The Labour Theory of Value

EconLog has some chatter about the Labour Theory of Value.

That’s always been a problem for me – I’ve never understood how anyone could have believed it.

However, thinking about it now, I think I’ve worked it out. Try this:

Premise 1. A reasonable definition of the value of something is the price that it will fetch in a perfectly competitive ideal free market. (I think this is true).

Premise 2. In a perfectly competitive ideal free market, the price of something will approach its marginal cost of production. (this is also true).

Conclusion. The value of something is its marginal cost of production

That looks logically sound. If two things are both equal to a third thing, then they are equal to each other. An intelligent person might well be fooled by that argument.

It’s not logically sound though, because the perfectly competitive ideal free market doesn’t just set the “right” price for whatever randomly gets produced, it causes certain things to be produced and other things not to be produced.

Premise 2 should read, “The price of something produced in a perfectly competitive ideal free market will approach its marginal cost of production.” The cost of production of something produced not in a perfectly competitive ideal free market (in the real world, for instance) does not tell you what price it would fetch if it happened to land in a PCIFM.

(I’ve skipped over the equating of the marginal cost of production of something with the labour needed to make it, by counting a share of the capital cost as being “dead labour”, because I think that’s OK, though I’m not sure it’s useful).

Peter Kellner on Democracy

Peter Kellner is an expert on British Democracy. President of YouGov polling company, formerly political analyst of Newsnight, visiting fellow at Nuffield College, Oxford, author of books about the system from “Callaghan: The Road to Number 10” in 1976 to “Democracy, 1000 years in pursuit of British Liberty” in 2009. As the title of the recent book implies, he not only knows about democracy, he is in favour of it.

How does he reconcile those two things?

[…] George Canning, who was briefly prime minister in the 1820s, gave a speech defending rotten boroughs. One of his points was that rotten boroughs like Old Sarum, which had two MPs and no residents, produced some of the finest parliamentarians of the late 18th and early 19th century: people like William Wilberforce and William Pitt. Canning argued that if you did away with the rotten boroughs you would lower the quality of the House of Commons. Of course, this is an exact parallel to the arguments about the reform of the House of Lords today. And in a way he had a real point: so it demonstrates why, if one is a democrat, it is important to stick to the principle of democracy. Because if you get into the functionality, if you say the principle is to get the best people or the best government, you might well end up arguing against democracy, which has to be defended as a good in itself.

(my emphasis). Democracy is good in itself – even if, nay, even though, it demonstrably produces worse outcomes than its alternatives.

So that’s how. Read the whole thing at Five Books.

James Lovelock

Apparently James Lovelock is saying that democracy will have to be “put on hold for a while” in order to deal with climate change.

I don’t need to write much, I can refer my readers to the answer I gave previously the last time this idea was raised.

I would just add that the idea that democracy is a good way of managing everything except the climate seems about as likely as the idea that it’s a good way of deciding everything except MP’s salaries.

Agatha Christie in the 21st Century

Thanks to the cornucopia that is ITV3, and the regular addition to my living room of an elderly relative, I now find myself many an evening watching that staple of entertainment, the mystery drama. Taggart and Lewis make frequent appearances, but more evenings than not, of course, there is a television adaptation of the books of the best-selling author of all time, Agatha Christie.
Television has been adapting Agatha Christie for almost as long as there has been television. I first saw them played for laughs, in films with Margaret Rutherford or Peter Ustinov. Next, they was played very straight, in the early Joan Hickson Marples. The emphasis moved in the 1990s towards making them primarily period dramas, with a focus on costumes, cars, and architecture, particularly in the David Suchet Poirots with the strong Art Deco theme.
Recently, in the later Suchet Poirots and the Geraldine McEwan and Julia McKenzie Marples, the producers have turned their attention to social commentary, and to showing off their own cleverness, rejecting the purist faithful-to-the-books approach that was dominant in the 1990s.The new spirit shows itself most crudely and obviously in the Russell-Daviesesque spicing of every story with a piquant extra sprinkle of gay sex. What’s more interesting is the adjusting of the social environment of the stories to be more like the programme makers’ (or the audience’s) impressions of the period, rather than those of Agatha Christie, who, after all, only lived in it.

