Sunday, 20 April 2014

Scientist is what scientist does

Across the blogosphere the vexed question keeps surfacing: what is a scientist?  Do they have privileged access to knowledge denied to the rest of us.  Should their views be given the status of indisputable advice on how to conduct our lives? In medicine, the climate, economics, and in the conduct of our lives who are these modern day priests who whilst not calling us to church on Sunday or to prayers twice a day still demand our respect?  Governments and courts call them to give expert witness and their conclusions they call 'evidence backed'.  The post-modern era with its slogan 'anything goes' has come and gone but we are left with a resurgence of 'speculative science' driven by a multiplicity of agendas.   So, let us be clear: what makes a scientist?

Scientists come in two broad categories: theoretical and experimental.  There is also a third type we will return to shortly.  Theoretical scientists are those who, starting from some well established theoretical or observational background spin out a range of further theories which they claim explain or predict the nature of underlying reality in novel ways.  Some of the greatest theoretical scientists such as Einstein, Hawking, Newton and Schrodinger have created powerful explanatory theories giving us explanations of gravity, space time, black holes and the sub-atomic world and, crucially predictions of observable phenomenon which have been astonishingly successful.  However, their language is constructed of theoretical terms which do not have direct observational reference.  Take a term like 'temperature'.  Temperature is something we talk about all the time but how do we define it?  Very soon we discover that we are using other theoretical terms in our definition which do not have direct observational reference but appeal to further terms: heat, energy and so on which in their turn are not directly observable.  Theoretical scientists use predominantly mathematics to develop their conceptual understanding of the world: tensor geometry, number theory, calculus and so on.  By and large they are platonists, looking for that 'ideal reality' which the real world more or less imperfectly reflects.

Empirical scientists are, in their turn, of a different ilk.   Their interest is in constructing experiments. Their language is observational using terms which, they believe, will lead to measurement of empirical phenomena of various sorts.  Sometimes these experiments will be strictly controlled in a laboratory environment, sometimes the observation is less direct, undertaken in context perhaps through field trials or directly through observation.  Some try to directly engage the subject blurring the object-subject divide in order not to gain knowledge in the Platonic sense of 'justified true belief' but rather understanding of processes physical or social.

The problem for science is how to bridge the gap between the theoretical and the empirical in such a way that the former can be justified by the latter.   The classical way that this has been done is through the creation of 'hypotheses' - compound statements that linked theory with observation.  The problem is that observation is not theoretically neutral.   Observation relies upon measurement and measurement has its own theory of measurement.   The notion that observation is intrinsically 'theory laden' underpinned the challenge of Kuhn, Lakatos and Fayerabend against Popper's simple falsificationism as the defining standard for science.  Science, Popper argued is about putting 'conjectures' to crucial tests with the aim of refuting them by the simple logic If p is true then q is true, not q, therefore p is not true where p is the premise and q the consequent.

The problem, as Lakatos pointed out is that (i) all observation is theory laden and (ii) with any well formed theory there will be so many ceteris paribus clauses that it is impossible to determine uniquely what has been refuted.  Lakatos went on to propose what this blogger believes to be the most cogent exploration of how sciences develop.  He argued that scientists coalesce around a series of 'core terms' - theoretical constructs if you like which they consider irrefutable and which they protect against refutation through the creation of a range of ad-hoc modifications as a way of immunising them against challenge.   Theories are not the way science progresses, Lakatos argued.  They progress by scientists becoming committed to research programmes which either progress when they generate novel predictions or degenerate when the desire to sustain the core of belief against refutation overwhelms the empirical significance of the programme.  

However, since Lakatos untimely death in 1974 a new type of science has arisen.  It is where scientists seek to create computer based models of more and more complex social and physical systems reflecting a series of underlying laws which whilst not conjectural in themselves are spun into more and more abstract sets of interacting relationships.   By priming these computerised models of reality with a small number of empirically determined parameters and seeding them with given initial conditions projections of future outcomes are derived.   These theoretical realities, created in cyberspace, are designed to give an insight into how real systems operate.    In practice they rarely perform well in that what they project rarely maps onto what is observed and measured.   Indeed, what I will refer to as Bob's Law applies:  as models gain complexity they progressively lose any connection with reality.    This is an application of what I regard as an almost universal principal:  the more complex a model the less real are its outcomes.

Thursday, 20 February 2014

So, the media circus moves on.....

