Sanjeev Sabhlok's blog

Thoughts on economics and liberty

A liberal perspective on taxes – Part II

[This write-up was published in Freedom First, December 2009]

Sanjeev Sabhlok

Last month, in the first part of this article I made the comment that internally consistent theories of public finance simply don’t exist. I then went on to (bravely!) propose an internally consistent theory derived from the basic social contact.

The following principles resulted from that analysis, that (a) citizens (and not companies) should pay taxes; (b) paying taxes must be mandatory unless someone is simply unable to pay; (c) taxes should be based on the annual average of the lifetime worth of an individual; and (d) taxes must price-discriminate with a modest level of progression: the marginal rates approximating the overall share of taxes in GDP.

According to the fourth principle, the middle class should pay an income tax at a marginal rate approximately equal to the proportion of overall taxes to GDP; the rich should pay at a rate slightly above this; and those below the poverty line should not pay taxes, receiving a negative income tax as part of the social insurance scheme, instead.

The right level of taxation

A fifth principle suggests itself: the total amount of tax collected should be neither too much nor too little, being just enough to ensure effective delivery of necessary government services. The liberal believes that when governments are restricted to their proper role they provide us with a crucially needed service. In this regard it may be noted that a society comprising a larger share of honest people (like Japan) will need less policing and hence lower taxation. Corrupt societies will need higher levels of taxation.

In any event, the liberal is not smitten by the mindless fascination of some alleged ‘liberals’ for low taxation. It is crucial to have the right size of government with right services and functions. That is the only correct determinant of the right level of taxation. Today, India’s socialist government imposes an extremely low overall tax burden but then it squanders these precious revenues on totally unnecessary activities.

The consequent under-supply of basic public goods like defence, police and justice – including the defence of property rights – has led to significant crime and poverty in India.

The ever-present specter of regressive taxation

Theoretical models of public taxation are extremely difficult to translate into practice. We noted last month how regressive taxation is the norm across the world. The rich pay proportionately less as they get richer. At the same time, the poor (who, we have noted, should not have to pay taxes) fork out heavy consumption and indirect taxes. The most progressive taxes of all are reserved for the salaried upper middle class, which carries the world on its shoulders.

The rich benefit most from any number of exemptions, including a regressive capital gains tax regime. Assume that A and B have the same level of assets today and that they invest equally in, say, land. Now assume that A receives a windfall gain with his land tripling in value while B’s stagnates. Most tax systems will treat A’s windfall gains very lightly, even though A is now considerably richer than B. It is improper for windfall gains to be taxed proportionately less than income from ordinary hard work.

The reality is that even as the rich continue to influence politicians to give them more and more exemptions, they end up suffering from the effects of the consequent regressive taxation regime. While they can own the best Mercedes, they must then hire heavily armed security guards and drive through sludgy, potholed roads. The quality of life is very low in societies that depend on regressive taxation.

Some other principles of taxation

Other principles of taxation include:

  • No taxation without representation (i.e. democratically determined taxes).
  • Inflation is the most regressive form of taxation. The liberal therefore opposes deficit financing except in the rarest circumstances (like war).
  • Taxes must be levied by that tier of government which administers the relevant service (principle of subsidiarity).
  • Since it is citizens who must be taxed, taxation of goods must be avoided, being limited to Pigovian taxes to facilitate the internalizing of negative externalities. Where possible, market-based instruments should be used to control negative externalities.
  • The variable cost of a government service to an individual or industry, such as the cost of processing a license, should be recovered from that individual or industry (cost recovery principle).
  • The government should not own land except for roads, common infrastructure, Parliament, courts, basic defence establishments, and police stations. This will allow land to be put to its most productive use. The government should therefore sell land and use these revenues to keep taxes low.
  • Transfers of assets from one generation to another should be treated seamlessly, thus ruling out inheritance taxes.

Clearly, the liberal is not utopian. He realizes that practical matters related to the ease of collection of taxes will influence the real tax system, even though unavoidable distortions will result. Thing like a mix of indirect and direct taxes; or the use of visible and not discounted future income and wealth; will therefore be unavoidable.

Implications for India

What does this mean for India? A few thoughts are outlined below.

1. India must raise its overall tax level from the current tax share currently of around 16 to 18 per cent of GDP to 25 per cent of GDP (compared with 33-50 per cent of GDP in the West). Note that merely raising taxes without reforming India’s governance model will not improve much. Therefore governance reforms of the sort advocated in my book, Breaking Free of Nehru (http://bfn.sabhlokcity.com/) must form the bedrock of reform in public finance.

2. The only defensible way to increase taxes is to broaden the base by requiring all Indian families to lodge annual income and wealth tax returns. Poverty elimination, a vitally necessary part of the liberal agenda, also depends critically on the information received from such returns (see my article in Freedom First, August 2009).

The result would be to increase the base of tax returns in India from 3 crores to around 67 crores.

3. Since abolishing company taxes will be impractical and create many complications, an alternative is to reduce company tax level in India to 25 per cent while requiring dividends paid to Indian investors to be franked through an imputation system: thus defaulting to an income tax system.

4. Apart from eliminating indirect taxes (already touched upon) most excise duties and taxes on products will, in due course, need to be abolished. Pigovian taxes, however, may well be needed on a few products.

5. Given that increases in asset prices continuously transfer significant amounts of wealth to the rich relative to the poor, land and capital gains taxes would need to be increased, aiming at the end of all these reforms for a (broadly) overall flat tax system in India from the current regressive one.

Given space constraints I have been able to present only a sketch of a theory of liberal taxation, but I trust that these two articles of mine will be found broadly reasonable by liberals everywhere.

