The idiocy of crowds

Posted by Christie Malry on October 30, 2010 at 10:31 pm

There has been much discussion in economic circles about 'the wisdom of crowds.'  This is the phenomenon that suggests that crowds can often produce far better answers as a group than any one individual.  So, for example, if you plot all the answers for a 'guess the number of sweets in the jar' competition, you'll end up with the average of their guesses being closer to the right answer than any expert could produce. Spooky, eh?

However, what is not recognised in formal sociological theory is what I shall call today the idiocy of crowds. This is where sensible, well-educated people, behave like complete dunderheads, even when surrounded by other sensible, well-educated people.  You're left gasping "wtf did no-one say that this was a patently terrible idea?". Yet that person never steps forward.

Take Harriet Harman, who referred to Danny Alexander in a speech as a 'ginger rodent', and in doing so managed to insult every single ginger-haired person in Britain and many others besides.  But, as London Tory councillor Nigel Fletcher points out, did nobody think to strike this line out of her speech?  Because, for a politician who has made an entire career out of whining about equal treatment for women and other minorities, it's ridiculous to use childish taunts like she did.

Or take Frannie Armstrong, the obnoxious, plummy-mouthed harpy who runs the 10:10 campaign and who believes it's okay for her to fly around the world telling the rest of us that we must stop.  Her organisation commissioned the appalling 'No pressure' video that told people that they must believe in global warming or they will be murdered. Surely someone in that organisation could have piped up to say that, while Richard Curtis has achieved great things on his other projects, this one was an absolute stinker?

Or the poll tax.  Clearly, there are elements of the design of the poll tax that are good - because everyone benefits, everyone should pay.  But there are also some profound difficulties with the idea.  Didn't anyone feel able to raise these concerns with Mrs T or her policymakers?

Or the firemen in London, who have clearly suffered an appalling clusterfuck in deciding to call a strike for their busiest night of the year.  Rather than the public rallying behind them, people are really angry that they could jeopardise lives just to try and preserve their gold-plated contracts.  Did anyone in the FBU's leadership team want to point out the flaws in their strategy?

In each of these cases, nobody was able to speak up against these strategies, each of which - in the cold light of day - is absolutely and totally daft.  Why is this?  Shouldn't the wisdom of crowds kick in?  Unfortunately no.  The idiocy of crowds tends to dominate - in which no-one wants to appear disloyal by contradicting the groupthink - so objections never get raised.  Ironically, especially for Harman who is supposed to be in favour of diversity, the selection of lots of people who are 'just like us' means that organisations end up reinforcing idiotic behaviour instead of counterbalancing it with alternative points of view.  While this is particularly bad within a political setting - where parties tend to only choose 'their own' - it's hardly limited to them.

In response, organisations everywhere need to take account in a meaningful way of their diversity.  Not because it's good to hire disabled or black people.  But because people who are different to you might think differently to you.  And sometimes you're wrong, and they're not.

Clock suckers

Posted by Christie Malry on October 30, 2010 at 3:34 pm

It happens every year. Actually increasingly it happens twice a year. That is, people in positions of authority who have the 'bright' idea of messing around with our clocks. Don't these people have anything better to do?

Here's their basic idea. They've noticed that people use less energy after the clocks go forward in the spring. And that they use more energy when the clocks go back in the autumn. Ergo, the use of energy must be due to the hour of daylight this gives people at the end of the day. So let's change the clocks permanently to being an hour ahead, or two hours during the summer months, and we'll use less energy forever!  Profit!

The latest moron to take up this cause is Rebecca Harris, the Conservative MP for Castle Point, wherever the hell that is.  Her vain campaign aims to prevent the clocks going back tonight, so she has failed almost before she has begun.  Yet the idea that we should move to a GMT+1/GMT+2 system is even more stupid than the idea that we should move to GMT+1 without a summertime.

You see, we are at the westernmost point of Europe.  If we gave a stuff about Europe, we would get up early in the day in order to maximise the intersection between our working day and theirs.  But we actually start our working day later than many European countries, and that's before you take account of the hour's time difference.  By the time we finally stroll into work, at 10am European time, they've probably already been there for 2 hours.  Almost time for lunch, too.

