Briefly, he mentions how the best and brightest of our society tend to shoot for elite universities like Harvard, where they then proceed to interact with people more or less just like them and, as the years go by, they tend to reinforce their own principles and become more and more similar. This may seem both obvious and good. We agree that it is obvious. Most of us associate with people similar to ourselves, and studies have been performed to show that most people do the same around the world.

The second point, that it is good for the best and brightest to keep hanging out with the best and brightest, however, might not be so good. Thiel points to a study of entrepreneurs, which showed that those who associated with the most varied groups of people (in different clubs, associations and different activities) tended to be the most innovative. He then ties this back into Harvard, where he says the lack of interaction with diverse people (not necessarily diversity of race or gender, but of interests, goals, etc.) will limit the potential of these best and brightest. He ends with: “Perhaps Bill Gates knew what he was doing when he dropped out of Harvard.”

This is both interesting and (we believe) very true. The only problem is his study was done among entrepreneurs. Someone who is looking for a job may argue that it makes sense for entrepreneurs, who run their own businesses, to try to seek out as many different people as possible. While if someone wants to be a banker she need not do so. Much better to associate with just the banking world. Those of you who read The Tipping Point, however, might remember Malcolm Gladwell’s point about “weak ties”.

These so-called “weak ties” are more useful to you than your strong ties (or close friends). Gladwell states:

Your friends, after all, occupy the same world that you do. They might work with you, or live near you, and go to the same churches, schools, or parties. How much, then, would they know that you wouldn’t know? Your acquaintances, on the other hand, by definition occupy a very different world than you. They are much more likely to know something that you don’t.

So say you are looking for a job in Banking. Well, your friends in Harvard either already know that, or are competing for the same jobs. And if an opening becomes available, chances are you’ll hear it from the same sources as your friends, which brings you no advantage. If, however, you have connections all over town and in various different clubs and industries, the chances that one of them knows an opportunity that your friends in school have missed are much greater.

This works when searching for jobs, business opportunities, general information, or good hotel recommendations in Istanbul. It turns out Peter Thiel’s argument is right on the money, but in an even broader sense than he imagined. Ignore it at your peril.

Now, as most economists learn, correlation does not equal causation. But let’s assume for the author’s sake that he has a point. What should we think when we see commodity prices rising (starting June 2010) and the Fed’s Treasury purchases rising after the fact (around Aug-Sept 2010)? Yes, if we want to read causation, then we’d say that the rise in food prices caused the Fed Treasury purchases, and not vice versa (as the article claims).

The second graph, which we show below, displays the correlation between, well, we’re not sure. The explanation would lead us to believe they’re equating price of wheat with revolutions (which we certainly won’t deny here), but look closely: the x-axis has the Peak wheat prices in 1845-8 vs. the Average wheat prices from 1820 to 1845 AND the 2008 wheat prices vs. the Average wheat prices from 1991-2007. The Y-axis, on the other hand, has the Peak wheat prices in 1845-8 vs. the Average wheat prices from 1838 to 1845 AND the 2008 wheat prices vs. the Average wheat prices from 2000-2007 (why different start dates for the averages on the axes?).

Again, there seems to be some correlation here. As best we can tell, if you compare the exact same data but follow slightly different average start dates (but not end dates) then the numbers will be correlated. It would be very surprising indeed if there were no correlation here.

In other words, this is some of the shoddiest use of graphs you could ever find in a well known publication. If you are looking for examples of bad uses of statistics, we recommend bookmarking this article.

As he states: “to think that every single penny earned by every single person working in the UK so far this year has all been spent on paying for the public sector does put matters into perspective.”

Let’s celebrate the first day of the year we actually work for ourselves. As we do this, let’s hope that more people realise how hiking up taxes will only serve to slow down the economy, and will not move us out of debt.

For those of you who think we’re living in la-la land, we’d like to remind you that Portugal decriminalized ALL of its drugs in 2001, at the time sparking great fears of “Drug tourism” and a huge increase in diseases such as AIDS. However, in the past 10 years none of this has occurred. 95% of those caught with drugs were Portuguese, drug users went from constituting 56% of HIV to just 20%, and the number of drug dealers has dropped by 30%.