Freedom Team of India

Once again I’d like to remind that FTI (http://freedomteam.in/) continues to look for leaders and seeks your active involvement and support.

ADDENDUM (RANDOM NOTES)

http://www.nytimes.com/2010/10/10/business/economy/10view.html

Dividend holders pay corporation taxes. Don't forget that! (i.e. my assessment of Warren Buffet is perhaps incorrect)

Comparing Income, Corporate, Capital Gains Tax Rates: 1916-2011 (excellent: from Visualising Economics)

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Stupidity rules the world

This blog post is perhaps going to take many years to complete. It is a place for me to keep a record of things I come across that reflect human stupidity: i.e. things we do that do not advance our life and liberty. Indeed, some of the things we do directly oppose life and lifberty (and success in life). This concept of stupidity has many overlaps with bounded rationality and neuro-economics (behavioral economics), that lead to dysfunctional or sub-optimal outcomes.

It would seem that we are not really rational, being prone to repeated bouts of stupidity. Economics can explain some of this (i.e. shortcuts we take to minimise transaction costs, which means it may not really be a form of stupidity but efficiency; and negative externalities where we benefit personally but harm others, and so it may be individually rational to do so), but where that is the case, it points to another problem: that we don't understand the costs and benefits of our actions. This particularly happens when we ignore the costs of actions that yield small benefits.

I'm going to start this blog post (13 December 2009) by listing a few things and will build this post over time. I hope to cluster these things into appropriate categories and find out what, if anything, can be done to minimise human stupidity. We need mitigating strategies.

Note that I'm not in any way claiming exemption from stupidity, which seems to be an inevitable human condition.

Jumping red lights and driving recklessly
It is typical for at least someone to jump red lights on a given day. While most times no harm is caused, just today I saw how one cyclist was almost killed when he had started off (on a green signal) but a car rushed past, having jumped the red light. Clearly the driver was being stupid. I would estimate that after a 100 near misses, at least one major incident is sure to occur. A detaild calculation of costs and benefits to the stupid drivers is awaited.

Spread of disease through stupidity
– Doctors have known for nearly 200 years now that not washing their hands spreads disease (see discussion in SuperFreakonomics), yet they continue to not wash their hands. Education is only a partial fix to stupidity. They know about the dangers of not washing their hands, but that doesn't help solve the problem.

– People know that preventing the spread of mosquitos is often as simple as making sure that all vessels (e.g. pots) that are lying in the open in their backyard are turned upside down to prevent water from stagnating in these vessels. But they don't care for such things. As a result of this short-cut, mosquitoes lives a happy life in the midst of cities, making it impossible to eliminate malaria.

– We know that computer keyboards and mouse are a heavy source of bacteria, yet how many of us clean these things regularly?

– We know that overeating causes significant harm including death by heart attack; drinking alcohol in excess causes brain damage and cirrhosis of the liver; smoking causes lung cancer. Yet how many people over-eat, over-drink, and smoke!

– Surely sexually promiscuous know that there are significant health consequences, including STDs, HIV and AIDS; yet there seems to be no end to promiscuity.

– A good number of uneducated women in rural India don't give fluids to infants who are suffering dysentery: thus effectively killing them. (Of course, for this one, education may be a fix).

Public servants

From my extensive experience in the public services I can confirm one fact that there is nothing more guaranteed to make an ass out of otherwise intelligent people, than public service. The public service gives you innumerable opportunities to ply your pet ideas without evidence (there is always some fool Minister willing to listen to your freakish ideas), that you no longer feel the need to robustly challenge your own assumptions. Invariably public servants are more interested in useless things like politics, status, and what 'the Minister wants' than in the truth. The worst profession to get in, if you ever want to be a student of the truth.

 

Arrogance
– Political and religious leaders constantly display great arrogance, as if merely by holding a particular high position, all knowledge lands on their head. Thus the church forced Galileo to 'recant' and long refused to accept evolution. Today, without as much as a clue about the climate, politicians are running about trying to fix the 'problem'. This will cause significant harm, with no mitigating benefits.

– For thousands of years, men were arrogant enough to think that women could not know much, hence did not educate them. Today also, at least parts of the Islamic world and in many parts of rural India, the girl child is not highly regarded and hence is not educated. The reality is that it is the men (indeed, entire societies) who lost out in this process. How stupid were these men!

– Central planners of all sorts suffer from the disease (of paternalism: being disguised arrogance). Statist solutions which are invariably sub-optimal come easily to the minds of such central planners. The divine right of kings was one way to empower people who would then impose their ridiculous ideas on others (e.g. Tuglak and his Tughlakabad).

– Most wars are entered into through such arrogance.

Intolerance
– Islamic terrorists know that they will likely die as a result of their stupid fascination with spreading Islam through violence; yet they do it, thus destroying the only guaranteed life they are going to get (the rest is imaginary with absolutely no empirical proof available to us of its existence).

Blind hatred
– Mega-criminals seem to get to powerful positions in human society very quickly. People like Hitler manage to spread the message of hate and thousands of people follow them like sheep.

Inability to share
– There are those who somehow manage to get a lot of wealth in their life, but are unable to open their heart to others. Neither does there seem to be an end to their personal quest for wealth nor any purpose to their life beyond making money for themselves.

Lack of consideration for others
– this can be as simple as lack of consideration for others' time. Businesses don't seem to care for customers, although one would imagine that they would do so, because customers keep them in business!

– within a marriage, people behave stupidly towards their partners, knowing full well that if only they behaved better, their marriage would grow stronger and durable.

Tendency to panic
– Humans are prone to social panic – entire groups undertake suicide under the guidance of cult 'leaders'.

– Humans panicked in the 1970s about the potential onset of the ice age; now they are panicked about the earth melting. It is important that the 'precautionary principle' is not used as a rationalisation for really bad policies just because we have stopped using our head and have started panicking.