Instead of messing about with the clocks, we should change the working day.  Government can't dictate to private businesses what time to start, but it can change the start of the school day, say to 8am.  And it can instruct its own employees to start earlier too.  The private sector would probably fall into line in due course.  We could all finish at 4pm instead of 5pm and we'd get our extra hour of daylight at the end of the day.

As for complaints from sports venues, they are even more stupid.  Football only starts at 3pm because it always has done.  If they really wanted, they could start at 2pm.  Wimbledon and cricket could start earlier too.  C'mon, most people start work at 9am.  Why can't tennis players and cricketers do the same?

Harris has been hoodwinked by a simple, but obviously false argument.  She honestly believes that it's better to change the clocks instead of addressing the more fundamental issues that in fact give us problems.  We choose to work 9-5, when we could just as easily work 8-4.  Let's deal with that instead of messing with the time of day.

Until she sees sense, she can be inducted as the latest clock sucker, that merry band of idiots who think it's that thing on the wall with two hands and a face that dictates when we get up.

Take That and markets

Posted by Christie Malry on October 29, 2010 at 12:00 pm

Give me a goddamn break. This morning, my ordinary office routine has been marred by first shrill whoops of excitement, then grumpy bellyaching, from virtually every woman. Why? Because Take That concert tickets went on sale at 9:00 this morning, yet Ticketmaster's website couldn't handle the demand.  Even more disappointing for our ladies, those lucky few that did get through promptly stuck their tickets on ebay in the hope of making a quick buck.

"How unfair!" they cried. Tickets should be for named individuals only and should not be allowed to be resold.

I can take this idiocy no longer. Massive demand like this can mean only one thing: the tickets are too cheap. The tickets should all have been auctioned from the start, so that demand could be better matched to demand. It would also mean that more of these gains would accrue to the band and organisers instead of to touts.

But they didn't see it that way. Apparently it's "fairer" to allow only the lucky few who can get through the website without it crashing to get tickets rather than to let those who really want to go to pay more than those who don't care so much. And apparently the organisers are so clever that they have perfectly predicted demand;  touts are just skimming off the top. These women believe not only that Take That fans are completely price inelastic - that they'll pay any price, come what may. But also that there are no other people who might want to go to the concerts if prices drop.

These are illogical views and totally at odds with the way people behave. Touts can't exist unless there are more fans than tickets and tickets are underpriced. It's just a fact of life. To stop touts, raise prices to suppress demand. Otherwise you're just going to have to accept they will be there trying to make a profit.

Composed on my Android mobile phone. Article may be edited later.

House of Lords starts publishing its oral evidence transcripts

Posted by Christie Malry on October 27, 2010 at 9:53 am

The House of Lords Economic Affairs Committee has started publishing the transcripts of its hearings into audit.

The first two are now available, featuring four of the UK's accountancy bodies - ICAEW, ICAS, ACCA and CIMA - and three academics - Professors Mike Power, Vivien Beattie and Stella Fearnley.

And if you want to watch Jonathan Hayward (Independent Audit),  Stephen Kingsley  (FTI)  Dr Gunnar Niels (Oxera) and the ever-surprising Tim Bush, who appeared in front of the committee today, you can do so here (though I had some trouble with the sound on this video).

Et tu, Ritche?

Posted by Christie Malry on October 27, 2010 at 9:33 am

Ritchie is simply beastly about cuddly Graham Ward:

This is a man who has gone out of his way to promote International Financial Reporting Standards, which are widely acknowledged to have helped precipitate the current financial crisis.

I don't agree.  How did they precipitate the crisis exactly?  Managers don't use the financial report to manage the business.  They use management accounts, so it's probably there that we should start our search for the true cause of the crisis.  Not in IFRS. 

This is a man who helped promote new international auditing standards which debased the audit so that it no longer represented the expression of opinion on the true and fair view shown by a set of accounts ,but became a simple checklist on compliance with the disclosure requirements of IFRS.

The Financial Reporting Council is of the opinion that the meaning of 'true and fair' is unchanged by IFRS or the Companies Act 2006 or ISAs.  And they have a snazzy opinion from Martin Moore QC to back them up.

This is a man whose firm audited Northern Rock.

