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The university pensions strike is a selfish bid to hold future generations to ransom

The university pensions strike is a selfish bid to hold future generations to ransom

University lecturers began a strike over their pensions last week. The dispute may even run on and jeopardise the summer exams.

The main issue is that the universities’ pension scheme seems to be in substantial deficit. To solve the problem, a move from defined benefits to defined contributions is proposed.

With the former, the pension is a guaranteed amount each year. With the latter, the pension depends upon how well the assets which back it are performing.

Matt’s cartoon in the Telegraph brilliantly captured the reactions of many, as he so often does. Two dons are walking through a quadrangle, with one saying “if a philosophy lecturer went on strike and all his students slept through it, did the strike ever happen?”.

The more liberal elements of the media have been much more sympathetic. Lengthy interviews with the strikers and their grievances have been published.

These are illuminating.

A woman in her 30s, for example, complained bitterly that the uncertainty that the changes would bring to her future pension were creating so much stress she was barely capable of doing any work.

The life cycle theory of savings and consumption, favoured by many economists, would be helpful to her. Put simply, she should save more while young to draw more benefits when she is old. She, and others like her, could simply take out a personal pension scheme to boost their existing one. But this rational choice appears to have escaped her.

A lawyer in his early 40s conformed more closely to the paradigm of rational behaviour. He was very clear. It was the responsibility of his employer – the university – to provide him with a guaranteed income when he retired, so someone else could pay for his benefits.

The motives of many students are more difficult to discern. Many seem to be fervent supporters of high pensions for their teachers. This could be pure altruism, or it could just be stupidity – because they are the ones who will be paying for these pensions. They will be working when the lecturers have retired.

Pensions can only be paid out of the efforts of those currently in work. Even intelligent people, which for all their faults is a category which embraces many lecturers and students, often fail to grasp this basic fact.

Pensions provided by the state are funded out of taxation. Parts of many private pensions will be paid for by interest on government bonds, but taxes are needed to pay for this.

Pension assets invested in the stock market give rise to a stream of dividend payments. But these in turn depend upon the productivity and efforts of the labour force at the time.

An exception might seem to be a country such as Norway, which has used its oil assets to reap investments abroad. This just means the Norwegians have been smart enough to get foreign workers to pay their pensions rather than their own citizens.

A demand for a guaranteed benefit is nothing more than trying to hold a future generation to ransom. Only they can pay it.

Paul Ormerod 

As published in City AM Wednesday 28th February 2018

Image: The Graduates by Sakeeb Sabakka is licensed under CC by 2.0
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Old-fashioned educational values offer the UK’s most deprived children a future

Old-fashioned educational values offer the UK’s most deprived children a future

Economics is the gloomy science, but we can end the year on a cheery note.

Newham Collegiate Sixth Form College is in one of the most deprived and ethnically mixed areas of the country, with high numbers of immigrants. Yet the example set by Mouhssin Ismail, the headteacher, is inspirational.

At the start of every year, all the students are taken to Cambridge, to raise their aspirations. There is a minimum three hours of homework every night, and five a day at weekends.

The effort pays off. This year, 190 out of 200 students were offered places at the Russell Group universities. Nine were offered Oxbridge places, with one student destined for MIT in the US.

Of course, there is an element of self-selection in the success of the school. Young people unwilling to submit to the rigours demanded are unlikely to apply.

But even though Newham is riddled with poverty, there is no shortage of aspiration.

In Crumpsall, a rather run-down area just to the north of Manchester city centre, King David High School is consistently ranked in the top 10 state schools in the country. This year, over 50 per cent of the A-level results were at grade A or A*.

The school’s ethos is based on respect for parents, teachers, elders, fellow people, standards, and discipline.

Rochdale Sixth Form College, located in a poor former mill town, began to insist on “high expectations within a ‘you can do it culture’”. As a result, for the first time in years, students from the area are going to Oxbridge.

London’s secondary schools in general have been turned around in recent years. From being one of the worst performing regions in the country, they are now the best.

The attitude of the Schools Inspectorate has been crucial. Amanda Spielman, Ofsted’s chief inspector, insists that disadvantaged children cannot be used as an excuse for consistently underperforming schools.

The quality and attitude of teachers is also important. This has been established in the academic literature for a considerable time.

The importance of a scientific paper is judged by the number of times other academics cite it in their work. Very few papers in any subject get more than 1,000 citations. Linda Darling-Hammond of Stanford carried out a study based on educational outcomes in American schools in 1993/94, which has nearly 6,000.

She found that “teacher certification and preparation are by far the strongest correlates of student achievement in reading and mathematics”. In other words, the better qualified the teaching staff, the better will be the results of a school.

But there is more to it than that. It is the “preparation” which teachers carry out which is also key. Again, successful schools, whatever their socio-economic catchment, insist on a professional approach.

Far more than money – the perennial “solution” of the Left – social norms are decisive in delivering good education. Traditional values of hard work and discipline pay off.

North Korea has nuclear missiles, the Brexit talks falter – but here is something to feel good about.