The great British media having exhausted the misery of the floods - or at least the patience of the unlucky inhabitants of the Somerset Levels - and have moved onto pastures new. Soon all will be forgotten. The politicians will have retreated and all that will be left are sodden ruins of homes, shattered dreams and promises we know they will never fulfil. The Environment Agency will return to quango mode following three months of chasing after BBC film crews. 'We always knew when the Environment Agency would turn up', complained one irate resident, '- as soon as the BBC arrived'. Like a whining child the Environment Agency blamed everyone but themselves: it's the weather, it's the jet stream, no it's the climate, no it's lack of money, no it's a flood plain (this is what you get if you live on a flood plain and we're in charge) and no.... so, it goes on.

What is for sure is that the recent storms belting the South West of England normally vent their fury on the West Coast of Scotland or Cumbria which have mountains and lakes and things and which no one cares about. It has been unusually wet, but the claim that the amount of rain December through February is the largest on record is bunk. 1929/30 holds the record by a substantial margin for what are typically the wetest three months of the year (October-December). Paul Homewood on his excellent blog: has more information from the Met Office that puts the recent deluge into context.

What we have experienced this winter, in the UK, is weather. That's what we get in the UK, alongside bloated quangos. Quango's like weather are a hazard of British life and I am sure the blighted inhabitants of Somerset have had enough of both.

ps: by way of passing who was it forecast in the early Autumn that we would have below average precipitation between December and February? Why, another quasi-governmental-organisation, demonstrating the power of its super-computerised models of the British weather: the Met Office! We are now solemnly informed by its Chief Scientist Dame Julia Slingo that this is what we get with climate change. She wasn't saying that in October was she?

Sunday, 6 January 2013

Pension Balls-UP

Ed, the demon barber of the left, Balls has a brilliant wheeze on how to finance his latest job creation scheme. Screw those who save for a pension and,just to make sure, screw the pensioners. His idea, which to be fair, is only an extension of current coalition policy, is to reduce pension relief for highest rate tax payers to 20k per annum. For those on defined benefit schemes that means that even small increases in annual earnings will result in huge tax bills. But, leaving that aside, the injustice here is that restricting pension relief means that pension saving will effectively come from taxed earnings, and the ultimate pension will be taxed as well. Pensions are simply deferred income, reinvested at a rather pathetic rate of return by pension fund managers who have always relied upon the presence of the tax shield to make the exercise worthwhile to the punter. What is happening is that the original income source will be taxed twice, once at the point of deferral and once at the point the fund is drawn upon by the pensioner. Already, higher earners are saying to employers 'pay me more and I will opt out of the pension scheme' - then investing their income to their best tax advantage elsewhere. That in the longer run does not seem to be a good idea. People need big incentives to save for a pension, most of us are not into deferred gratification, and this is one crazy way of bringing about a situation, in the not too distant future, of even more very poor pensioners.

Wednesday, 2 January 2013

Reacher, Bond and a Hobbit

It's great at the moment if you are a movie fan. Suddenly some big movies are hitting the screen - some after lengthy production delays. I took my nearest and dearest to see Jack Reacher, the long delayed first movie from the books of Lee Child. Enjoyed it although it was a bit hard coping with a diminutive Tom Cruise in the role of a 6'6" ex-military policeman. But why the interest in what is happening at the movies? It's just a hint but maybe there is now some life in the market for asset backed paper of various sorts. This market virtually dried up in the crash and with it the cash cycle the film industry depends upon came to a grinding halt. Now I don't know whether this chronic shortage of cash was the reason for the substantial delay in production of many movies but rumour has it that a number of sequels to mid-'noughties' hits are now under production. The cash taps might just be beginning to flow again and if so this could be a sign that the problems of 2008, if not solved, are like the euro crisis beginning to dissolve. Perhaps 2013 maybe the start of the real recovery.

Wednesday, 26 December 2012

Off to Starbucks for a Coffee

Starbucks didn't do themselves any favours in front of the Commons (UK's most important parliamentary chamber) select committee investigating low levels of Corporation Tax.  Like most taxes, CT is avoidable if you know how.  Most large multinationals with multiple overseas operations attempt to minimise their liability in individual countries (a) to simplify the recovery of tax through the patchy double tax agreements that exist and (b) to ensure, as far as possible that their investors do not suffer tax twice on any given income stream.

The system varies from country to country but in essence any company is liable in their home economy for tax on their earnings.  That tax will form the basis of a credit against the shareholders' liability for tax usually at a basic rate.  The shareholder only becomes liable for tax on their dividends in excess of that basic rate.  So, in the UK, a higher rate tax payer would only pay tax on their dividends at the difference between the basic rate and the prevailing higher rate of tax.   In effect, corporation tax is a payment of tax on an earnings stream in advance for the shareholder.  So, the tax gets paid somewhere.

