Leveson failed to learn from credit crisis

The content of rule books, the sanctions available to regulators, and the composition of regulatory bodies are not trivial issues. But the principal reason both press and financial services regulation were lax is that political leaders wanted them to be lax.

In one case this is because they were intimidated by the perceived power of the press; in the other because they held an exaggerated view of the economic importance of the financial services industry and of the abilities of those who led it.

via ft.com

Regulation, guns and broadcasting come to mind. Also the precious movie industry.

To understand Christmas, go to the pub

The ???economics of the family??? is a prime example of an economic imperialism that seeks to account for all behaviour through a distorted concept of rationality, an extreme example of economists??? notorious physics envy. Some models developed in physics demonstrate a combination of simplicity and wide explanatory power so remarkable that it makes no sense to think about the world in any other way.

But such powerful explanations are rarely available in other natural sciences, and almost never in social sciences. Even the visit to the bar is governed by a complex and tacit collection of social conventions. How do you know that you have bought the beer but only rented the glass?

An economist and an anthropologist go into a bar… There’s a lot more to it.

Only fools claim to know the future

People crave specific knowledge of the evolution of complex systems, paying good money for the services of clairvoyants and economic forecasters. But such knowledge is rarely available. Nor, even if it were available, would it often be useful. Physicists studying sport have established that many fieldsmen are very good at catching balls, but bad at answering the question: ???Where in the park will the ball land???? Good players don???t forecast the future, but adapt to it. That is the origin of the saying ???keep your eye on the ball???.

As complex systems go, the interaction between the ball in flight and the moving fieldsman is still relatively simple. In principle, most of the knowledge needed to compute trajectories and devise an optimal strategy is available: we just don???t have the instruments or the time for analysis and computation. More often, the relevant information is not even potentially knowable. The skill of the sports player is not the result of superior knowledge of the future, but of an ability to employ and execute good strategies for making decisions in a complex and changing world. The same qualities are characteristic of the successful executive. Managers who know the future are more often dangerous fools than great visionaries.

Most people who hire fortune tellers have the good sense to treat their prognostications lightly. The activity is casual fun, its value ??? if any ??? is as provocation to think carefully about the present rather than a measure of gaining knowledge about the future. Good predictions may be available in structured, well-ordered, situations ??? but, even then, forecasts are properly conditional or probabilistic. There are few certainties about the future: but one is that hedgehogs who make confident statements on the basis of some universal theory will be as persistently misleading counsellors in the future as in the past. And that the foxes, like Mr Silver, who scramble everywhere for scraps of information will provide better, if more nuanced, advice.

Why Sony did not invent the iPod

The explanation can be found in Clayton Christensen’s analysis of the innovator’s dilemma. Established companies in an industry are naturally resistant to disruptive innovation, which threatens their existing capabilities and cannibalises their existing products. A collection of all the businesses which might be transformed by disruptive innovation might at first sight appear to be a means of assembling the capabilities needed to manage change. In practice, it is a means of gathering together everyone who has an incentive to resist change.

The executives of music companies, film studios and book publishers did not rush to embrace the opportunities offered by new channels of distribution. They saw these technological developments as threats to well established business models in which they had large personal and corporate investments. And they were right to think this. So convergence was accomplished by groups such as Apple and Amazon, which had no similar vested interests to oppose change. These companies succeeded precisely because they were outsiders.

Economic growth is held back by industries where established interests are so powerful that disruptive innovation can be staved off for ever. Financial services is probably one. And education another. I think often of the contrast between the power of information technology to transform the process of learning, and the little progress that has been made towards actually doing so.

Buy an incumbent, become an incumbent.

???Give me liberty or ??500??? is no rallying cry

The canonical document of the Scottish independence movement is the Arbroath Declaration of 1320. ???It is in truth not for glory, nor riches, nor honours that we are fighting, but for freedom ??? for that alone, which no honest man gives up but with life itself.???

Nearly 700 years later, the Scottish Social Attitudes survey asked what respondents would think about independence for Scotland if it would make them ??500 a year better off. They favoured separation by 65 per cent to 24 per cent. If independence would make them ??500 a year worse off, however, it would be rejected by 66 per cent to 21 per cent. Yet ??500 is less than 2 per cent of average Scottish household income.

There were no similar polls in Ireland in 1920, or India in 1945, or America in 1773, but it is hard to imagine a similar result. ???Give me liberty or give me death,??? proclaimed Patrick Henry, arousing American colonists to rebellion with a cry reminiscent of the Declaration of Arbroath. ???Give me liberty or give me ??500??? lacks the same resonance.

The question cleverly illustrates that most Scots do not see the constitutional status of Scotland as integral to their identity or self-worth. That is what differentiates the Scottish debate on independence from that which convulsed Ireland or India, or divided America, and trivialises it.