With its varnished wooden floors and plush sofas the European Scanning Centre looks more like a boutique hotel than somewhere to scan your heart. But it is the first in the country to have a CT scanner that can produce a three-dimensional picture of a patient’s heart with a very low radiation dose….
…Having a CT scan is much safer than an angiogram, where one in every 500 patients suffers a heart attack or stroke….
…The scan is also cheaper, says Dr Kostas Manis, a GP in Bexley. “The angiogram is £1,300, and the private clinic scanner is £900 and we’re negotiating to bring the figure down to £600.”

A better medical service, in nicer surroundings, with less risk, and at less cost. This is why I love competitive markets.

…private sector balance sheets will always fail at internalizing systemic risk. The official sector will always have to step in to help.

This is one of the conclusions of a New York Fed paper (PDF) on the shadow banking system, which provides a good overview and definition of the sector.

I think this libertarian model is neat, and it makes the share of your income that Governments presume to ’own’ a lot more transparent. Ditto your duty to your parents. However, it does creates an incentive to dupe your investors. For example you could sell stock in yourself to fund a college degree and an MBA, then develop a drinking problem and use the dip in share-price to buy-back your stock. Perhaps the Incorporated Man would need to be audited by doctors?

Apparently, this firm is already pioneering this idea, in Latin America.

How long before they’re talking about “a new parrot-digm” or “a raft of new initiatives” to “take piracy into the twenty-first century” ?

Just as European nation-states free ride on the American defense shield, allowing them to invest less in military defense than they otherwise would, so too can European individuals free ride on the entrepreneurship that emerges from the American model.

A good point, from Ben Casnocha. As I see it, this is not an argument for America or the American model per se, but rather about having at least one place where free enterprise and free markets reign.

• A Charter Cities plug
• It turns out that workers value progress in their workplaces. They like to hit project milestones and get stuff done. Managers don’t realise this.
• Short discussion of green bond financing for ecological building retro-fits.

There is also an ethically dubious encouragement to ‘hack work’. While I think this is valid in some cases, I don’t think it is a model that one should promote. In a good organisation, it shouldn’t be necessary, and the ideas that need to be promoted are those that fix the organisation, not learn to work around it more cunningly.

In 1999, UC-Davis civil engineer David Phillips was grocery shopping when he noticed something peculiar. Healthy Choice Foods was offering frequent-flyer miles to customers who bought its products. But a 25-cent pudding would bring 100 miles — the reward was worth more than the product itself.

Recognizing a good thing, Phillips bought 12,150 servings of pudding for $3,140, claiming he was stocking up for Y2K. Then he enlisted the Salvation Army to help him peel off the UPC codes, in exchange for donating the pudding.

He mailed his submission to Healthy Choice, and to their credit they awarded him 1.25 million frequent-flyer miles, enough for 31 round trips to Europe, 42 to Hawaii, 21 to Australia, or 50 anywhere in the United States.

There’s no downside. Phillips also got Aadvantage Gold status for life with American Airlines, which brings a special reservations number, priority boarding, upgrades, and bonus miles. And he got an $815 tax writeoff for donating the pudding.

Lifted wholesale from Futility Closet.

Goodin, R. (1982) ‘Rational Politicians and Rational Bureaucrats in Washington and Whitehall’, Public Administration, Vol. 60, pp. 23-41.

This paper is a discussion and reformulation of Niskanen’s model of decision-making. This model has apparently been very influential, especially with Keith Joseph.
First, the paper outlines what it was that Niskanen thought:

The bare bones of Niskanen’d model are very simple indeed. Basically, there are two types of actors: bureaucrats and politicians. The relationship between them is one of bilateral monopoly. The bureaucrats are the sole suppliers of public goods and services, and politicians are the only buyers of bureaucratic outputs. The goals of each actor are equally simple. Bureaucrats are aiming to maximise theor agency’s budget…. Politicians, in turn are aiming to maximise the votes cast for them at the next election….