If a US company, operating in the UK, pays CT here it can claim that CT payment against its US liability through the prevailing double tax agreement.  The problem with this system is that Starbucks, trades in a very large number of countries.  To avoid the problem of having to reclaim under the double tax rules in every country it tries to minimise its liability in each country but, make no mistake, ultimately the tax will be paid.

So why, giving that proportionately the UK benefits from the way the system works more than virtually any country in the world, are British politicians getting into such a lather about Starbucks, amazon, google and all the rest?   Three possible reasons: (i) they are simply ignorant (highly likely) or (ii) they are endeavouring to find a scapegoat for the country's ills or my favourite - both.

Friday, 24 August 2012

Is the system really bust?

The euro zone, if you hadn't noticed, is in big big trouble. The sad fact is that there are very few ways of improving the situation. Let's just recap how we got to where we are now. The 2007/8 banking crisis entailed significant impairments of mortgage backed investments across the world. So much so that governments believed they were forced to 'bail out' the banks by injecting new capital into their balance sheets. However, the countries were themselves in trouble because the financial squeeze and the effective closure of the capital market meant that credit became as scarce as dragon's teeth and national economies went into recession. Shortfalls in tax revenues and increased welfare demands meant that the sovereigns had to borrow. But who could lend to them? Well of course the banking sector. But the sovereign debt problems started to emerge when the ratings agencies and the market began to question their ability to repay. So yield rose and the value of sovereign debt carried by the banks had to be impaired. So, governments found themselves compelled to bail out their banks. You get the idea: spirals like this do not have a happy ending.

Niall's stirred the pot.

Professor Niall Ferguson of Harvard and Scotland has really stirred up the acrimonious US election debate with his attack on Obama in Newsweek.  Newsweek is a fairly soft left newsmagazine mostly found in crumpled piles on BA long haul flights.  The attack dogs of the left have found 'errors' in the piece which they claim discredit our erudite prof.  Did the Congressional Budgetary Office estimate that Obama's medical reforms would add to the deficit?  Has Obama's policies created jobs or destroyed them?  But does it matter?  I suspect not, the argument is much simpler than all of that.  As Ferguson made clear in his recent Reith lectures, the western economies have gorged themselves on debt and now it's payback time - big time.  The cause of that debt overhang is because we have enjoyed a social wage far greater than we have been willing to pay for.   How has this situation come about dear blogees?

Governments, under constant money supply, have just two ways of raising cash.  They can do it through taxation, by finding more and more inventive ways of relieving us of what we earn. Or, they can do it through borrowing. The attraction of borrowing is that there are, or were, a lot of potential lenders out there.  The last 60 years have seen two periods where debt has become really cheap.  In the late sixties and seventies the Arab-Isreali conflicts led to a surge in world oil prices.  Large flows
of oil dollars flooded into the oil rich middle eastern states and particularly into the pockets of the wealthy families who had or took control of their governments. They spent those dollars at home but in the end there is only so much you can buy and so they had to 'invest'.  This they did - they lent it, via the banks, to any government who asked for it.  This created the 1970's first sub-prime crisis as many of those governments around the world were unable to repay.  Even the UK  had to ask the IMF for a bail-out as the labour government of the day tried to borrow and spend its way out of recession.

In the nineties and noughties, it wasn't oil but cheap labour that sucked the spending power of the west eastwards and into the pockets of the booming Asian economies.  If a US consumer can buy a $10 shirt from China or a $30 shirt from Kentucky then China wins hands down.  The Chinese, particularly, with a quarter of the world's population in its hinterland prepared to sew shirts for the proverbial song, grew rich on western shirt dollars.  And so the financial markets became awash with cash looking for a home.  The global banks found it a home.  Literally.  And so the 2nd great sub-prime crisis became reality.  This time consumers borrowed, government' borrowed and the western economies became bloated with debt.  Far easier for a government to borrow money than to take it through taxation  - they could get reelected that way.  They borrowed to spend.  In the UK the population loved public spending: welfare, the NHS, more welfare, wars and yes, even more welfare. But, in the end it was unsustainable.  In the end the banking crisis narrowly averted in the late 70's and early 80's became the real banking collapse of 2008.  

So, what is the lesson?  In the end governments cannot spend more than what their people are able and willing to pay for.  Indeed, we are slowly beginning to learn that this ability and willingness is very limited.  So where now?  That is for a future blog.