Thinking for ourselves

How innumeracy has led successive British governments into disastrous economic follies.

In 1820 Britain stood, a lone Collossus, above the world. By 1920 a dozen other nations had higher per-capita GDP. In 2020 we seem even closer to the fringe of things: timid, divided, decaying, relatively impoverished and weak. What happened?

I am going to argue here , through specific examples, that having an innumerate ruling (and media) elite, as we have, is akin to being driven by a drunk.

(A) Leverage (The baboons in the reactor)

The banking crash of 2008. halted progress, stalled incomes, led to austerity, closed social programs and libraries, generated misery and uncertainty, and yet was totally avoidable. Because the ex- Chancellor Gordon Brown, and all his high-powered Treasury officials, were ignorant of simple algebra, they had allowed the Leveraging of bank loans to rise from less than 25 in 1995, already far too high as we shall calculate, to over 50 by 2008. Whatever else was going on, that was bound to lead to a crash. If Brown hadn’t been so innumerate [he did have a PhD in ‘economic history’, which probably made him unjustifiably over-confident] he might even have persuaded his US counterpart ( Alan Greenspan, another innumerate) to behave sensibly. But while Brown was boasting about his “Prudence” he had been blindly driving our bus towards the cliff edge.

A leverage of 50 allows investors to borrow 50 times their own invested capital and so, in a rising market, to double their money every year. How clever, how miraculous! But there ain’t no such things as miracles — even Gordon Brown should have known that. If the market falters, such highly leveraged investors, be they banks or individuals, can lose all their money almost overnight and default on their loans. Banks then panic or crash, and ordinary citizens who were either too wise, too moral or too poor to plunge into the fools’ bonanza, were forced to bail the greedies out. All because Brown and his Treasury wise-acres couldn’t do simple sums. If you want to see just how bloody simple that sum was go to:

https://mjdisney.org/wp-content/uploads/2021/01/Leveragecalc.pdf

(B) Malthus’ Essay on Population.

Follies of innumeracy are by no means uncommon, or new. In 1798 the Revd. Thomas Malthus, a don at Cambridge, published his highly influential “Essay on the Principles of Population”. In it he argued that an unrestrained population would always multiply faster than its food resources, leading inevitably to starvation, to misery, and to a “struggle for existence”. In his own words this struggle entailed  “…..every cause, whether arising from vice or misery, which in any degree contributes to shorten the natural duration of human life. Under this head, therefore, may be enumerated all unwholesome occupations, severe labour and exposure to the seasons, extreme poverty, bad nursing of children, great towns, excesses of all kinds, the whole train of common diseases and epidemics, wars, plagues and famine”.

Malthus’ well-intentioned but naïve argument, was that while population increases exponentially (like flies breeding), food production increases only linearly. It was almost puerile because it ignored the fact that hungry people can often find ingenious new forms of alternative sustenance – thus displaced crofters founded the mighty Scottish herring fishery. But many influential people chose to believe Malthus’ essay, with absolutely tragic consequences for the British poor. It excused: work-houses, forcible Land Enclosures, the transportation of juvenile petty thieves, Highland clearances and so on and so on. The rich used it as an excuse for land grabs, the poor were emiserated, deprived of their livings and their homes, and even of their dignity as human beings. The equivalent of 30 % of the entire British population was forced to emigrate. Never did so little algebra generate so much unnecessary misery. It should have been a warning to all: ‘Beware economic theorists.’

This is a different kind of folly from the first in that here the elite were taken in by a naive mathematics-based essay which most of them probably couldn’t understand but which they should have and probably would have questioned had they had been more confidently numerate themselves. Alas this happens all the time: thus Reagan and Thatcher were taken in by Friedman’s fallacious ‘Monetarism’, again with miserable long-term consequences, mostly for the poor.

(C) The Disastrous Folly of Free Trade.

Malthus’ Essay was bad enough — but it was to be succeeded by much worse. In 1814 Parliament introduced the Corn Laws (i.e. imposed high tariffs on cheap imported cereals) — which enriched the landowning classes and the Church, but impoverished everyone else, especially the industrial poor. The laws were repealed in 1846, but not before they had created a weird economic dogma called “Free Trade”. A millionaire speculator in Parliament David Ricardo convinced many contemporaries that Free Trade is always essential for prosperity and progress. His argument was subtle but, like Malthus’s, far too naive in that it ignored vast factors such as employment, and infrastructure-investment. Unfortunately, subsequent academic Economists, who have a rather feeble grasp of mathematics, though they like to pretend otherwise, were wholly taken in, and what is worse, they persuaded even more innumerate politicians all over the Capitalist world, that Free Trade is good for everybody. It isn’t. It simply isn’t. If you do a proper calculation which embraces all the relevant factors, Free Trade is mostly harmful to any advanced nation like Britain .