Niskanen’s thesis is that, owing to special features on both sides of this bargaining game [namely the way that Congressional committees that authorise budgets are stuffed with those who benefit disproportionately from those budgets] public goods and services are oversupplied at a rate of anything up to twice what would be optimal in terms of citizen preferences.

As the paper discusses, this model leads Niskanen to recommend many NPM style government reforms, to enable bureaucrats to compete for resources.
Goodin applauds this model for its simplicity, but doesn’t think that it offers a good description of decision-making, for a large number of reasons, such as:

• He doesn’t think that bureaucrats would ‘bare faced lie’ about their budgetary needs, as this is both not lucrative (they need to be credible) and very high risk
• The Congressional budget approval procedure altered with the creation of the Congressional Budget Office and other reforms in the 1970s – these mean that budgets are considered in places other than just on committees of vested interests
• Niskanen doesn’t follow up the flip side of his argument and identify when budgets may be lower than desired, and bureaucratic outputs undersupplied. Goodin thinks that this would happen when issues fell between defined policy areas (e.g. Climate Change)
• Goodin doesn’t think that Niskanen’s answer – trying to get bureaucrats to compete – is sensible, because they would be more likely to collude with each other
• Goodin says that Niskanen’s simplistic view of bureaucrat and politican motivation is dated and does not reflect more modern thinking that people care about the policies they work on

As a result of these criticisms, Goodin offers an alternative model in which bureaucrats and politicians collude to overload oversight bodies with information, and use the ensuing confusion to bid for higher budgets. This results in the skewed spending around core programme areas, leaving too little for cross-cutting or broadly defined issues.

In general, this is a refreshingly clear article. However, I found it odd that it did not pick up on the one obvious criticism of Niskanen’s model that occurred to me straight away: Niskanen posits that as a monopoly provider of bureaucratic goods and services, bureaucrats would oversupply and overcharge. Indeed, it appears (from Goodin’s discussion) that he confused the two, or saw them as synonymous. But this is odd, given that it is a standard tenet of economic theory that monopolists undersupply and overcharge. If one grafts this assumption to Goodin’s rebuilt model, you get the worst of both worlds – a collusive bureaucratic-political machine that under-delivers and overcharges in core areas, and doesn’t deliver at all in non-core ones. Impartiality prevents me from commenting on whether this is an accurate picture of Washington or Whitehall.

The New York Times reports that although people say that they make healthier choices when calorie-counts are displayed on fast-food menus, based on evidence from their receipts, the opposite is in fact true. At least in some areas, people are, on average, ordering more calories than before the labelling requirements were introduced.

This is a useful counter-factual for the type of ‘libertarian paternalism’ promoted in Sunstein and Thaler’s pop-policy book, Nudge.

For what it’s worth, I think that this example may be skewed by the demographic in the poorer areas in which receipts were collected. Perhaps people are maximising their calories per dollar. This is, in many ways, the natural human instinct.

The recession may also play a role here. I would be interested to know if this receipt-collection exercise had a control – a measurement of whether calorie consumption had gone up in similar cities where these measures had not be introduced. Without that, how can you rule out the possibility that people comfort-eat in a recession?

This morning I thought: “What if, instead of donating your surplus computing capacity (idle processor time, storage or bandwidth) to a project like Seti@home, you could set a price for that capacity and trade it on a global marketplace? You could enter your input prices, which would mainly reflect your power/energy costs, and then the market would allocate computing tasks in an efficient manner.”

I followed it up further and I am far from the first person to have this idea, it seems.

• The GridEcon Research Project exploring “a marketplace for computing resources” (PDF)
• “Compute Power Market: Towards a Market-Orientated Grid” (PDF)
• Zimory, a (live?) German system

I am not annoyed that I didn’t get there first – in retrospect, it’s an obvious idea. I would, however, have been annoyed if I had put time into this idea before realising that others were working on it. In this way, the internet saves me years of thinking time.

