Angry statisticians and fiddled figures

Merijn Knibbe (@MerijnKnibbe) alerted Twitter yesterday to an extraordinary statement on the website of ELSTAT, the Greek official statistics agency. It was issued by the Members of the European Statistical System – the professional group of official statisticians in Europe  – and includes this statement:

“Therefore, we confirm our concern with regard to the situation in Greece, where the statistical institute, ELSTAT, as well as some of its staff members, including the current President of ELSTAT, continue to be questioned in their professional capacity. There are ongoing political debates and investigatory and judicial proceedings related to actions taken by ELSTAT and to statistics which have repeatedly passed the quality checks applied by Eurostat to ensure full compliance with Union legislation.”

The story – told in the opening pages of my book GDP: A Brief But Affectionate History – is that at the start of the Greek crisis, one of the most benign conditions required by the IMF was that the Greek government stop fabricating its GDP statistics, which it had been doing for some years in order to keep the loans flowing. The EU statistics body had refused to approve the statistics but international lenders (hello Goldman Sachs) didn’t seem to mind.

So the Greek statistical agency was dissolved, the new one (ELSTAT) created, and a former IMF economist, Andreas Georgiou, was appointed to lead it. One of his graduate school friends told me Mr Georgiou is one of the most honourable people he has ever known. Yet, almost immediately after his appointment to the job, some of the sacked former board members accused him of treason for cleaning up the Greek statistics and brought legal proceedings. “I am being prosecuted for not cooking the books,” Mr Georgiou said at the time. The continuing legal and political shenanigans are what the new statement refers to.

The independence and integrity of official statistics really matters. We take economic statistics far too seriously in one sense, often ignoring the margins of error and the judgements involved in their calculation (so it’s encouraging to see a vigorous debate about these issues), not to mention the fact that the categories we define are social constructs. Yet independent and freely available official statistics are a vital part of the fabric of a democracy, one of the key tools for holding governments to account – see my new working paper on this. The only OECD country moving away from independence for its official statisticians has been, bizarrely, Canada; all others have moved in the opposite direction. The statisticians’ statement this week about Greece does not augur well for how things there will turn out.

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More on game theory

The death of John Nash with his wife Alicia in a car accident is a sad, sad end to a remarkable life. The story of Nash’s genius, madness and recovery is well known thanks to the movie based on Sylvia Nasar’s wonderful biography, A Beautiful Mind. There have been many obituaries and appreciations. This VoxEU column is an excellent outline of why Nash’s work was so important for economics.** John Cassidy has a nice New Yorker column. The Essential John Nash is certainly worth a go – there are pdfs of the introductory material on the Princeton University Press website – and there is plenty of material on the Nobel prize website.

  

For more on game theory, one very enjoyable historical perspective – looking too at other uses of mathematics in economics – is Paul Strathern’s Dr Strangelove’s Game: A Brief History of Economic Genius. It starts with John Von Neumann (giving the impression that Peter Sellers as Dr Strangelove only slightly overacted the role), and Morgenstern ad Von Neumann’s Theory of Games and Economic Behaviour and ends with John Nash. Interestingly, Strathern focuses on the difference between co-operative and non-cooperative games rather than zero and non-zero sum. As for the uses of game theory in life, rather than just economics, my favourite book is Dixit and Nalebuff’s The Art of Strategyit has a website where you can read an excerpt.

Step one in using game theory in life is just to think about how other people will react to your actions – something so easy to say, yet so rarely done.*  And how paradoxical that something that seems like common sense had its roots in unusually tortured genius.

   

Dr Strangelove, an atypical economist

Dr Strangelove, an atypical economist

*I remember once saying to a room full of policy economists that figuring out the Nash equilibrium in the context of a decision different EU governments were making at the same time meant our policy advice was a no-brainer; not all of them got the point.

** Update for econ anoraks: Note the nice description here of Nash’s bargaining solution as a Possibility Theorem, published at the same time Arrow developed his Impossibility Theorem. I think it’s the unrestricted domain axiom that makes the difference.

Sheep and economists

The Shepherd’s Life: A Tale of the Lake District by James Rebanks has been at the top of the bestseller list for a while and deservedly so. It’s a terrific read and very interesting. Anybody who follows the author (@herdyshepherd1) on Twitter will need no encouragement; everybody else should go ahead and read it.

This memoir about running a small hill farm is set in a part of the country I love, having grown up in the North West of England and spent many holidays there, including my honeymoon. Most of the Lake District is a National Park, and one of the many themes of the book is the way the economic imperative for more tourism sometimes sits uncomfortably with the needs of farming and the simple fact that there are people who live and work there all the time. The holiday homes crowd out young local families, walkers let their dogs off the lead resulting in sheep dying or aborting their lambs, roads get crowded with cars. The tourists are affluent, the local families usually not – which is why so many run B&Bs on their farms. Herdy Shepherd himself has a second job as a consultant to Unesco on how to ensure tourism helps local communities. “Sometimes I am doing my other work while I am standing in the sheep shed…. A colleague on the phone might say they just heard a sheep. I tell them they imagined it.”

The book is a good reminder to visit and spend, but be respectful. And to keep your dog on its lead.

It also made me reflect about the role of agriculture in advanced economies, and small farms in particular. The Common Agricultural Policy is costly and inefficient. It substantially raises food prices in the EU, makes it harder for farmers in poor countries to sell into world markets, and mainly benefits big farmers in the UK. I certainly don’t think we should only consume home grown food; food imports are a benefit to consumers, because of variety as well as keeping prices down. The repeal of the Corn Laws was a Good Thing.