The United States, however, followed a different route. It declared war on drugs and shut down the caribbean cocaine route. This transferred most drug dealing through Mexico instead. Now Mexico has started fighting back, which means more and more activity is flowing further South, to Central American states. These states are considerably weaker than Mexico and don’t have nearly enough resources to deal with these drug barons (Mexico hardly does itself).

All this drugs activity is done, of course, to provide the United States with cocaine. So, yes, American drug users are financing the drug gangs and, yes, American gun merchants are arming them. So, as the Economist put it: “failing American policies help beget failed states in the neighbourhood.”

In the 1970′s and 80′s the United States recognized that it would be better to have friendly democracies in Central America rather than chaotic dictatorships. It is time they recognized this again. They could provide help in rebuilding infrastructure, or in security, or in keeping democracy alive. But all of these would just be temporary band-aids, for as long as drugs are illegal, users will have to be supplied by outlaws living in chaotic countries. Only the legalization of drugs in the United States would hit at the root of the issue.

Chris Dillow writes at the Stumbling and Mumbling blog about “The Fairness of 50p” tax rate.  [To be honest I take issue even with the title of this post: “fairness” is not an absolute, and what is fair to one is not fair to all.]

In a nutshell: he is saying that the rich (which he says can mean various things, but which he does not define here) should pay more taxes to the state because it is the state that has made them rich to begin with (I should have warned Ayn Rand fans to brace themselves for that one).

In any case, he presents his argument in 3 main points, and I choose the space of a post, rather than just a comment on his site, to give my own opinion on each. His first point reads:

“1. A high tax is a dividend, paid to the state in return for its investment in the things that made you rich.”

“Even if the state did not educate you”, he says, “chances are it educated your customers”. Although he does not explain why that education is central to these customers purchasing my product, service or labour. And I apologise for sounding sarky, but if I can prove that most my customers were not educated in state schools, may I pay less taxes?

The state also provides peace, in which the economy can flourish. I wonder: without the state are we all crazed animals who feed on each others’ wealth and fear? Did not trade come first, the state second? The state is not detached from peace, of course: it helps maintain peace, more or less effectively. However: we have the same amount of state all over the country, but not the same amount of peace (or safety).

And thirdly within this point: the state helps sustain capitalism. In fact more often then not: when the state gets involved in business corruption and market distortion ensue (automotive bailout, anyone?)

His second point seems to imply that business is corrupt by definition:

“2. The state’s force is a form of countervailing power. Some (many?) of the rich owe their fortune to the fact that they are powerful.”

In other words man is powerful first and rich second, and at that point holds undue influence to extract money from the state. I dare say wealth tends to precede power. Even in politics: wealth helps get you elected. In fact generally the more one grows in wealth, the less he extracts from the state. He will move from state to private health care, send his children to private schools, not depend on public housing, and much more.

In point 3 we look at markets, and so of course we find a negative:

“3. Inequality is a form of market failing.”

This appears premised on the idea that people become rich because of luck or talent, which I presume he associates closely with luck (you are either born with it or not). So this argument can only stand if we deny that wealth can and usually does come from work. Providing a good service, creating a great product, making fruitful decisions: these things generally come from training, work and dedication; not luck.

In any case I find this point moot, as equality is not, nor should be, the goal. Everybody has different desires, different pleasures and different priorities. The goal, to paraphrase Ocean, is that you get out as much as you put in, and you choose how much you put in.

I strongly believe in equality of opportunity as the only desirable equality, and this is achieved by less intervention, not more.

In summary: according to Dillow the state gives us all that is good (governments make you rich!) and the markets all that is bad (inequality is, we presume, bad). The more you have, the more you should contribute towards MPs second houses.

