Signal and noise

John Quiggin10 Comments

Not surprisingly, given the mini-crisis surrounding Howard’s leadership, the Newspoll released yesterday, with the two party preferred position for Labor shifting from 59-41 to 55-45 was big news. But was there really any news, or just the usual random fluctuation. The ABC News on Monday night made it sound huge, describing it as the government cutting Labor’s lead by 8 per cent. On the other hand, if you started with the view that the true position was 57-43, neither this poll nor the last one would lead you to change this view. Two percentage points is well inside the usual allowance for sampling error in polls with a typical sample size of a bit over 1000. So, you might say, it’s all just a beatup.

Comparing the two polls gives a somewhat different answer, which my son Daniel kindly computed for me. Given two polls with 1000 respondents, and the stated results, you can reject, at the 5 per cent confidence level but not at the 1 per cent level, the null hypothesis that they are from the same population. That’s because, given no underlying change in the population, the chance of two variations in opposite directions is smaller than the chance of each variation considered separately.

But that doesn’t end the problems. If you run polls every fortnight, you’re bound, sooner or later to get two samples in a row that deviate in opposite directions, producing a big apparent swing.

FWIW, looking at the Newspoll results since July, I see no reason to think there’s been any real movement in either direction. Aggregating all the polls, and reducing the sampling error accordingly, I’d put the Newspoll 2PP vote somewhere in the range 56-57. The other polls seem to be much the same.

The real problem, though, is non-sampling error. If the question being asked doesn’t match up to the way people are actually going to vote, all of these statistical considerations count for nothing.

Rationality and utility

John Quiggin20 Comments

Over at Cosmic Variance, physicist Sean Carroll offers some admittedly uninformed speculation about utility theory and economics, saying

Anyone who actually knows something about economics is welcome to chime in to explain why all this is crazy (very possible), or perfectly well-known to all working economists (more likely), or good stuff that they will steal for their next paper (least likely). The freedom to speculate is what blogs are all about.

I didn’t notice anything crazy but there’s a fair bit that’s well-known. For example, Carroll observes that utility is generally not additive across commodities, and that some goods are likely to be more closely related than others. That’s textbook stuff, covered by the basic concepts of complementarity and substitutability.

This is a more interesting and significant point

But I’d like to argue something a bit different — not simply that people don’t behave rationally, but that “rational� and “irrational� aren’t necessarily useful terms in which to think about behavior. After all, any kind of deterministic* behavior — faced with equivalent circumstances, a certain person will always act the same way — can be modeled as the maximization of some function. But it might not be helpful to think of that function as utility, or as the act of maximizing it as the manifestation of rationality.

I can only agree. But economists and (even more, I think) political scientists in the “rational choice” tradition regularly get themselves tied up in all sorts of knots about this, switching between the trivial notion of maximising a function and substantive claims in which rationality is frequently equated with egoism. Joseph Butler demolished this kind of reasoning nearly 300 years ago, but it keeps on popping up.

* This qualification isn’t necessary, and Carroll notes later on that choices are often stochastic. The resulting probability distributions still maximise an appropriately defined function.

Time for a backflip

John Quiggin12 Comments

As I foreshadowed, my Fin column last week gave John Howard some unsolicited advice on how to deal himself back into the electoral game; namely ratify Kyoto. Of course, he’s done nothing of the kind, but still I was surprised by the lameness of his latest offering, a retro stunt involving hospital-based training for nurses. With this and the Merseyside fiasco a month or so ago, Howard seems determined to discredit himself with anyone who takes health policy seriously.

Anyway, I think Howard would still benefit by breaking with Bush and ratifying Kyoto. As my piece concludes “If Howard won’t take this step, it’s good evidence that he is, as both internal and external critics have claimed, out of touch and out of ideas.
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Expenses > income = bankruptcy

John Quiggin6 Comments

Andrew Leigh points me to a recent study of US bankruptcy (paywalled, but the abstract is over the page). which concludes that the increased variability of income, and exposure to expense shocks such as medical expenses are not important factors in explaining the dramatic increase in bankruptcy rates since 1970. (I’ve seen a blog link to this also, but can’t find it now).

Count me as unconvinced. The main reason for rejecting income shocks is an explanation of bankruptcy is that, in the model of the paper, households should respond to increasing variance of permanent shocks by increasing precautionary savings. This appears to impute to households a much higher level of ex ante information about future income shocks than they actually possess, and also to rely critically on strong assumptions about rational planning. The whole credit card business is centred on the fact that lots of people (about half the population) don’t pay their monthly balances down to zero and therefore carry semi-permanent debt at very high interest rates. It seems pretty clear that it is people in this group who are most exposed to bankruptcy, and it’s hard to imagine that they are the type to hold precautionary savings.