As published in City AM Wednesday 20th December 2017

Image: Old Fashioned Education via Wikimedia is licensed under CC by 0.0
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Anti-capitalists in UK universities need a refresher course in the perils of socialism

Anti-capitalists in UK universities need a refresher course in the perils of socialism

The great Harvard economist Joseph Schumpeter, writing in the 1940s, predicted the eventual demise of capitalism. He did not want this to happen. But he envisaged that the “intellectual class” would eventually develop values which were hostile to free markets and private property.

Schumpeter’s definition of “intellectuals” was very wide. He meant people in a position to develop critiques of the economy and society, but who were themselves not responsible for running them.

The social science and humanities departments of almost all British and American universities fit this description perfectly. Even though capitalism offers them a standard of living far superior to that of any alternative system, they appear only too keen to undermine it.

The idea pervades these departments, for example, that the prosperity of the West depends upon slavery. It is this which underpins the current fashion for wanting to pull down statues of historical figures, including Britain’s greatest naval hero, Admiral Nelson.

One of the things on which the success of the West actually does depend is what we might call the empirical mode of thought. Put more simply, a theory is only any good if it is tested successfully against real life evidence.

Slavery still exists even today. In Mauretania, slavery was not abolished until 1981. Today, 1 in 25 of the entire population are estimated to be slaves. Yet Mauretania is not rich. Indeed, it is one of the poorest countries of the world.

For thousands of years, slavery has been widespread. The economy of the Roman Empire was essentially based upon stupendously large estates, all worked by slaves.

Yet none of these societies ever became rich. It is only under capitalism that this has happened. So the idea that slavery makes a society prosperous is rejected very decisively by the evidence. But this does not stop it from being almost an article of faith amongst many British academics.

Ludicrously, many of these people describe themselves as “socialists”.

The point simply cannot be made too frequently that we have seen several major natural experiments, which contrast the empirical performances of economies based upon market oriented principles with those based upon the planned economy principles of socialism.

The United States and the Soviet Union, West and East Germany, South and North Korea, India and China under different forms of socialism until the 1980s and India and China under different forms of capitalism since then. Venezuela is but the latest example. Capitalism wins decisively in every single case.

Countries such as South Korea which were very poor in the mid-20th century and which have adopted the principles of market oriented economics have since flourished.

Economists enjoy arguing amongst themselves. But the profession in general believes in private property and markets as the basis for prosperity. Empirical studies, rather than pure theory, have become much more important within economics in the past 20 to 30 years.

Economists need to take a bit of time out to confront their common enemy. Namely, the unscientific output of many social science departments in British universities.

As published in City AM Wednesday 6th September 2017

Image: Berlin Wall by US Dept of Defense is licensed under CC by 2.0
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Incentivise predatory universities with a proportional grade-linked fee structure

Incentivise predatory universities with a proportional grade-linked fee structure

The A-level results have come and gone yet again. Underneath all the hype and excitement, we can see the reliable old friend of economists at work.

Namely, the impact of incentives.

Michael Gove, in his previous Cabinet incarnation as education secretary, decided to restore the meaning of grades in A-level and GCSE exams. Until the middle of this decade, the average exam grade had risen every single year for over 20 years. A rise which was wholly implausible to anyone outside the state education sector.

The course content and the exams were to become harder. This was the first year in which the full effect of the Gove reforms were to be seen.

But he did not appreciate the strength of the incentives facing educational professionals to produce high exam grades. Good grades make everyone involved look good, not just the students. The incentives to generate them had not been altered.

The exam regulator, Ofqual, adopted the simple expedient of lowering the threshold marks required to meet grade criteria. The work may have become harder, but you could get the same grade as before with a lower mark.

When the government increased tuition fees, now at £9,250 a year, they believed that different levels of universities would set different rates. The weaker ones would have lower ones, reflecting the cost of delivering their courses and degrees.

But price – the tuition fee – was not determined by cost in this textbook way. Instead, it had a signalling function. Who was going to announce to the world that you had cheap, low value courses by setting the price at anything other than the maximum permitted? No-one.

Most summers, the fields of Southern England are filled with the lurid yellow of rape seed. A few years ago, the subsidy on linseed was higher, and the altogether more agreeable lavender flowers of that plant proliferated. From a subsidy perspective, all students are currently the same, just like a crop.

Each student you can corral through your doors carries a fixed amount of money for the university, whether paid for through a loan or by the bank of grandma and grandad. So universities are ruthlessly predatory. Some will accept students with absolutely minimal qualifications, who should never be there in the first place.

Perhaps one solution is to set the tuition fee in proportion to the grades a student obtains. Those who do well have a high price on their head. In return, they can go to the best places, where the premium on earnings of graduates still exists.

But weaker students would carry a lower price. Low grade universities would have to adapt to this new set of incentives.

They could provide courses to match the price. Or they could still charge £9,250 and students would have to top up their loans in the open market, should anyone be willing to lend for, say, sociology at Liverpool Edge Hill. Either way, this would indicate very clearly to students the potential value of the course and the university.