Ultimately, and despite Stalin’s morbid quote that “A single death is a tragedy, a million deaths is a statistic.”, economists are actually correct in wanting to work with concrete data rather than tear-jerking anecdotes, at least for their purposes. This is the main reason why economists have tended to look down upon the humanities, which always seemed to be characterized by fluff.

This, however, might be changing, thanks to Google and Jean-Baptiste Michel of Harvard University. Michel has been digging into the data available thanks to Google books and has been able to start putting quantitative values to cultural studies, such as linguistics. You might not think much of interest could emerge from this, but thanks to this digital collection, we can analyze how often words appear, as well as group of words, and we can study the evolution of words and phrases throughout time. In fact, for the first time we can really estimate how many words truly exist in the english language (apparently slightly over 1 million). We can also find the occurrence of typos, how long it takes new inventions and phenomena to become used in everyday language, how quickly celebrities and pop-culture references fade in and out of existence, among many other things.

We think this is fascinating, and we also welcome the addition of concrete data to fields which seem to abound with anecdotes and personal stories. We do, however, think the term “culturomics” sounds off-putting. Maybe “culturnomics” might work better?

And this also gives us the excuse to show this awesome Google lab “Books Ngram Viewer”: http://ngrams.googlelabs.com/graph?content=computer%2Ccar&year_start=1800&year_end=2000&corpus=0&smoothing=3

I can see many economists, statisticians and mathematicians taking a renewed interest in the humanities in the near future.

The gist of the argument is: politicians should be working (and they continuously tell us they are working) in the public interest: they are public servants. Therefore all they do should be for the public, not for themselves. Boudreaux proposes that each politician be identified solely by his or her PIN (Political Identification number). Their faces will then never be seen by the public. They will address the public anonymously, and even have voice disguisers.

Of course, this would exclude certain types of people from holding public office, namely those seeking fame, influence and recognition, which might not be a bad thing.

We see, however, a few problems with this theory (besides the cynical fact that most politicians would disapprove). Would Jefferson, Franklin and Washington have acted in the way they did had they known they would never be remembered? If I am just to be known as a PIN, then why not seek policies that benefit me and my family? Why not make deals with other politicians behind closed doors? Why not gamble away my reputation, since I will never be remembered?

We therefore propose a modification to this, which is that at the politician’s day of death (or possibly retirement), his or her real name be identified. This would mean that all megalomaniac tendencies will be curbed, and politicians won’t be famous or influential during their careers, but they will have to worry about legacy. This means they will work for the public good all their lives, and will know their names will be tied with their decisions forever. This will also force them to take a much more long-term approach to their decisions, which will be good for the long-term health of the country as whole.

What do you think?

So what is the solution? Well it looks as though the US government wants to propose regulating the amount of time that can be spent on the tarmac, while the UK want to punish airlines that aren’t adequately prepared for such emergencies. We don’t believe these will be very effective and just add another layer of unneeded regulation (also it might be possible that these government actually like using weather-related delays for their purposes).

Let’s remember that once upon a time every new airline, every fare, and flight across state lines had to be approved by the federal government. This changed in 1978, with deregulation (under Jimmy Carter, which may surprise some). This deregulation dramatically lowered the prices of airline flights and the number of flights, and it allowed low cost airlines to enter the market as well. The savings of these deregulations to consumers have amounted to billions of dollars per year. For this reason, we think further regulation should not be taken without much consideration.

So what is a viable solution? Well, some are already being seen. The inefficiencies of sites like Kayak, Expedia and Travelocity, etc. are quite apparent. If a flight costs even a dollar more many times the flights won’t even show up on the first page (or couple of pages) of the flight results, even if that one dollar can result in a much shorter flight with fewer stops and a more reliable airline. Websites like Hipmunk are able to deal with issues such as this, while sites such as Seatguru let us deal with flight details (like making sure we’re in a good seat while we’re waiting on that tarmac).

This still leaves delays. The airlines have no incentive to deal with these, since they can usually blame ‘external factors’ and not get penalized. Also, by cramming their airlines with passengers they will rarely have an extra plane available if any of their flights get canceled. A solution to this could be a search option taking into account the average wait time of each airline company and each route (this can further be whittled down to likelihood of delay based on time of year, time of day, etc. etc.)