Fashion experts such as Eric Musgrave, who used to be editor of Drapers magazine, says the traditional tailors in Savile Row should press for protected geographical status under EU law.

He said: “You can only call a fizzy white wine champagne if it comes from the Champagne region. You can only call ham Parma ham if it comes from Parma.

“I think the boys on Savile Row should continue battling until they get their definition that ‘Savile Row Bespoke’ can only be made on Savile Row and the defined area around it.”

To that end the Savile Row Bespoke Association is launching a quality mark to distinguish its products from other companies who sell “made-to-measure” suits under the banner “Savile Row Bespoke”.

That would allow potential customers to at least know what they are buying when they pay for their hand-tailored suit.

This raises several questions for me. Firstly, is this a protectionist quest to preserve the economic rent that derives from owning some prime tailoring real estate, or a legitimate attempt to increase the level of information available to customers in the market? More practically, is there are quality difference between suits made elsewhere in the UK (or Europe) and actually on the Row that is noticeable even when all other factors (service location, fitting, etc.) is held the same?

Either way, this article is itself a good bit of PR for – Dege & Skinner and an advert for Sartoriani.

The state is the great fiction by which everyone seeks to live at the expense of everyone else.

Looking the quotation up, I discovered that Bastiat’s Economic Sophisms covered the economic impact of new railways. Can it be mere coincidence that this is what the meeting was about?

It should be noted that while the subject of this paper is silly, the analysis actually does make sense. This paper, then, is a serious analysis of a ridiculous subject, which is of course the opposite of what is usual in economics.

He goes on to develop the First Fundamental Theorum of Interstellar Trade:

When trade takes place between two planets in a common inertial frame, the interest cost on goods in transit should be calculated by using time measured by clocks in the common frame, and not by clocks in the frames of the travelling spacecraft.

As promised, this does make sense. What a fascinating paper.

…the ninja were but one manifestation of fierce and extensive resistance to encroaching armies in the dying years of medieval Japan…. [they] armed themselves with simple weapons and guerrilla techniques…

Not a bad fit to my new unit. However:

…the ninja and the communities they defended were eventually slaughtered or intimidated into quiescence by the powerful armies of the “unifiers” like Oda Nobunaga and Toyotomi Hideyoshi in the 16th century.

Not the best omen.

..when individual drivers seek the quickest route, they sometimes end up slowing things down for everybody.

GPS must add to this problem, especially on models that don’t dynamically adjust for traffic. Even with models that do, the Nash equilibrium may be sub-optimal.

I have not come across Braess’s Paradox before. It worries me. Most government intervention is built on the idea of ‘market failure’. A BP situation looks like the ultimate market failure, and could thus be an open door for additional regulation. Some of this would be good, if paternalist (a la Nudge). I worry that some may be bad, in freedom terms (i.e. planners get to override GPS updates).

The saving grace is that regulation to enforce the optimal outcome may be more costly that the gap between the optimal outcome and the Nash equilibrium.

The interesting question in this case is:

Suppose you made a million dollars last year and put all but $50,000 of it in a shoebox. Now imagine you lose the box. What good did the $950,000 do you?

I have spent only ten minutes thinking about this, but I would evaluate access to cash as having ‘real option value’. In other words, the value of the shoebox is the value of the options it gives you: to retire, to start a new business, to travel the world.

This real option value will vary from person to person. $950k won’t increase the real options available to Bill Gates, but it would make much more of a difference to the options open to me (even at $1.70 to £1). Therefore, I figure that the value of money to an individual will vary in real option terms.

Real options will have value, even unexercised. That’s why people pay more for flexible travel tickets. As such, the money in the box has value… up to the point you lose it. Afterwards, no value. However, I don’t think the eventual loss of the box means that it was never worth anything. Okay so the money was sitting in the box, but it wasn’t doing nothing. Even in the box, it was storing value and holding open potential options – that is the unglamourous job of money. Its loss matters.