As published in City AM Wednesday 23rd August 2017

Image: Exam Tables by David Hawgood is licensed under CC by 2.0
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Embarrassing academic reversals show expert opinions are often built on sand

Embarrassing academic reversals show expert opinions are often built on sand

Last week we saw yet another major reversal of opinion by experts. For years we have all been lectured severely on the need to finish every single course of prescription drugs.

But the latest wisdom is that this is not necessary.

The announcement that petrol and diesel cars will be banned by 2040 only serves to remind the millions of diesel car owners that they were told only a few years ago that diesel was a Good Thing.

These stories have been very prominent in the media. But they are by no means isolated examples. Such reversals of opinion are all too common in the softer social and medical sciences. The “evidence base”, a phrase beloved of metropolitan liberal experts, is often built on sand.

This is neatly illustrated by psychology. Science is probably the most prestigious scientific journal in the world. At the end of 2015, a group of no fewer than 270 authors published a paper in it. They were all part of the teams which had published 100 scientific articles in top psychology journals.

In only 16 out of the 100 cases could the experimental results be replicated sufficiently closely to be confident that the original finding was valid.

The papers had been published in top psychology journals, and the original authors were involved in the replication experiment. So the replication rate should have been high.

Instead, it was so low that the lead author of the Science piece points out that they effectively knew nothing. The original finding could be correct, the different result in the attempted replication could be. Or neither of these could be true.

There is no suggestion at all that any sort of fraud or misrepresentation was involved when the original results were submitted for publication. But economic theory helps us understand how this absurd situation came about.

The great insight of economics is that people react to incentives.

Academics now face immense pressure to publish research papers. If they do not, they get more burdensome teaching loads, miss out on promotions, and might even get sacked. Their incentive is to publish.

Academic journals will only very rarely accept a paper which contains negative results. The whole culture is to find positive ones. So experiments will be re-designed, run with different samples, until that sought-after positive finding is obtained.

More and more academics are now desperate to publish more and more research papers. To meet this increase in demand, there has been a massive increase in the supply of journals willing to publish. Many of these are highly dubious, prepared to accept papers on payment of a fee by the authors.

For all except a small elite of individuals and institutions, academic life has become increasingly proletarianised. In the old Soviet Union, workers could get medals for exceeding the quota of, say, boot production. It did not matter if all the boots were left footed.

Many universities are now similar, with useless articles being churned out to meet the demands of bureaucrats. Time for a big purge, both of academics and their institutions.

As published in City AM Wednesday 2nd August 2017

Image: Sand Castle by Gregor is licensed under CC by 2.0
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Believe it or not, Britain is getting happier

Believe it or not, Britain is getting happier

The dominant economic narrative in the UK is a pretty gloomy one just now.

True, employment is at a record high. But, counter the whingers and whiners, zero hours contracts and low pay proliferate.

The political discourse is full of the struggles of the JAMs – the Just About Managing The public sector moans about its pay. During the election, Labour played ruthlessly on the fears and anxieties of the elderly about inheritance and the value of pensions.

All in all, the picture seems bleak. But a much more positive vision is given by the Office for National Statistics (ONS) in its measure of well-being.

The Measuring National Well-being (MNW) programme was established in November 2010 under David Cameron. It is not without its critics. But if we take it at face value, compared to a year ago the country is definitely happier.

As the ONS puts it: “the latest update provides a broadly positive picture of life in the UK, with the majority of indicators either improving or staying the same over the one year period”.

There seems to be a bit of a glitch. The ONS boasts of using no fewer than 43 separate indicators to measure well-being. But they go on to state, in the very same sentence, that of these 43 measures, “15 improved, 18 stayed the same and two deteriorated, compared with one year earlier”. Perhaps the relevant statistician here received his or her basic training at the Diane Abbott School of Arithmetic.

No matter, it could be that some of the series have simply not been updated at all. Certainly, many people might not be too concerned to learn that “on environmental sustainability, the proportion of waste from households that was recycled fell over a one-year period, while remaining unchanged over the three-year period”.

But compared to a year previously, on some key indicators, as a nation we were more satisfied with our jobs, felt our health was better, and enjoyed our leisure time more.

This does not fit readily with political discussion recently in the mainstream media.

One possible reason is that many of the ONS measures rely on conventional survey techniques. These can take some time to carry out. So the ONS only release new data every six months, and the latest one was in April. The indicators could just be out of date.

However, a very similar story is told by a real-time analysis of Twitter data, which I have been carrying out with my UCL colleague Rickard Nyman since June 2016 (admittedly just for the London area).

We use advanced machine learning algorithms which essentially measure the sentiment level of a tweet as a whole, rather than relying on the now obsolete approach of looking for specific positive and negative words.

Sentiment in London started to rise quite sharply last autumn, dipped down slightly in April and May, but is now back up again.

Many conventional economic statistics are not really designed for the modern economy. So, despite, all its faults, the ONS well-being measure may be a step in the right direction, and regardless of what the media tells you, Britain may indeed be getting happier.

As published in City AM Wednesday 19th July 2017

Image: Happiness by Geralt is licensed under CC by 2.0
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