However, I’ve mellowed slightly in my views over the years. The economists’ market efficiency lens is an important one but in many context not the only one that matters – and the ability to produce local food of high quality with a respect for tradition touches on other important values.

Lakeland sheep, New Year 2005

Lakeland sheep, New Year 2005

A persistent large deficit on food imports is a concern – why are British producers not better able to export? And I now think subsidising small farms (so they can compete against the industrial scale ones), rural tradition and also outcomes such as biodiversity is desirable. At least to a degree: we Brits should ideally be willing to pay a bit more for food to increase the quality of what we eat, and a bit in tax to provide appropriate subsidies, but there are a lot of people in this country with not enough money.

There’s a passage in The Shepherd’s Life about foot and mouth disease in 2001, and the family’s having to slaughter its sheep and cattle. It was an awful time in rural Britain. Rebanks writes: “Had it spread west by a few more fields, the disease would have got onto the unfenced Lakeland fells where it would have decimated the ancient hefted flocks on the commons. Ninety five percent of the Herdwick sheep in the world exist within 20 miles of Coniston and were at grave risk of being wiped out. But an essentially urban government didn’t understand …. The idea that something precious was on the edge of destruction was never really grasped.” Although many flocks were destroyed, not all. Thank goodness.

 

Heatwave

There are terrible stories emerging from India, suffering an intense heatwave – such as this one from Vice News: Poor people are most affected as hundreds die in Indian heatwave. The story links to a study reporting an increase in the number of urban heatwaves over the period 1970-2012; and now more than half of us live in cities.

Reading these reminded me of Eric Klinenberg’s amazing 2002 book Heatwave: A Social Autopsy of Disaster in Chicago. The first warning of impending heatwave was broadcast on Wednesday 12 July 1995; the next day the temperature soared to 106F and the ‘heat index’ to 126F. Roads buckled, trains derailed, city workers sprayed the bridges with water to maintain the structures. People opened fire hydrants and water pressure around the city fell. “The body’s  defenses can only take about 48 hours of uninterrupted exposure to such heat before they break down,” Klinenberg writes in the opening chapter. So from the Friday many people started falling ill. The heatwave lasted until 20 July. There were so many deaths (over 700) that the city had to store bodies in refrigerated trucks in the parking lot of the morgue.

Of course, extreme weather is a natural disaster, but its incidence is uneven because of social, economic and cultural structures. Klinenberg studied the ‘excess’ (i.e. above normal for the place and season) mortality rate in different parts of the city. Not surprisingly, poor people suffered the highest ‘excess death’ rate. The eye-opening thing about the research, though, is that some low income groups had a far worse experience than others. Matching districts for employment rates and average incomes, there was a higher death rate among African-American than among Hispanic people. Because the city authorities responded too slowly, because public services were poorly equipped, vulnerable people such as the elderly and those living alone had only their families and neighbours to rely on, and those social structures were at the time more intact among the recent Hispanic immigrants. Of the 700 who died over those few days, 41 ended up unclaimed by any relatives.

“This book has shown that extreme exogenous forces such as climate have become so disastrous partly because the emerging isolation and privatization, the extreme social and economic inequalities, and the concentrated zones of affluence and poverty in contemporary cities create hazards for vulnerable residents in all seasons,” he writes. None of which has changed anywhere in the 12 years since the book was published. He identifies as causes for concern the increase in the number of people living alone, growing spatial inequality separating social groups, the huge social distance between city governments and the people they serve, and the fact that we have government by PR with few mechanisms for holding the authorities to account on results.

The book ends with a plea to understand the consequences of natural disasters as societal events. That lesson is hardly ever put into practice, unfortunately.

Grass roots

There’s an interesting evaluation of Jane Jacobs in The Architectural Review, arguing that her fabulous book The Death and Life of Great American Cities misses the real target in attacking ‘planners’ instead of developers, and discounting the scope for state involvement. This made conservatives fond of her, essay author Sharon Zukin argues. But it concludes warmly: “Jacobs’s challenge to maintain the authenticity of urban life still confronts the fear of difference and the hubris of modernising ambition. At a time in which local shopping streets are the target of attacks against a broader alienation, we urgently need to connect her concern with economic development and urban design to our unsettled social condition.”

The essay cites the famous ‘sidewalk ballet’ in the second chapter in The Death and Life:

“Under the seeming disorder of the old city, wherever the old city is working successfully, is a marvelous order for maintaining the safety of the streets and the freedom of the city. It is a complex order. Its essence is intricacy of sidewalk use, bringing with it a constant succession of eyes. This order is all composed of movement and change, and although it is life, not art, we may fancifully call it the art form of the city and liken it to the dance — not to a simple-minded precision dance with everyone kicking up at the same time, twirling in unison and bowing off en masse, but to an intricate ballet in which the individual dancers and ensembles all have distinctive parts which miraculously reinforce each other and compose an orderly whole. The ballet of the good city sidewalk never repeats itself from place to place, and in any once place is always replete with new improvisations.”

Echoes of course of that other grassroots philosopher Adam Smith. Not only: “It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard to their own interest,” from The Wealth of Nations, but also this from The Theory of Moral Sentiments:

“The man of system…is apt to be very wise in his own conceit; and is often so enamoured with the supposed beauty of his own ideal plan of government, that he cannot suffer the smallest deviation from any part of it… He seems to imagine that he can arrange the different members of a great society with as much ease as the hand arranges the different pieces upon a chess-board. He does not consider that in the great chess-board of human society, every single piece has a principle of motion of its own, altogether different from that which the legislature might choose to impress upon it.”