A good example is the recent Five Little Pigs. In this, Poirot (David Suchet) investigates the cold case of the murder of a celebrated painter, at the request of his daughter, who learned only on coming of age that her mother had been convicted of poisoning her father.

The story is set in the 1930s. We all know murderers were hanged back then, so the 2003 TV production shows us the execution of Caroline Crale, complete with kicking feet, all the better for us to understand the inhumanity of all eras before the 1960s enlightenment. Agatha Christie, with no such agenda, had the sentence commuted, though the wrongly-convicted murderess dies of natural causes a few years later in order to keep her out of the way of Poirot’s investigation.The daughter, in the book, is concerned to reassure her fiance that she will not inherit insane or murderous tendencies. Such a concept is too far-fetched for the 21st century, much more so than the usual intricate coincidences of a whodunnit. The ITV girl is more interested in justice and vengance, and by pulling a gun on the real murderess, displays the very attributes that her literary counterpart was most anxious to disclaim.An even more interesting plot variation was in the 2009 Geraldine McEwan version of Nemesis, which I saw last week. This was the last Miss Marple novel written, published in 1971 – closer to our own time than to the long-gone world of The Mysterious Affair at Styles. Like Christie’s other late novels, it expresses the culture shock to her generation caused by the demolition of class barriers and the other changes of the 1960s.

The setting for the denoument of the novel is a house occupied by three sisters, living (like Miss Marple herself) on a small inherited income. Such rentiers were frequent characters in the Christie oeuvre, but they do not exist in the modern world, and are almost too alien to be understood by modern audiences. They were eliminated from Britain deliberately, as a matter of explicit government policy. (Indeed, their appearance in the late Christie novels is quite possibly an anachronism).

The reason for eliminating the rentier class was that it was seen as parasitic and unjust. Why should some people be allowed to live while contributing nothing at all to society, when the vast majority have to work for a living? As taxes and inflation rose, the prospect of living long-term from capital alone was restricted to the super-rich.That certainly made sense at the time, and if we now lived in a society without a non-working parasite class, I think we could all look back at the destruction of the rentier and applaud. But in the context of the much larger class of parasites who live more richly than the Miss Marples of the world ever did, not from their own jealously preserved capital but on the taxes of the shrinking proportion of working people, envy of the spinster with her few hundred a year in 2½% consols seems as quaint as the air of suspicion and fear that surrounded Christie’s occasional homosexual characters.

The rentiers cannot return, however. With a house and 25k a year in investment income, one could live and even raise a family. At current house prices and bond yields, that represents a capital of less than a million pounds – probably within reach of 1 or 2 percent of the population. It doesn’t happen, though. Inflation always threatens to wipe out any low-yielding investment, and after-tax inflation-adjusted returns are generally negative. The normal expectation of the better off is to build up a private pension and convert it to an annuity on retirement, but handing on a living income to the next generation is an impossibility.

And indeed, even if it were possible to live from capital without consuming it, it would be stupid. Why attempt to preserve a windfall for the future, watching most of it leak away in taxes and inflation, when one can get full value for it today as a holiday, a car and a new TV, and the welfare state will fill up any gap in the future?The rentiers were raised to look down on working for a living — an attitude that cannot be said to be socially beneficial. But the partners of that attitude were thrift and independence, and it does not seem that those virtues can survive without the offer of a life of ease as a reward.

And the destruction of inherited wealth has not even had much impact on inequality. The society that no longer accords status to those who preserve capital, instead gives it to the “wealth-creators” who make incomes a hundred times the average and burn through it in orgies of consumption, since it makes no more sense for them to save than it does for the successors of the rentiers. Is the executive who works 70 hours a week for his seven-figure package, most of which goes on supercars, jets, and designer clothes, really any better for the rest of us than the gentleman who dabbles in business while keeping his patrimony safe? Possibly a little, but not, I fear, enough to compensate for the example that is set for the rest of us.All that might seem a vast tangent from ITV3, but the questions I asked (and didn’t answer) are the ones that viewers will not be asking themselves, because Nemesis in the 2009 version strikes not in the now-mysterious surroundings of the last of the rentiers, but instead among the licensed weirdness of a religious order, whose sinister initates are, all regular ITV3 viewers know, capable of any crime.