This is a man whose firm audited Granite, the shadow bank of Northern Rock; a shadow that was owned by a trust set up for the benefit of a children’s charity in the north-east of England that had no knowledge of the abuse of its name for that purpose.

This is a man whose firm promotes deregulation whenever it can.

This is a man whose firm promotes indirect rather than direct taxation in developing countries, so the poor pay most.

This is a man whose firm is present in every single major tax haven in  the world,even though it has been shown that tax havensare fundamental in undermining development.

This is a man whose firm sells vast quantities of tax avoidance advice – advice designed to undermine the income stream of governmentswhen that income is essential to the delivery of effective international development support and the delivery of healthcare, education and other services in developing countries.

This is a man whose firm promotes what they call the “total tax contribution” - a bogus accounting concept that adds up all the payments that a company makes to a tax authority,whether on its own behalf or on behalf of others when acting as agent, and then uses the utterly meaningless resulting number as the basis for a demand for the reduction of its corporate tax burden.

This is a man whose firm opposes country by country reporting even though the vast majority of the major development agencies in the world now supported because they believe it good help monitor transfer pricing abuse,illicit financial flows,and could help developing countries collect the taxes that they are owed.

Yeah, Ritchie, mate.  There's a little clue in your own article that might help you here, before you make an even bigger fool of yourself.  And that's the disclosure that he retired from PwC in January this year.

Now, okay, there may be one or two people who don't believe that people who leave big audit firms ever lose their association with that firm.  You might be thinking that once in the Big Four, rather like the Hotel California, you can check out but you can never leave.

If you do believe that, then presumably we must similarly wonder at the motives of another former Big Four employee, one Richard J. Murphy (for it is he), who trained in KPMG.  No doubt everything he says reflects his continuing devotion to his former firm.

And if Ritchie can shake off being a Big Four alumnus, why not Graham Ward?

And for all these reasons,I’m sorry to say that I do not think that this is a man who is due to hold the position for which is being considered.

I'm sure the House of Commons International Development Committee will make up their own minds on an objective assessment of the evidence.  Which won't include Ritchie's shabby, clumsy character assassination.

You can listen to the hearing here (I couldn't get the video to work, but the sound was working).

Catching up with TV #3 - is IFRS to blame for the credit crisis?

Posted by Christie Malry on October 27, 2010 at 9:02 am

Your holiday viewing continues here. The ICAEW's 2010 PD Leake lecture is now available as a web cast. This is very nice for those of us who couldn't get along last Thursday.

It was given by Gregory Waymire of Emory University on the subject of financial stability.  Waymire was trying to find out if IFRS can really be blamed for the financial crisis.  And he concludes that there's no evidence that it can.  As you'll know, I basically agree with him.  Waymire puts the idea to the sword, actually, which is quite fun.

Catch up with it for yourself here.

Unfair, unwanted and unnecessary - the latest pensions betrayal

Posted by Christie Malry on October 26, 2010 at 10:32 am

Perhaps it's a bad idea to get worked up about policy proposals that have only been leaked - in a very tentative and outline form - to the Daily Mail.  But the coalition government's ideas for reforming the state pension are shaping up to be a complete disaster.

Work and Pensions Secretary Iain Duncan Smith and Pensions Minister Steve Webb are suggesting a new ‘single tier’ state pension which would replace all existing payments. If paid at the expected £140 a week, that would mean an income of £7,280 per year or £14,560 for a pensioner couple.

This all sounds good, doesn't it?  Well, no.  It marks the final nail in the coffin of the origin of the modern welfare state - that the benefits you take out are commensurate with those you pay in.  Beveridge's vision was that it was necessary for people to pay in to the system in order to bind them into a contract with the state and to prevent the moral hazard of rewarding those who pay in nothing.  That would end with a state pension based on residency only, with no variable portion related to contributions.

The proposed changes will penalise heavily those who paid additional amounts to the state to buy extra years of national insurance.  It looks like it may completely kill off the State Second Pension (S2P). So all those people who have contributed into S2P (and SERPS before it) may find they get nothing for their many years of contributions.  Could this be the final irony - that those who opted out of SERPS - having been told for many years they were stupid for contracting out of SERPS and should get back in immediately - were right all along?