John’s best line, in my opinion, was going further than asking whether businesses should engage in ‘corporate social responsibility’ to actually ask by what right they did this – recognising that their choices for charitable causes may not be the same as their customers’ or shareholders’. This has stuck with me, not least because I walk past a branch of bath-bomb outlet Lush (complete with TRAINS NOT PLANES! window poster) on my way to and from work.

Peter Day, on the other hand, I have never particularly taken to. He seemed much more qualified to ask questions than to answer them. This makes him both a good choice for a business reporter and a poor choice of panel member. However, to give him credit, he gave a good answer to a question from the floor about the role of the media in the current crisis, staunchly defending Robert Peston, the BBC’s business editor who seems to be unfairly loathed for having the audacity to do his job well while being in the posession of a slightly odd voice.

An idle thought: apart from the vulgarity, would there be any disadvantage to allowing advertising on banknotes, and might this note help government fund printing them? Advertisements could be restricted to a small, standard area, so as nobody could be in any doubt as to them corrupting the general recognition of the note, and the frequency with which such advertisements changed may even prevent fraud, by forcing fraudsters to change their designs regularly. I know that in many places (like Scotland and Hong Kong) private banks issue notes bearing their logos – so why not go all the way?

Developing economies could better ride the current financial crisis with more effective maintenance of their natural resources, according to a new report.

The report, from Natural Resource Charter, is here. I haven’t read it, although I am sure it would be interesting. The article references Paul Collier, who pushes a fairly simple system for straight auctions of commodities. It’s worth noting that to some extent, this already happens with commodity extraction rights - so maybe it’s a call to do that better. (The journalists could do better with the headline too: ‘Africa urged to auction commodities’?) However, if they are pushing for African countries to auction raw diamonds, coal and whatever, then they’re recommending a highly statist approach in which governments own the extraction plant and companies. That would be a step backwards. More clever public contract managers (with performance bonuses) in government would be a better solution.

In signaling models, selfish agents might voluntarily supply public goods.

The answer to this question seems obvious to me. I don’t have a PhD. Does that imply that I am clever or dumb? Is this really a PhD level question? Couldn’t children answer it? What am I missing? To what extent does my belief that all human beings are to some extent selfish make this question easier to answer? These are things I think about too much.

In the UK, it’s because a game that you enter at a cost (i.e. premium rate phone call) is defined as an unregulated lottery if the result relies solely on luck. Introduce suitable skill and you’re now running a prize competition, with much less regulation. The problem, especially for participation television quizzes, is defining what is a suitable level of skill. Does knowing that 4 results from adding 2+2 count?

This was addressed by UK regulator Ofcom’s consultation into participation television in 2006-2007. Interestingly, Sky responded to this consultation with a claim that “call TV quiz programmes amount to illegal lotteries.”

According to this article, the 2008 Gambling Act made the situation worse, and the regulations more complex:

The result is that if TV quiz shows want to continue broadcasting then they must comply with these new laws by making their competitions more complicated and ensuring that a number of entrants are ‘knocked out’ in the first round. Participants must also be kept to date, and detailed information must be stored on resilient databases for cross reference purposes. Also, where appropriate, they could either obtain a lottery license from the Gambling Commission, which would require the broadcaster to donate 20% of all profits made to charity, or qualify as a ‘free draw quiz’.

I imagine something similar applies in the States.

Despite these gripes, it’s still a good, and quick, read – a good deal better than Hugo Dixon’s Introduction to Finance, which I struggled through at the end of last year. In fact, I read Kay’s book so quickly that I’ve set aside half an hour this weekend to nip back through the investment advice sections and précis the advice. The big lesson I do remember (and it is a key theme through the book) is that holding many unrelated and diversified risks can reduce portfolio risk more than just holding supposedly safe blue chips. Frankly, the book was worth it for this advice alone.

It’s also worth mentioning that the book has a great ‘Bookshelves and bookmarks’ bibliography at the end, with some further reading recommendations. I’m now awaiting about six tomes from Amazon Marketplace to build up my investment library.