Advertising Agency

This is nothing to do with the Anomaly advertising agency. It’s not my fault; I’ve been writing under this heading since 2003, and on this site since 2004. Paul Graham formed the Anomaly UK advertising agency in 2009 (Britannica). Note, that’s not the same Paul Graham that I’ve written about previously, the technologist and essayist.

I write here about politics: mostly these days about the problems of democracy itself. There’s a kind of summary here

Much more interesting than some advertising agency, which if you really want you can find here

The Hockey Stick Illusion

I’ve just finished The Hockey Stick Illusion. I bought it partly out of duty – I was doing my bit by buying Bishop Hill‘s book and adding to its circulation figures. I didn’t expect it to be so good.

One of the things that puts me off public debate generally is that, whatever the forum, it is always too shallow to reach any kind of conclusion. “I think X”. “Well, I think Y.”, “But X is true because of A”. “Ah but you’re ignoring B”. “Well, C means… oh dear, is that the time, I must be going”.

The Hockey Stick Illusion is not about climate. It is not about environmentalism. It is not about science. It is not about global warming. It is 482 pages about one paper published in 1998, criticisms of it, defences of it, attempted replications of and alternatives to it. As such, almost uniquely, it goes into sufficient detail and depth that having read it I feel that I’ve actually learned something. It’s exceptionally well-written, modest in its approach, and overwhelming in its conclusion. Halfway through, I got a little bogged down in the sheer overkill of the weight of damage the hockey stick suffers – did I really need to read any more? But then I read the Phil Jones interview. There is much debate over whether the Medieval Warm Period was global in extent or not. That is an answer to the only question that Montfort’s book asks, and it is the right answer, and it is from one of those people who was most determinedly defending the wrong answer until last year. This is what a won argument looks like – gaze on it in wonder, for it is a rare thing indeed in the world of soundbites and opinion polls.

As to the wider debate, well, this was one small point. The hockey stick can be wrong, and every other claim of the warmists right. But it is immensely valuable, because of the context I have been describing recently. It proves we can be right, even when the warmists are at their most shrill insisting that we are utterly, insanely wrong. It is evidence that, even if we are wrong, we are playing the game, and are entitled to be taken seriously and not shouted down or excluded.

I strongly recommend this book.

Scientists' Fear

In my previous post on the future durability of the AGW scare, I mentioned the reason why scientists tend not to view climate sceptics as presenting a legitimate scientific viewpoint. I took the opportunity of a wild kick at my other favourite target, democracy:

“If scientists treat creationists and the like with respect, and argue honestly and fairly, they will be screwed by elected politicians.”

Because I was off on a tangent, and not giving the argument the separate post that it deserves, I didn’t provide any evidence that this attitude really exists among scientists.

As it happens, I picked up Dawkins’ “The God Delusion” from the library at the weekend. Imagine my smug self-satisfaction, then, when I read the following this morning on page 91

In parts of the United States, science is under attack from a well-organized, politically well-connected and, above all, well-financed opposition, and the teaching of evolution is in the front-line trench. Scientists could be forgiven for feeling threatened, because most research money comes ultimately from government, and elected representatives have to answer to the ignorant and the prejudiced, as well as to the well-informed, among their constituents.

Dawkins is putting that forward as an excuse for scientists to make public statements that they don’t believe – in this case for being overly sympathetic to Christianity, in order to keep moderate Christians as allies against creationists. He considers it an insufficient excuse – “The real war is between rationalism and superstition”, but he believes that some scientists are concealing their real views for tactical reasons in the war against fundamentalists and “elected representatives”. I think he is right.

The fundamental point, which I’ve touched on on a number of occasions, is that if you want to be a scientist in a democracy, where “most research money comes ultimately from the government”, as Dawkins says, then you have to be a bit of a politician. That comes through just as strongly in Phil Jones’ cri de coeur in today’s Times – “I am just a scientist. I have no training in PR or dealing with crises.”