In fact, airlines could even be offered various spots (at a price) for priority in case of an emergency. These “preferred flights” will be able to leave earlier in case delays do occur. Passengers may be willing to pay more for the guarantee that they can arrive on time. And this extra income could help make flights cheaper for the other passengers. Michael Levine, of New York University, thinks this would be the optimal solution.

Unfortunately, most politicians see greater chances of reelection by building new airports in their districts, even if completely unneeded. Also no politician would want to risk asking the TSA to ease on their tedious and mostly useless security measures, for fear of looking “soft on terror”.

It might help if they saw that most voters aren’t as simplistic as they’d like to think, but this might be putting too much faith in politicians, who would rather decide for themselves how long airplanes can wait on tarmacs and call it a day.

Don’t worry. I will spare you the 7 pages of absolute drivel, but limit myself to two paragraphs. One, in the opening section, states:

It is no secret that the American society is dominated by the super rich, held for hostage by the banks, dominated in the Nation’s Capital by the tens of thousands of lobbyists and their big bucks, as the Republican party and their corporate Tea Partyists provide cover for giant theft of many billions of wealth for the very rich, with of course the cooperation of the Democrats who supported the extension of the Bush tax cuts for the very wealthy (Check out Rachel Maddow’s op-ed, which explains why Dwight Eisenhower, who taxed the rich to balance the budget, which be a radical in today’s political reality).

Yes that was just one sentence. So at this point I decided to skip ahead to their paragraph about the free market:

The free market doesn’t exist. Every market has some rules and boundaries that restrict freedom of choice. A market looks free only because we so unconditionally accept its underlying restrictions that we fail to see them. How “free” a market is cannot be objectively defined. It is a political definition. The usual claim by free-market economists that they are trying to defend the market from politically motivated interference by the government is false. Government is always involved and those free-marketeers are as politically motivated as anyone. Overcoming the myth that there is such a thing as an objectively defined “free market” is the first step towards understanding capitalism.

In other words, the market isn’t free because it is restricted, and a free market cannot be defined(?). So their argument is a purely tautological rant with no examples describing what they mean (saying it isn’t free because it is restricted is like saying ‘He is not good because he is bad’). Here I skipped ahead to a sentence that read: “the introduction of child labour laws were considered an interference in the free markets”.

For the record, there is a huge difference between forced labor and choice to labor, and I’m sorry to admit I couldn’t read any further. If you are able to, do feel free to let me know of any gems.

At this point, I’m convinced they have no editor or fact-checker, and they accept articles by anyone who joins their rallies. So I admit to not wanting to waste anymore time on the 7 pages of rants, preferring instead to use Stephen Fry’s words when referring to it:

Update: I realize this warrants an article on what I think about Free markets and why I think they work. Although I’ve talked about the subject many times before I will be doing so again in a forthcoming post.

The focus of the article is MiaSole, which produces solar panels not made out of silicon, and therefore not receiving any government subsidies. It is just as efficient and just as cheap as any silicon-based solar panel, but since the silicon-based companies have been able to rely on subsidies, they haven’t concentrated on efficiency or driving costs down, so now they are at a disadvantage. At the risk of relying too much on quotes, these ones are telling:

“For much of the 2000s, with a shortage of pure silicon and lavish support from European governments, the price of solar panels failed to fall as expected.”

And in Europe, “Spain, then Germany, boosted demand by giving generous “feed-in tariffs” (subsidies) to anyone who produced solar power for the grid.” But “electricity consumers’ anger at their big bills is now forcing Germany to cut its subsidies.”

Although it has taken a while, hopefully governments will now realize that the subsidies have been bad for consumers, bad for solar power, bad for the economy and bad for the environment, so they will let the market take its course from now on. Some may be surprised to see that the cheaper, more efficient option is actually the better one for the environment too. To end with another quote:

“This all adds up to a bright future for cheap solar energy.”