academic political philosophers but in the background assumptions of the society in which I live, this has made me sometimes feel like a radical thinker. But more recently, I have been struck by the fact that my ‘philosophical radicalism’ has had virtually no impact to my broader political thinking. Indeed, given my identification by-and-large with the ‘market liberal’ wing of the Liberal Democrats and my relative enthusiasm for their coalition with the Conservatives, a reasonable person can be completely forgiven for wondering whether I really take my own considerations seriously.

Consider another area in which I am prone to finding myself radical: financial regulation. I feel like a radical because compared to other people who casually drop terms like ‘repo market’, ‘regulatory arbitrage’ or ‘rehypothecation of collateral’ into ordinary conversation, I probably am pretty radical. However, as soon as anyone starts talking about the contradictions inherent in the accumulation of capital, a part of my brain just inadvertently switches off. For all I know various Marxian* themes would not only be insightful, but may actually be in consonance with what I already think. I wouldn’t know, because I have never really given them the time of day – for no other reason than it feels like listening to a language I don’t understand. I am aware of things I have said in the past (and even in political philosophy tutorials) that have an unquestionably Marxian flavour, but I seem almost constitutionally incapable of acknowledging it, or of then looking to the Marxian tradition for further inspiration or criticism.

In other words, there is something really quite conventional in my radicalism. That conventionalism is located both in the way I actually go about thinking, and in an unwillingness to allow my conclusions to significantly reorder my basic political and ethical commitments. I find myself dangerously capable of holding seemingly incompatible positions; for example, I believe that there is something to the Marxian notion of an ‘ideology’, which I understand to mean that people will tend to form political/philosophical beliefs that are to their material advantage**. Despite this, I completely fail to seriously apply any sort of hermeneutic of suspicion to the material advantage I may gain through the advance of my own political beliefs.

For most of my adult life, I have been terrified of turning into a sophist. The desire to style myself as a radical is a kind of attempted defence against that eventuality, but I fear it is one that itself has more than a whiff of the sophistical.

*I choose the adjective ‘Marxian’ rather than ‘Marxist’ in order to divorce the intellectual from the political tradition. The latter, I am reliably informed, has often failed to live up to the former

**Of course, since I have never read much Marx or those in the ensuing intellectual tradition, I may well be wrong. If this is not the gist of it, I look forward to being corrected.