Leaving cash on the table
– There is an endless list of potential public policies which are designed sub-optimally, i.e. which do not optimise the benefits society could obtain from the policy. Billions of dollars are therefore 'sitting on the table' but no one picks them up.

Bills left on the sidewalk
-cf. Mancur Olson's famous (1996) paper: "Big Bills left on the Sidewalk: Why Some Nations are Rich and Others Poor", a paper which showed that poor nations can readily solve their problems if they want to, but they don't seem to want to. Is that not plain stupidity?

Stupid predictions by eminent people
– E.g. 'The Population Bomb' by Paul Ehrlich (see Julian Simon's 'The Ultimate Resource' for a number of other stupid predictions by others (not by Simon – one wise man!)). The thing is that these eminent people seem to get hung up about their predictions and stop thinking: they refuse to consider alterna
tive arguments and block their mind to all data that may contradict them.

– the surfeit of thick-headed economists who keep coming out with new predictions in newspapers/TV (most predictions being wrong!) about how the economy, house prices, foreign exchange rate, interest rate, etc., is going to behave in the future.

The Black Swan phenomenon whereby people simply don't anticipate random shocks, which are far more common than they think they are.

"Neem Hakim Khatra Jaan" (being half-trained is worse than being untrained)
– Robert Frank reports that those who learn basic economics can end up worse off (in terms of common sense) than those who did not learn economics: "exposure to introductory economics instruction was strikingly counterproductive. Among those who had taken a course in economics, only 7.4 percent answered correctly, compared with 17.2 percent of those who had never taken one." (see Robert's paper in NY Times, September 1, 2005).

Overestimating one's skills/personality traits
– More than 90 per cent of all drivers feel sure they are better than average (cited at p.929 of

Robert H. Frank, ‘Why is Cost-Benefit Analysis so Controversial?’, The Journal of Legal Studies, Vol. 29, No. 2, Cost-Benefit Analysis: Legal, Economic, and Philosophical Perspectives (Jun., 2000))
– More than 99 per cent of high-school students think they are above average in terms of their ability to get along with others. (ibid)

And so on… Will add to this list as time permits and ideas come to mind.

REQUEST
Please help me add to this list by sending examples of human stupidity. You can write to me at sabhlok AT yahoo DOT com.

WHY STUPIDITY?
It is time to jot down a few thoughts on the causes of stupidity.

– Ignorance
Perhaps more than half of what we think we 'know' is wrong. This includes false deductions, false assumptions, superstitions, etc.

– Forgetfulness
Robert Frank shows in one of his articles how even PhDs in economics forget the concept of opportunity cost. Such forgetfulness of learned knowledge can lead to bad (stupid) decisions.

– Arrogance
This is self-explanatory.

– Rush to judgement
We tend to rush to conclusions without waiting to assess all the relevant facts.

– Lack of time to think through things
This can happen where there are high transaction costs involved in studying and understanding something in detail, so we take shortcuts (rules of thumb).

– Emotional fascination
We may get emotionally involved in something, which will invariably skew our rational thinking.

– Absent mindedness
I find this happens to me when I'm thinking too many thoughts at the same time. Certain unintended actions can then occur.

– Herd instinct
In 'The Return of the Economic Naturalist' (p.156) Robert Frank shows how we can go very wrong, following the herd (particularly if it is a setup).

– Imagined immunity
We imagine that bad things won't happen to us, or that the odds don't work across the board.

– Imagined superiority of some
It is easily possible to grossly over-estimate the value provided by others. For instance, there is very little difference between someone with an IQ of 130 and 170 in terms of real-life performance. Indeed, estimates of IQs of many influential people put them in the zone of 120 to 140 which is generally superior enough to perform in any profession with significant competence. Most doctors, for instance, perform the same. However, small differences among them (such as who was able to gain admission to a more prestigious course) can lead to dramatic differences in lifetime earnings because their clients mis-judge their competence based on their university. The truth about performance is that except for perhaps one or two exceptional individuals, the rest are all very similar. Yet the winner-takes-all mentality denies those from lesser universities a suitable place in life. The fact that we value a degree from Harvard much higher than a degree from, say, a top-50 university, is basically a stupid decision.

– Our imagined superiority about ourselves
This is not about arrogance, but simply over-estimating our abilities relative to others. Thus, apparently, 90 per cent of workers consider themselves more productive than their colleague/s (Robert Frank – return of economic naturalist, p.167).

WISE SAYINGS BY SMART PEOPLE:

"X-rays will prove to be a hoax." Lord Kelvin

ADDENDA

http://www.nytimes.com/2010/05/30/business/30view.html

Addendum:

Sunstein notes,

Poor judgments, by individuals and societies, can result from certain heuristics, from informational and reputational cascades, from thinking processes in which benefits are "on screen" but costs are not, from ignoring systemic effects of one-shot interventions, from seeing cases in isolation, and from intense emotional reactions. Cost-benefit analysis serves as a corrective to these cognitive problems. … Cost-benefit analysis should be understood as a method for putting "on screen" important social facts that might otherwise escape private and public attention.[1]

Cognitive psychology and behavioural economics tell us about the biases and shortcuts that humans often take.