       As a result all Britain’s great industries have either closed down, or are in the process: coal, steel, ship-building, cotton mills in Lancashire, woollen mills in Yorkshire, cars, motor-cycles, bicycles, trucks, clocks and pottery in the Midlands, white goods, aircraft, computers, electronics,…….going, going, gone. But it isn’t just Britain. Youth unemployment in France is 25%, 40% in Italy and Spain. And look at America: its great manufacturing centres such as Pittsburgh, Detroit, Cleveland….. are now part of that broken rust belt which rose in despair and voted for Trump. What have we all done to ourselves? I will argue that what the academic economists proclaim is so good for us is actually a deadly poison.

An imported commodity may be dramatically cheaper at the point of retail sale than its domestically produced equivalent. Unfortunately though imports can also have large Sunken Costs arising from losses in domestic employment, investment and profits. And none of us can afford to ignore such Sunken Costs because we will all have to stump up for them in the end in the form of extra taxes to pay for unemployment benefits, retraining and relocating workers,  lost capital and wasted infrastructure (factories, roads, schools, shops, hospitals….). And that says nothing of the misery involved in breaking up communities, families and friends. All that should be obvious; but not apparently to our Economist friends.

What needs to be made, commodity by commodity, is a calculation of the benefits of  a particular Free Trade set against the Sunken Costs which we will have to be borne by the wider community as a whole (i.e. the importing nation). That shouldn’t be too difficult – and it isn’t. I won’t bore you with the algebra at this point (which is rather simple) but you can follow it all up in detail via the links provided; and I encourage you to do so. The results though, are both dramatic and shocking — for instance just take one example: importing a car into an advanced country like Britain only makes sense if its price at the point of retail sale is at least 64% cheaper than its domestic equivalent: 64 per cent! That’s huge. But why so? Because any advanced nation like Britain has, by definition, invested a lot of money in its people and their infrastructure, and when you destroy their means of making their livings and maintaining their societies, by allowing cheaper foreign imports in, it will cost us all an awful lot to replace them. By contrast a relatively backward country like China with almost no welfare system can hugely profit from such trades. But don’t blame China; blame the innumerate economists over here who can’t do simple sums and who’s head is still buried in a dogma formed in the 1840’s during the fight over the bloody Corn Laws. The real point here is that, 160 years later, this is a very different world, but economists don’t seem capable of keeping up. The damage they have done to Britain (and elsewhere), and are still doing, is incalculable. I will say no more here because there is a separate post entitled ‘THE FOLLY OF FREE TRADE’ which includes my calculation as a url.

(D) The Immigration Fiasco.

Is a contemporary example of what a numerically ignorant ruling elite is capable, or rather incapable of — recognising a simple perilous truth, and thus doing something about it. So high has been the the immigration rate been over the past 50 years that it is equivalent to 3 British mothers out of 4 raising an extra child. If that is not “swamping” then what is? Since I have written a whole post on this, entitled ‘IMMIGRATION FIASCO’ I will say no more here. But you can see the calculation there and see if you agree.

(E) The nuclear war that hasn’t happened. Yet.

By contrast to the hideous damage innumeracy can wreak upon a nation, let’s look at even more dramatic example where numeracy may not only have saved the day but have actually preserved Life on Earth.

The most important event of the 20th century didn’t happen — Nuclear Armageddon, though it appears we came desperately, desperately close during the Cuban Missile Crisis in 1962.

In 1921 the Quaker mathematician and pacifist Lewis Fry Richardson pointed to the probable cause of the First World War — a mathematical instability in the arms race that preceded it. If nations can arm faster than they can disarm such a race will eventually explode out of control into war. But if they can disarm faster than they can arm, the race need never blow up in such an accidental way. Rightly terrified out of their wits after Cuba, the commanders on both sides, with their experts, recalled Richardson’s analysis and installed a hot-line between the White House and the Kremlin to defuse potential escalations in future. That is probably why you and I are still alive. An innumerate society with The Bomb could still put us all in the grave.

WHAT IS TO BE DONE?

Britain has been, and is being brought low by a ruling and media elite who imagine they are educated. — when they are not . While some cringers are unwilling to look at the truth (viz. on Immigration) I suspect that most of our troubles do not stem so much from cowardice as from what I call ‘Baducation’. For instance most people who have studied ‘PPE’ at Oxford (as so many of our elite have, including the Editor of The Economist ) are simply not numerate enough to grasp salient facts and arguments.

The only good news here is that if we are only willing to face the truth at last we could rapidly put things right because although Innumeracy is a highly debilitating disease it is not malignant. If we paid everyone who made the effort to learn enough to pass a basic test in Numeracy £15,000 ,we could enumerate the entire nation for less than half the cost of a third runway at Heathrow. It is no accident that the wealthiest people on Earth at present, the Japanese, are also the most numerate ( For instance they figured out the Immigration problem long ago).

In the mean time we shouldn’t listen to, and certainly shouldn’t vote for Innumerates, never mind how many PPE degrees and the like they might have got from ancient universities. They’re simply Baducated, and as such dangerous. As the world has become more sophisticated so it needs more sophisticated people to govern it. We wouldn’t accept an illiterate Cabinet; why should we accept an innumerate one?

There is much more on this topic, and possible remedies we can use, in my “History of the Brits (from a scientist’s point of view) “, described elsewhere on this site . For instance it includes chapters entitled Half Baked Economics and Baducation.