I really don’t believe that more than one in ten of the warmist scientists would spin, lie and conspire in the way they have just to support their pet theory against scientific opponents – even with the stakes as high as they are in terms of funding and career opportunities. They would see that as a betrayal of science, and their consciences would not allow it.

But The Discovery Institute is not a scientific opponent – it is an anti-scientific opponent. Its dishonesty and ulterior motives disqualify it from participating in the normal scientific process according to the normal rules, and in dealing with it, scientists subordinate the scientific process to political tactics.

The key fact about the climate debate is that, because of where the initial scepticism came from, many scientists saw it in the same light as intelligent design. As I wrote yesterday, once they had made that assumption, they were trapped: if you believe your opponents are enemies of science, then stronger arguments from the enemy spur you not to greater doubt, but to greater determination. Also, since the more politically aware bodies in science closed ranks against climate sceptics, they found support largely among that minority more accustomed to working with the political right. The association of climate sceptics with minor right-wing think tanks and a Republican senator confirms in the mainstream scientists the view that they are dealing with a political enemy, not a scientific opponent.

I wrote in my giving-up-on-politics post, “not only do my good arguments not win against my opponents’ bad arguments, my good arguments do not even win against my allies’ bad arguments.”

The problem that causes is that the arguments most likely to persuade the public that you are right, are likely at the same time to persuade the well-informed that you are wrong.

We are seeing the knock-on effect of that situation. In order to win over the ignorant and indifferent, prominent people on both sides of the dispute are employing arguments that are weak, irrelevant, or downright dishonest. Such techniques achieve successes, but at the cost, on both sides, of convincing the opponents more strongly of their own rightness. And, both convinced of their own rightness and dismayed by their opponents’ undeserved popular successes, each side becomes more unscrupulous still in response.

The really difficult question is; does all this mean that the scientists were wrong to ‘go political’ over evolution? Once they had arrogated to themselves the right to decide that evolution was true and they needed to do whatever was necessary to keep teaching it, was an overreaching such as is happening over climate inevitable?

I don’t have to answer that question – I can just blame the problem on democracy, the only system which makes convincing the ignorant and indifferent an essential part of everything from studying the climate to putting on a museum exhibition.

Views changing?

Via JoNova, there has been a large shift in opinion against global warming in the UK.

There has been a lot of triumphalism on the sceptic side – James Delingpole talking about the “imminent death of the AGW scam”, and so on – but I think it is misplaced.

I would guess that the surge in scepticism in Britain owes a lot more to the exceptionally hard winter than to the revelations from East Anglia or the antics of Pachauri, none of which have made very much impact on the public.

The cold winter is not insignificant, of course. It may be just normal variation, but the popular presentation of AGW has mysteriously ignored the fact that the temperature changes they are talking about are barely even measurable, and nowhere near enough to actually notice compared to ordinary year-to-year variation. Therefore, while a cold winter in Britain tells us nothing about climate change as described in the journals, it is a clear falsification of global warming as it has been presented by the media since the 1990s

That is why the media has been uncharacteristically open to both sides during the present kerfuffle. Various scientists are scrambling, not for sake of the movement, but for their own jobs. The movement itself can just sit this out and wait. The IPCC isn’t going away (even if Pachauri does), nor are the politicians who have made climate concern a key part of their image. They’ll wait until summer, and if they get a warm one in the USA and Britain, they’ll crank up the machine again. They won’t bother arguing the toss about tree-rings, Indian glaciers or Chinese weather stations, they’ll just brush it all off as petty troublemaking in the face of the overwhelming threat. And the media will take sides, as they always do, on the basis of which politicians they want to gain and which they want to lose from the whole process.

The exposure of climate science’s guilty secrets, then, will not stop the process in the short term. In the long run, it may have an effect. As I discussed before, it has allowed some people who never believed the exaggerations to say so in public. This in turn may persuade a future generation of politicians that global warming is not what they want to attach their reputations to. For the Obama/Cameron/Milliband generation, it is too late. In a democracy, being indecisive is worse than being wrong, and they cannot afford to change their positions now. But the next decade’s politicians are constructing their positions now, and the choices they make will drive the media landscape of the 2020s.