It's also yet another very unwelcome change to the state pension system, after so many years of tweaks here and tweaks there.  The 1997 pension tax credit change that Gordon Brown brought in was very damaging.  And then the 2006 A Day regulations were supposed to be a wholesale bonfire of pensions law that was supposed to put us in good stead for a generation.  It hasn't even lasted five years.

While government keeps tinkering with long term saving, people won't bother with it.  If they think they're going to get ripped off or trapped in a dead end savings scheme, they'll spend their money elsewhere.  And all the while, people aren't saving enough for their pension.  Spending money is good for the economy now.  But a generation of poor pensioners and their welfare and healthcare bills comprise a very shabby legacy to leave our children.

The legacy of Andrew Carnegie

Posted by Christie Malry on October 26, 2010 at 10:03 am

Via a tweet by Bobchinski, I'm led to this very fine article on the legacy of Andrew Carnegie:

Carnegie is reckoned to be the 2nd wealthiest man in the world ever, when adjusted to todays money, most of which he gave away. My ears pricked up because his life is the story of a poor working class Scottish boy who travelled to America and did well for himself.

It's the giving it all away bit that I wanted to focus on.  I live not that far from a Carnegie library, a gift from Carnegie to the people because he wanted them to be better educated.  Unlike today's "progressive" society, which thinks it sufficient to gouge working people for vast amounts of their money so it can hand it over to the unworking poor, Carnegie's way required the poor to study their own way to economic prosperity.

Some 100 years later, you might expect Carnegie's gifts to be cherished and valued, a golden legacy that we have built upon.  Oh no.  My Carnegie library is falling down, stuck next to a main road and never renovated.  It's basically falling down, and the local (Labour, of course) council has refused to make the necessary repairs.  It may be Grade 2 listed, but it's got bloody great big holes in the plasterwork and rot on the inside.  It's absolutely disgusting.

Part of me wishes that Carnegie could have seen the disregard with which we have treated his legacy, and that he might have decided to keep his money to himself.  He'd have been thought a capitalist bastard, for sure, but his gift to our area has been totally squandered, in only a few generations.  It's enough to make you weep.

Perhaps one day someone will buy the library and turn it into a museum warning against the dangers of socialism.  It could be a living tomb to alert people that it's not money that keeps people in poverty, it's a lack of education and ambition.  Meantime, the message to wannabe Carnegies is clear - we don't want your stupid libraries.  Just give us your money so we can hand it in great big bagfuls to the poor, and don't get any uppity ideas about capping their benefits at £25k a year; only unlimited sums will do!

Catching up on tv #2 - House of Lords enquiry

Posted by Christie Malry on October 25, 2010 at 9:59 am

The heads of various accountancy bodies were earning their keep last week when they were summoned to explain themselves in front of the Economic Affairs Committee of the House of Lords.

You can see Helen Brand (ACCA), Robert Hodgkinson (ICAEW), Charles Tilley (CIMA) and Iain McLaren (ICAS) battle it out against some occasionally baffling questions from a bunch of Lords, including Lord Lawson, former Chancellor (and Nigella's dad).  I mean, why does Lawson think auditors could spot systemic risk when everyone else - the regulators, government, the company's own board of directors and senior management, shareholders, and ordinary people - didn't?  Auditors are good, for sure, but they're hardly superheroes.

The best bit comes when one of the Lords asks if it would be a good idea for auditors to review more of the front half of the financial statements.  Oh yes, drool Brand, Tilley and McLaren, thinking about all the money this will bring their members.  "Are you lot all fooking mad?" Hodgkinson thinks, before pointing out that there might be just one or two little problems with this idea.  Well, it's about as good as chartered accountancy gets.

Watch it here (sorry, the Parliament's embedder is garbage, so use this instead. If it stops working, let me know as I have the file downloaded).

Catching up with TV #1 - How the rich beat the taxman

Posted by Christie Malry on October 25, 2010 at 9:36 am

It's half term, so many of you will have time to stay at home with the kids.

Well, what are you waiting for? Get them a PSP or something, and catch up with some recent TV you may have missed! First up is Ritchie's stunning appearance on Dispatches, in which he proves himself to be every bit as obscure and deranged as he is on his blog.

You can catch up for another few weeks here.