  • Availability heuristic: We tend to think that events are more probable if we can recall a particular case or incident of its occurrence. More publicised events appear to us to have occurred more frequently even though when data is collated and compared, many significant risks are found to have been ignored by the media (i.e. real risks not easily perceptible) while others that are easily perceived by infrequent, are grossly exaggerated. The standardisation of all risks is crucial in helping arrive at a good policy.
  • Informational (social) cascade: Group think is another typical bias. In this case, a signal by someone in some position of authority, initially, sets off a social cascade as “as hundreds, thousands, or millions of people come to accept a certain belief simply because of what they think other people believe”[2]. This is the phenomenon underpinning fashions and fads. Fads can occur in all spheres, including policy. But just because someone in a position in authority believes in something doesn’t make it true.
  • Reputational cascade: “If many people are alarmed about some risk, you may not voice your doubts about whether the alarm is merited, simply in order not to seem obtuse, cruel, or indifferent. And if many people believe that a certain risk is trivial, you may not disagree through words or deeds, lest you appear cowardly or confused. The result of these forces can be cascade effects, mediated by the availability heuristic. Such effects can produce a public demand for regulation even though the relevant risks are trivial.”[3]
  • Loss aversion: Because we are loss averse, “any newly introduced risk, or any aggravation of existing risks, is seen as a serious problem, even if the accompanying benefits … are considerable.”[4] This can only be clarified through a CBA.
  • Difficulty in assessing systematic effects. “[M]ost [people] … do not see the complex, system wide effects of particular interventions.”[5] It thus takes considerable expertise and care to understand the system-wide effects, including unintended consequences, of regulatory interventions.
  • Alarmist bias: “[R]isk-related concerns are often based on feelings rather than judgments. Thus risk- related objections can be a product not so much of thinking as of intense emotions, often produced by extremely vivid images of what might go wrong.”[6] It appears that the “mere existence of discussions of new risks can aggravate concern, even when the discussions take the form of assurances that the risk level is relatively low”.
  • Distortions by taking problems in isolation: A well designedCBA “operates as a built-in corrective to some of the distortions that come from taking problems in isolation”[7]. That is because “people's answers to questions taken in isolation are very different from their answer to questions when they are asked to engage in cross-category comparisons”[8].

[1]Cass R. Sunstein, “Cognition and Cost-Benefit Analysis”, The Journal of Legal Studies, Vol. 29, No. 2, Cost-Benefit Analysis: Legal, Economic, and Philosophical Perspectives (Jun., 2000), p.1059-60.

[2]Sunstein, p.1066.

[3]Sunstein, p.1067.

[4]Sunstein, p.106

[5]Sunstein, p.1069.

[6]Sunstein, p.1070.

[7]Sunstein, p.1072.

[8]Sunstein, p.1071.

ADDENDUM

http://www.oft.gov.uk/shared_oft/economic_research/OFT1226.pdf  (Consumers are suckers for “special” deals that are costlier than they first appear – Economist, May 27th 2010)

This article discusses one example of bad science: http://www.climatechangefraud.com/politics-propaganda/7326-when-bad-science-makes-bad-laws. There are thousands of others.

In 1876, William Preece, chief engineer of the British Post Office, said: ''The Americans have need of the telephone, but we do not. We have plenty of messenger boys''; and in 1943, the chairman of IBM famously said: ''I think there is a world market for maybe five computers.''

http://www.theaustralian.com.au/news/features/the-pandemic-that-never-was/story-e6frg6z6-1225905590249

Mix up of babies and mothers.

 

ADDENDUM

Strange as it may seem to us, 18th-century physicians believed that one of the best methods of reviving the unconscious or the nearly dead was to blow tobacco smoke up their bottoms. Warmth and stimulation, it was argued, were needed to bring them back to life and tobacco was thought to be a particularly useful source of both. Tobacco resuscitator kits were built by the leading makers of scientific and medical instruments of the day. The principal part of the kit was a kind of bellows to blow the smoke up the patient’s rectum. In the 770s, boxed tobacco resuscitators were stationed at points along the River Thames in London to assist in reviving people pulled from the river after nearly drowning. [Source]

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A review of SuperFreakonomics (Penguin Australia, 2009)

SUMMARY: Strongly recommended. Great read. Great many new insights.

Background (general ramblings)
This is a ‘running’ review of SF by Steven Levitt. I read one of its chapters in The Australian (global warming) and another in The New York Times (below). Browsed through it in a bookshop. And then bought it a few days ago, in a discounted Christmas sale (Paypal). A book worth keeping – not merely reading from the libraries (and, of course, I own – and highly recommend – Freakonomics, which came out a few years ago).

I’ll build this review over the coming weeks (or even years), depending on the time I find. I’m also placing (at the bottom of this page) extracts from the book that are freely available on the internet (I prefer to have access to electronic versions that allow me to cite the book quickly when I need to. Copyright of the electronic material, of course, belongs to Levitt and Dunbar)

THE REVIEW
I begin with a few highlights that everyone should understand. These seem to indicate that much of what we think we ‘know’ is wrong (this book talks only briefly about things like heuristics and behavioral economics, but I suppose that is by now a part of our self-awareness).

a) Difficulty of distinguishing between skilled experts
Example: “measuring doctor skill is a tricky affair” (p.74)
The book does an excellent job in showing how hard it is to determine the truth about other’s skills. Not only are initial assumptions likely to be false but self-selection issues, incomplete data, random factors, and interactions, contaminate any decent understanding of causality. In the end, after controlling for a wide range of variables, it was found that the difference in outcomes between the worst and best doctors is actually very small. Most perform close to the average. The so-called good doctors will make as many bad decisions as so-called bad doctors.