Ironically, one of the biggest causes of the original AGW error cascade, as Eric Raymond calls it, was George W Bush. For the rank and file in the world’s science departments, Bush was pretty much the most despised figure in history, because of his association with fundamentalist Christianity and the resulting policies, above all against Stem Cell research. To the typical scientist, the theory that the president was attacking climate science because he was in league with oil interests was so intrinsically likely that it wouldn’t make sense to even question it. This was the man who prohibited park rangers from denying young-earth creationism at the Grand Canyon. From that point on, any criticism at all of global warming was presumptively an attack on science itself on behalf of religion and commerce and was to be dealt with on that basis, not studied and reasoned with as if it was part of a real scientific debate. The controversy fell into the pattern of the evolution/creation controversy, rather than the pattern of arguments over Dark Matter or Psychoanalysis. That attitude still persists, and will be very hard to shift, because once it is established, then evidence which strengthens the deniers, while it might start to persuade some of the faithful, will produce in most of the faithful a renewed determination to defeat the anti-science enemy which has become more dangerous through the unfortunate developments which have increased its appeal. Thus the error cascade is perpetuated.

The difficult thing is that I sympathise with these people. I can understand why they are doing what they are doing, and I can’t see a way to shake them out of it. They have learned over the decades that if they treat creationists and the like with respect, and argue honestly and fairly, they will be screwed by elected politicians. And they are applying that lesson. If they didn’t just happen to be wrong, they would be doing the right thing.

Flat Earth News

I have just read Flat Earth News, by Nick Davies.

It’s an excellent account of the forces distorting the news as reported by mainstream newspapers and television. He covers the ideological biases of owners and journalists, and the needs of both owners and journalists to ingratiate themselves with the politically powerful. However, the biggest distortion of all is the fact that finding out the truth takes time and resources, while printing whatever lands in your inbox is quick and cheap. Under commercial pressures, even the most respectable media sources rely heavily on wire services and press releases, while the wire services themselves mostly pass on the news that is given to them.

What is frustrating about the book is that Davies doesn’t look at the demand side. His thesis is that prior to the 1980s, newspapers and journalists sought out stories and checked them, out of professional pride, and that that diligence was squeezed out of the system under commercial competitive pressure from the 1980s onwards. He seems to assume that the media could have got away with that “churnalism” at any time, but chose in the good old days to assume higher standards.

What I wonder is whether there used to be pressure from customers to do proper journalism, and only in the last 20-30 years has it become profitable to print junk instead, due to changes in the audience. Basically, I would like to answer the following questions:

Do readers care whether what they read is true?

Do they believe that what they read is true?

My guess, and it’s just a guess, is that journalism was originally targeted at a market of people who really wanted the truth, though it may have supplied other people as a by-product. Today the people who need the truth have other ways of getting it, and the key newspaper audience simply doesn’t care whether the stories they read are true or not.

Another theory would be that a textbook Market for Lemons has developed – readers want the truth, and know that they’re not getting it, but they don’t have any way of getting it. A newspaper that spent more money to do proper journalism would cost more, but the consumer wouldn’t be able to tell that it was really any better, and so the expensive option would lose in the marketplace. I don’t think this is likely, because I think it would be fairly straightforward to establish a reputation for avoiding the kinds of bad journalism that Davies describes.

A third theory is that proper journalism has suffered from Baumol’s cost disease, and become too expensive. The early-20th century journalist came from the literate lower-middle class, and provided human judgement at low cost. Human judgement has become the critical component in the modern economy, and a journalist’s time is now too expensive for him to be sent around the country sniffing for interesting stories.

Nick Davies is a leftist, but I don’t think the book suffers from that. He tries hard to be fair, and his bias comes through mostly in his examples – it is much easier to spot abuses by one’s political opponents. However, one of the key results of the process he describes is that when there is controversy, both sides will manipulate the media in the ways that have become so easy, and so the reader of his book can easily spot the examples on the other side that he has missed. His argument includes the fact that the ideological bias of media owners, while still significant, is milder than in earlier eras.

Recommended.