That’s not to discount the importance of the ‘supply side’, in terms of easier access to credit, which has assisted people in managing increasingly risk in income and expenses, at the cost of steadily increasing debt-income ratios. But you have to look at both sides of the story, and this paper rules out one side by assumption.
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Glacial

John Quiggin2 Comments

In a piece on the canon wars which quotes CT member Michael Berube, the NYT asserts that college English curricula have seen “a decided shift toward works of the present and the recent past. In 1965, the authors most frequently assigned in English classes were Shakespeare, Milton, Chaucer, Dryden, Pope and T. S. Eliot, according to a survey by the National Association of Scholars, an organization committed to preserving “the Western intellectual heritage.â€? In 1998, they were Shakespeare, Chaucer, Jane Austen, Milton, Virginia Woolf and Toni Morrison.”

TS Eliot died in 1965, but given the lags in assigning textbooks, I think it would be reasonable to regard him has having been a living author when his work was set. So, the number of living authors in the top six has moved from one to … one. The only other evidence of the recent past is the inclusion of Virginia Woolf, whose major works were written only 70 years before they made it into the curriculum. Indeed, we are in the throes of radical change here, it seems.

Since the NYT doesn’t mention the obvious difference between the two lists, I won’t either, but I will say that I think the 1998 list is an improvement.

War credits

John Quiggin5 Comments

Now that everyone has finally agreed that Iraq is another Vietnam, we can move on to the next point which is that, having lost the war, the war party in the US is going to blame their domestic opponents, just like they did after Vietnam.[1] The only difference is that the war-peace divide now matches the partisan division between Republicans and Democrats.

In this setting, the idea of looking for a compromise is just silly. The Republicans have made it clear that they don’t want one. Even the dwindling group of alleged moderates aren’t going to vote for anything that would seriously constrain Bush. So, the Democrats can choose between acting to stop the war now, or inheriting it in 2009 [2] . There’s no possibility of pushing anything serious past the Senate filibuster, let alone override a veto.

The only real option, apart from continued acquiescence, is for Congress to fulfil its constitutional role and refuse to pay more for this endless war, starting with the $50 billion in supplementary funding Bush is asking for. There’s no need for any Republican votes, just for the Democrats to stick together and stand firm. That hasn’t been the Democratic way for a long time, but maybe its time now. Certainly, the majority of Americans want to get out of Iraq, just as, in the end, they wanted out of Vietnam.

1. In this context, it’s notable that despite the revisionism of the war party, there’s no evidence that Americans have changed their minds about Vietnam. The great majority still see it as a mistake, just as they did when the war ended

2, I suppose the counterargument is that, by doing what they were elected to do in 2006, the Democrats will wreck their presidential and congressional chances in 2008. If so, perhaps they should give up now.

Running out of water

John Quiggin63 Comments

A couple of months ago, there seemed to be some hope that the record-breaking drought in south-eastern Australia was breaking. There was good rain, and the switch from El Nino to La Nina seemed to be established. Now, it seems, those hopes are gone. The really good rain was confined to coastal areas, most notably Sydney. Temporary water entitlements are now going for $1000 a megalitre, and irrigators are likely to receive something like 5 per cent of their normal allocations.

The water market should do some good in ensuring that water flows where it is most needed, most obviously in keeping tree crops alive. But water is also needed for cities and towns in the Murray-Darling Basin and for Adelaide, so the market will have to be combined with administrative allocation, and there may be a need for emergency measures.

In these circumstances, the last thing we need is the continuing squabbling between Federal and State governments, and within the Federal government between Nationals and Liberals, which has led to only marginal progress under the National Water Initiative. It’s likely that nothing much will happen until after the Federal election and, to be fair, there’s not much that can be done until we see how bad the summer is going to be. But it seems clear that the incoming government will have an emergency on its hands.

Nanni at RSMG has more on the limitations of demand management. This is not going to be an easy problem to solve.

Meanwhile, and relatedly, several species of coral and many seaweeds have been listed as vulnerable or critically endangered as a result of climate change, specifically the increasing frequency and severity of El Niño events.

New PM this AM?

John Quiggin19 Comments

As the Liberal party meeting begins it looks unlikely that Howard will go, but not beyond the realms of possibility. If Costello stands up and demands the job, he will probably get it. And Howard might just decide to pack in the whole sorry crew. However, neither of these scenarios looks likely.

I have a trivial and selfish reason for hoping Howard stays at least until tomorrow. My Fin column, due out tomorrow, gives Howard some unsolicited advice and will have to be rewritten if there is a new PM.

The first and final draft of history?

John Quiggin12 Comments

A while back, I observed in a footnote

Bush isn’t stupid. He’s shown himself to be quite sharp in the pursuit of his own short term interests and those of his backers. But he’s ignorant, narrow-minded, intellectually lazy and unwilling to learn from experience, a combination that produces reliably stupid policy decisions.

Google finds quite a few similar judgements, suggesting that the BlogGeist is in tune. Now Salon’s write-off for an interview with Bush’s biographer says “Bush has a surprising intellect but is incapable of curiosity and owning up to mistakes.”

I’m guessing this initial judgement will be confirmed by a historical verdict that will rank Bush among the worst of US Presidents, if not the absolute worst (Among other candidates for this dubious honour, Nixon had many positive achievements, Harding did no real harm, Andrew Johnson was at least trying for reconciliation and Buchanan’s big failure came after his successor had been elected). Harding’s case in particular shows that amiable stupidity is less dangerous than other intellectual flaws.