Example: ordering matters
The example here was of economists who publish papers jiontly, with names being listed in alphabetical order. Because the person whose last name starts closer to A gets listed first, over the course of a lifetime, that person becomes more famous (and earns more) than the one whose name starts with Z.

b) Principal Agent problem
Example: Making something illegal doesn’t stop it.
Prostitution is banned in Chicago. As a result, while the head of police in Chicago works against prostitutes, his police officers do the exact opposite. “A Chicago street prostitute is more likely to have sex with a cop than be arrested by one” (p.41)

c) Experimental economics and its fundamental flaw
Example: altruism is over-rated (p.122)
People conducting altruism experiments forgot to factor in the presence of the experimenter! As a result most of what they found was plain wrong! This shows that humans are rational and will act according to the context. Experimenters have to be very smart else they simply won’t understand how humans think.

d) How to live longer
Buy an annuity. If you take out an annuity, the ‘steady payout provides a little extra incentive to keep chugging along’ (p.82).

e) Chemotherapy is a waste of money in most cases
Except for “leukemia, lymphoma Hodgkin’s disease, and testicular cancer … in most other cases, chemotherapy is remarkably ineffective.” (p. 84)

f) Finding terrorists requires enormous accuracy of modeling
“if you want to hunt for terrorists, 99 percent accurate is not even close to good enough” (p. 92)

g) Voluntary donations of kidneys is trumped by sale of kidneys
America and most western nations have an aversion to organ sale as a result of which thousands of Americans die each year without receiving kidneys (for instance). Iran, on the other hand, instituted a system of paying for kidneys, and over the past 30 years there has been a fully met demand for kidneys in Iran. The best place in the world to live if you have kidney failure. (p.125). Iran is “the only country that has recogized altruism for what it is – and, importantly, for what it is not”. Btw, Gary Becker promotes the idea of a market for organs. Very sensible.

h) Al Gore is a pure idiot
This is my way of chacterising Al Gore (not Levitt’s, who is far more circumspect). I say this not only because Al Gore’s famous movie ‘An Inconvenient Truth’ contains blatant over-statements (lies?), but also because he dismisses the very possibility of geo-engineering, thus: “I think it’s nuts. … If we don’t know enough to stop putting 70 million tons of global-warming pollution into the atmosphere every day, how in God’s name can we know enough to precisely counteract that?” (p.200, 203) That is stupidity personified. This man is not only totally ingorant, but doesn’t have the ability to understand plain basic science. And yet he managed to become Vice President of USA.

The reality is that there are a vast number of potential solutions to the alleged problem of man-made global warming (a matter on which I’m more inclined to side against the IPCC and current received knowledge). Levitt’s book highlights a few reasonable ones. Even assuming that the current slight warming over the past century has anything to do with man-made causes, we are now in a position to regulate the temperature of the earth almost like regulating our own air-conditioned cars and houses. Ridiculing geo-engineering is like ridiculing science itself. Shame on Al Gore.

i) Solar energy heats (not cools) the world
Because “only about 12 percent [of light from the sun] gets turned into electricity” the rest is first absorbed (not reflected) by the black solar cells, and then irradiated (i.e. leaked out into the air, not reflected back into space). Net effect: heating of the world. (p.187)

j) Properties of CO2.
There is nothing like Plimer’s book for understanding the details of these things, but a few points stand out in SuperFreakonomics:

– a doubling of CO2 traps less than 2 percent of the outgoing radiation emitted by the earth. In other words, the ‘forcing’ of CO2 is very weak, being governed as well by the law of diminishing returns (p.184).

– doubling the amount of CO2 while holding other inputs steady, yields a 70 per cent increase in plant growth (p.195)

– CO2 levels were above 1000 ppm 80 million years ago when our mammalian ancestors were evolving (in fact this has been found to hold even 35 million years ago – see study cited in my Plimer blog) (p.183). Indeed, prior to that there were no ice caps on Earth. Ice caps formed when CO2 levels dropped to 1000 ppm. Therefore current CO2 levels are one of the lowest in the history of the earth, and only by increasing these levels well above 1000 ppm will ice caps dissolve. This points to the need to start shifting to non-CO2 based energy sources (such as nuclear) but there are now many other ways
to cool the world, as well (geo-engineering).

– human activity accounts for just 2 percent of global CO2 emissions, with the remainder generated by natural processes like plant decay (p.171).

k) Climate models are deeply flawed
– “even the most sophisticated climate models don’t do a very good job of representing such [an extraordinarily wide range of] variables, and that obviously makes predicting the climatic future very difficult.” (p.168)

– “The current generation of climate-prediction models are, as Lowell Woods puts it, ‘enormously crude'” (p. 181). “there’s an enormous amount of natural phenomena they can’t model”.

l) Child car seats (booster, etc) are barely better than seat belts
“For preventing serious injury, lap-and-shoulder belts … performed as well as child safety seats for children aged two through six. But for more minor injuries, car seats did a better job, reducing the likelihood of injury by roughly 25 percent compared with seat belts.” (p.156)

m) Doctors kill more people than motor car crashes or breast cancer.
“In a 1999 report called ‘To Err is Human’, the Institute of Medicine estimated that between 44,000 and 98,000 Americans die each year because of preventable hospital errors – more than deaths from motor-vehicle crashes or breast cancer” (p.204). Why? Because doctors don’t wash their hands.

n) Circumsicion as a part of the ‘solution’ to HIV/AIDS
“circumcision was found to reduce the risk of HIV transmission by as much as 60 percent in heterosexual men”. (p.208) [NOTE: A commentator – below – has provided a contradiction of this “fact” – so as is usual in everything I suggest – please keep your mind open to the more accurate facts]

etc. etc. etc. This book is a gold mine.

CONCLUSION
Much as I’d like to write more, there’s not time at the moment. I hope you get a sense of the wide range of issues raised in this book. Most importantly, it helps us to understand the significant failure of human knowledge in virtually all fields, and the need for continued humility and curiosity. Do not block out any source of new information. Explore it carefully, but never ‘finalise’ your views on anything. Keep searching for the truth.

====EXTRACT FROM THE BOOK===
From NY Times:

http://www.nytimes.com/2009/10/20/opinion/20freakonomics-excerpt.html?_r=1
Unbelievable Stories About Apathy and Altruism By STEVEN D. LEVITT and STEPHEN J. DUBNER
Published: October 16, 2009

The following is an excerpt from chapter three of “SuperFreakonomics,” by the authors of Freakonomics.

We all witness acts of altruism, large and small, just about every day. We may even commit some ourselves. But economists don’t know anything about such behavior, do they? Sure, liquidity crunches and oil prices and even collateralized debt obligations — but social behaviors like altruism? Is that really what economists do?

For hundreds of years, the answer was no. But in the early 1960s, a few renegade economists had begun to care deeply about such things. Chief among them was Gary Becker, the longtime University of Chicago economist who was awarded the Nobel Prize in 1992. Not satisfied with just measuring the economic choices people make, Becker tried to incorporate the sentiments they attached to such choices.

Some of Becker’s most compelling early research concerned altruism. He argued, for instance, that the same person who might be purely selfish in business could be exceedingly altruistic among people he knew — although, importantly (Becker is an economist, after all), he predicted that altruism even within a family would have a strategic element. Years later, the economists Doug Bernheim, Andrei Shleifer, and Larry

Summers empirically demonstrated Becker’s point. Using data from a U.S. government longitudinal study, they showed that an elderly parent in a retirement home is more likely to be visited by his grown children if they are expecting a sizable inheritance.

But wait, you say: maybe the offspring of wealthy families are simply more caring toward their elderly parents?

A reasonable conjecture — in which case you’d expect an only child of wealthy parents to be especially dutiful. But the data show no increase in retirement- home visits if a wealthy family has only one grown child; there need to be at least two. This suggests that the visits increase because of competition between siblings for the parent’s estate.

What might look like good old-fashioned intrafamilial altruism may be a sort of prepaid inheritance tax.

Some governments, wise to the ways of the world, have gone so far as to legally require grown children to visit or support their aging moms and dads. In Singapore, the law is known as the Maintenance of Parents Act.

Still, people appear to be extraordinarily altruistic, and not just within their own families. Americans in particular are famously generous, donating about $300 billion a year to charity, more than 2 percent of the nation’s GDP. Just think back to the last hurricane or earthquake that killed a lot of people, and recall how Good Samaritans rushed forward with their money and time.

But why?

Economists have traditionally assumed that the typical person makes rational decisions in line with his own self- interest. So why should this rational fellow — Homo economicus, he is usually called — give away some of his hard- earned cash to someone he doesn’t know in a place he can’t pronounce in return for nothing more than a warm, fuzzy glow?

Building on Gary Becker’s work, a new generation of economists decided it was time to understand altruism in the world at large. But how? How can we know whether an act is altruistic or self- serving? If you help rebuild a neighbor’s barn, is it because you’re a moral person or because you know your own barn might burn down someday? When a donor gives millions to his alma mater, is it because he cares about the pursuit of knowledge or because he gets his name plastered on the football stadium?

Sorting out such things in the real world is extremely hard. While it is easy to observe actions, it is much harder to understand the intentions behind an action.

Laboratory experiments are of course a pillar of the physical sciences and have been since Galileo Galilei rolled a bronze ball down a length of wooden molding to test his theory of acceleration. Economists, however, have never been as reliant on the lab. Most of the problems they traditionally worry about — the effect of tax increases, for instance, or the causes of inflation — are difficult to capture there. But over time, some economists came to believe that if the lab could unravel the scientific mysteries of the universe, surely it could help figure out something as benign as altruism.

These new experiments typically took the form of a game, run by college professors and played by their students. One was called Dictator. In this game, a small pool of money is divided between two people, but only one of them gets to decide how the money is divided. (Thus the name: the “dictator” is the only player who matters.)

The original Dictator experiment went like this. Annika was given $20 and told she could split the money with some anonymous Zelda in one of two ways: (1) right down the middle, with each person getting $10; or (2) with Annika keeping $18 and giving Zelda just $2.

Dictator was brilliant in its simplicity. As a one- shot game between two anonymous parties, it seemed to strip out all the complicating factors of real-world altruism. Generosity could not be rewarded, nor could selfishness be punished, because the second player (the one who wasn’t the dictator) had no recourse to punish the dictator if the dictator acted selfishly. The anonymity, meanwhile, eliminated what ever personal feeling the donor might have for the recipient. The typical American, for instance, is bound to feel different toward the victims of Hurricane Katrina than the victims of a Chinese earthquake or an African drought. She is also likely to feel different about a hurricane victim and an AIDS victim.

So the Dictator game seemed to go straight to the core of our altruistic impulse. How would you play it? Imagine that you’re the dictator, faced with the choice of giving away half of your $20 or giving just $2.

The odds are you would . . . divide the money evenly. That’s what three of every four participants did in the first Dictator experiments. Amazing!

Dictator yielded such compelling results that the games soon caught fire in the academic community. They were conducted hundreds of times in myriad versions and settings, by economists as well as psychologists, sociologists, and anthropologists. As it turns out, it didn’t matter if the experiment was run in western Mongolia or the South Side of Chicago: people gave. By now the game was usually configured so that the dictator could give any amount (from $0 to $20), rather than being limited to the original two options ($2 or $10). Under this construct, people gave on average about $4, or 20 percent of their money.

The message couldn’t have been much clearer: human beings indeed seemed to be hardwired for altruism. Not only was this conclusion uplifting, but it rocked the very foundation of traditional economics.

Non-economists could be forgiven if they felt like crowing with satisfaction. Homo economicus, that hyper- rational, self- interested creature that dismal scientists had embraced since the beginning of time, was dead (if he ever really existed). Hallelujah!

If this new paradigm — Homo altruisticus? — was bad news for traditional economists, it looked good to nearly everyone else. The philanthropy and disaster- relief sectors in particular had reason to cheer. But there were far broader implications. Anyone from a high government official down to a parent hoping to raise civic- minded children had to gain inspiration from the Dictator findings — for if people are innately altruistic, then society should be able to rely on its altruism to solve even the most vexing problems.

One of the most prolific experimental economists among the new generation was a native of Sun Prairie, Wisconsin, named John List. In 2005, thanks largely to his experience with field experiments, he was offered a tenured professor position at the University of Chicago. By now he knew the literature on altruism experiments as well as anyone. And, as someone who grew up in a family of truck drivers, he knew the real world a bit better. List set out to definitively determine if people are altruistic by nature.

His weapon of choice was Dictator, the same tool that created the conventional wisdom. But List had a few modifications up his sleeve. This meant recruiting a whole bunch of student volunteers and running a few different versions of the experiment.

He began with classic Dictator. The first player (whom we’ll call Annika once again) was given some cash and had to decide whether to give none, some, or even all of it to some anonymous Zelda. List found that 70 percent of the Annikas gave some money to Zelda, and the average “donation” was about 25 percent of the total. This result was perfectly in line with the typical Dictator findings, and perfectly consistent with altruism.

In the second version, List gave Annika another option: she could still give Zelda any amount of her money but, if she preferred, she could instead take $1 from Zelda. If the dictators were altruistic, this tweak to the game shouldn’t matter at all; it should only affect the people who otherwise would have given nothing. All List did was expand the dictator’s “choice set” in a way that was irrelevant for all but the stingiest of players.

But only 35 percent of the Annikas in this modified, steal- a-dollar-if-you-want version gave any money to Zelda. That was just half the number who gave in the original Dictator. Nearly 45 percent, meanwhile, didn’t give a penny, while the remaining 20 percent took a dollar from Zelda.

Hey, what happened to all the altruism?

But List didn’t stop there. In the third version, Annika was told that Zelda had been given the same amount of money that she, Annika, was given. And Annika could steal Zelda’s entire payment — or, if she preferred, she could give Zelda any portion of her own money.

What happened? Now only 10 percent of the Annikas gave Zelda any money, while more than 60 percent of the Annikas took from Zelda. More than 40 percent of the Annikas took all of Zelda’s money. Under List’s guidance, a band of altruists had suddenly — and quite easily — been turned into a gang of thieves.

The fourth and final version of List’s experiment was identical to the third — the dictator could steal the other player’s entire pile of money — but with one simple twist. Instead of being handed some money to play the game, as is standard in such lab experiments, Annika and Zelda first had to work for it. (List needed some envelopes stuffed for another experiment, and with limited research funds he was killing two birds with one stone.)

After they worked, it was time to play. Annika still had the option of taking all of Zelda’s money, as more than 60 percent of the Annikas did in the previous version. But now, with both players having earned their money, only 28 percent of the Annikas took from Zelda. Fully two-thirds of the Annikas neither gave nor took a penny.

So what had John List done, and what does it mean?

He upended the conventional wisdom on altruism by introducing new elements to a clever lab experiment to make it look a bit more like the real world. If your only option in the lab is to give away some money, you probably will. But in the real world, that is rarely your only option. The final version of his experiment, with the envelope-stuffing, was perhaps most compelling. It suggests that when a person come
s into some money honestly and believes that another person has done the same, she neither gives away what she earned nor takes what doesn’t belong to her.

But what about all the prizewinning behavioral economists who had identified altruism in the wild?

“I think it’s pretty clear that most people are misinterpreting their data,” List says. “To me, these experiments put the knife in it. It’s certainly not altruism we’ve been seeing.”

List had painstakingly worked his way into the center of an elite group of scholars who were rewriting the rules of economic behavior. Now, in order to stay true to his scientific principles, he had to betray them. As word of his findings began to trickle out, he suddenly became, as he puts it, “clearly the most hated guy in the field.”

When you look at the world through the eyes of an economist like John

List, you realize that many seemingly altruistic acts no longer seem so altruistic.

It may appear altruistic when you donate $100 to your local public radio station, but in exchange you get a year of guilt- free listening (and, if you’re lucky, a canvas tote bag). U.S. citizens are easily the world’s leaders in per-capita charitable contributions, but the U.S. tax code is among the most generous in allowing deductions for those contributions.

Most giving is, as economists call it, impure altruism or warm-glow altruism. You give not only because you want to help but because it makes you look good, or feel good, or perhaps feel less bad.

Consider the panhandler. Gary Becker once wrote that most people who give money to panhandlers do so only because “the unpleasant appearance or persuasive appeal of beggars makes them feel uncomfortable or guilty.” That’s why people often cross the street to avoid a panhandler but rarely cross over to visit one.

And what about U.S. organ-donation policy, based on its unyielding belief that altruism will satisfy the demand for organs — how has that worked out?

Not so well. There are currently 80,000 people in the United States on a waiting list for a new kidney, but only some 16,000 transplants will be performed this year. This gap grows larger every year. More than 50,000 people on the list have died over the past twenty years, with at least 13,000 more falling off the list as they became too ill to have the operation.

If altruism were the answer, this demand for kidneys would have been met by a ready supply of donors. But it hasn’t been. This has led some people — including, not surprisingly, Gary Becker — to call for a well-regulated market in human organs, whereby a person who surrenders an organ would be compensated in cash, a college scholarship, a tax break, or some other form. This proposal has so far been greeted with widespread repugnance and seems for now politically untenable.

Iran established a similar market nearly thirty years ago. Although this market has its flaws, anyone in Iran needing a kidney transplant does not have to go on a waiting list. The demand for transplantable kidneys is being fully met. The average American may not consider Iran the most forward- thinking nation in the world, but surely some credit should go to the only country that has recognized altruism for what it is — and, importantly, what it’s not.

If John List’s research proves anything, it’s that a question like “Are people innately altruistic?” is the wrong kind of question to ask. People aren’t “good” or “bad.” People are people, and they respond to incentives. They can nearly always be manipulated — for good or ill — if only you find the right levers.

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The challenge of building a national liberal political alternative

This article was published in the November 2009 (Volume 3, 2009) issue, South Asia eNewsletter of FNF.

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Indian political liberalism has been blossoming in the last few years but is still very fragile. The demand for freedom is still largely confined to the fringe of Indias mainstream political debates. The mantra of socialism refuses to die out despite the success of economic liberalisation. Indeed, Indias politicians continue to preach socialism as they practice their ugly mix of statism, crony capitalism and corruption.

The idea of freedom as the most basic political good is still struggling for relevance in a nation where over six decades socialism has created a strong culture of relying on the government for everything. And there has been very poor communication. As a result most Indians simply dont understand what freedom means, mixing it with democracy or even independence.

Freedom never came in a silver platter. It has had to be fought for and won. By each generation.
Today it is our turn, and we must give battle to socialism and corruption irrespective of whether we win or lose. Sadly, Indian liberals have not recovered from the demise of the Swatantra Party in 1974. They are fragmented and seemingly incapable of combining together to lead India to freedom.
But there are good tidings. It is possible, even likely, that a national liberal political front will take shape in India in the next few years. Let me tell you about this good news.

My lost decade
At this stage I need to introduce myself briefly to you. I worked as an Indian bureaucrat from 1982 to January 2001. I now do similar things in Australia. Like most Indians of my generation who were encouraged to take up science and technology in their school days at the expense of the liberal arts, I had only a feeble understanding of economics, political science or political philosophy when I joined the Indian civil service. I therefore assumed that (the socialist) policies set by the government were well researched.

But dissonance soon arose. For if these policies were so good why was there so much corruption, inefficiency and waste? Public money was being destroyed and entrepreneurship choked. There was a great disconnect between highly talented bureaucrats on the one hand and pathetic results on the other.

Therefore, from 1984 to 1999 I studied economics and management and sought answers to this riddle. In 1998, at age 38, while completing my PhD, the haze finally cleared. When it did, it became also clear to me that the required reforms must start from the top. A political mandate was needed. Another thing became clear: that we need to stop pointing fingers at others and take responsibility for our country. We must become the leaders we want to see.

The Swatantra Party had died without a trace, and it was not possible to join existing corrupt or communal political parties. So I determined to establish a liberal political party, knowing very well the challenges involved. Between 1998 and 2000 I met many Indians across the world to advance the idea of a liberal political movement. Most people I met were cynical, without much hope. But I kept trying.

During this process many shortcomings of Indians became clear our lack of leaders (or rather, the lack of citizenship); and among the few leaders we have, the lack of strategic thinking. No Rajaji did I find. I also found that our industrialists and businessman live solely for themselves. They are happy to bribe their way though the corrupt system. The country means absolutely nothing to them. No JRD Tata did I come across.

And failure dogged my steps. Finally, after three failed attempts, not yet being a persistent leader, I grew disheartened and gave up. That was mid-2005.

Freedom Team of India
But by December 2007 I was back in business, with a totally different approach. What happened?

As I worked within the government machinery while living in Melbourne, it was impossible not to think of India and its colossal waste of human resources. I learnt how an effective governance system looks like and wanted to transmit this learning to India. So I kept writing the book I had started in 2005. This book, Breaking Free of Nehru (published by Anthem Press in 2008 and now available as a free e-book at http://bfn.sabhlokcity.com/), is more a political pamphlet than a book.

In it, after much reflection, I proposed the concept of a Freedom Team of India (FTI).

The idea behind the Team is simple. It aims to bring together at least 1500 outstanding liberal leaders who are willing in-principle to contest elections. After policy agreements are achieved, such a team could give serious battle at the hustling to corrupt socialist forces and ultimately deliver freedom and good governance to India.

Started as an electronic group in December 2007, FTI it has now begun to take serious shape. In July 2009 FTI (http://freedomteam.in/) was registered as a not-for-profit organisation.

FTI has placed itself squarely in the classical liberal mould, steering away from conceptions of social democracy or libertarianism. Over 80 excellent leaders have joined so far, although not all may contest elections in the end.

One thing that distinguishes FTI from efforts like Lok Satta or Jago Party is this, that it will not launch a political movement until all ingredients are in place. That includes leaders, agreed policies, funds, and local supporters. There is little point in making a Quixotian assault against misgovernance by trying to win a handful of seats. There must either be a full-fledged national alternative, or nothing.

Given the great importance of building a support base, FTI has floated the concept of Adharshila of liberal groups across India to take the liberal message to the people and undertake a wide range of activities.

I believe that the strategy chosen by the Team offers a real chance to change the corrupt Indian political landscape. The good news is that those who have joined the team so far are truly excellent people. I am gaining confidence by the day about the possibility that India will finally get its national liberal political party in the coming years.

Of course, this is a herculean challenge and FTI needs all the support it can get. It needs serious commitment from all Indian liberals. You can either join as a leader or help find someone to join it. If you cant do either, then please support it in some other form or shape. If you have any questions please write to me sabhlok AT yahoo DOT com.

I look forward to your interest. In conclusion I would also like to invite you to read my draft manuscript entitled, The Discovery of Freedom, at http://discovery.sabhlokcity.com/. This book, when finished, will complement Breaking Free of Nehru.

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