Steve Hemingway

Communications Data Bill

By Steve Hemingway on October 24, 2012 2:09 PM | No Comments | No TrackBacks

I do get worked up about the government and it's towering ignorance about computers, networks and encryption. As far as I can see the spooks and police advising the government don't have a clue, or, more likely, are put up to the job by the ISPs and software industry here which expects big contracts for building yet another electronic white elephant.

The latest in this series is the new Communications Data Bill. The more I see of it, the more I don't like it.

The argument is that the access that the authorities have to existing telephone records should be extended to corresponding records involving any sort of electronic communication. The argument is that the phone records are useful and therefore the email records will be equally so.

This simply will not work, any more than the Digital Economy Act had any impact on the use of the Pirate Bay bittorrent server.

English: I took this picture. (Photo credit: Wikipedia)

I see a lot of problems with this:

it's just too easy to circumvent, by going abroad, setting up one's own email server (five minutes work on most PCs), using one of the many proxy server services,
building a database of all users and dates and times of all exchanges of information between any pair of them will cost billions and end up not working,
just creating a database of all electronic identities creates a huge privacy problem and a target for cybercriminals who will, in time, gain access to it,
ISPs will use compliance with this act to build barriers to entry from other players in the market. The oligopoly in broadband provision in the UK is bad enough already, but expecting a new entrant to monitor all email (and other electronic) traffic as the bill would require will be a huge additional barrier to entry,
ISPs will use the cost of compliance with this act as an excuse to ratchet up fees even higher,
ordinary citizens will be forced to route their email traffic through servers provided by organisations who are willing to defy the law and not comply with the act, purely to get affordability and performance. Their own private data will then be much more vulnerable than at present, when they use Google or Hotmail.

We don't make it a criminal offence not to report every conversation we have with our neighbour when we meet him in the street. We take the same approach with the electronic equivalent,

Refs:

Communications_Data_Bill

Digital Economy Act

Example of a secure email, ssh tunnel service

Pirate Bay beats ISP Ban news article.

Science and non-Science

By Steve Hemingway on October 23, 2012 10:17 AM | No Comments | No TrackBacks

Science is a tricky business. Most scientists toil away in obscurity never having any contact with the world of courts and newspaper headlines. Some sciences has an overlap with things that affect 'ordinary' people. Once of these is seismology.

Most people have a very shaky grip on probability. The enduring popularity of various national lotteries is abundant evidence of this. When I make a decision, I think I look at the various payoffs that may result, weight them by the probability that they might happen, and chose the one with the highest expected payoff, with maybe a bias against some low-probability catastrophic outcomes. Because I, and everyone else, lives in a world filled with risk, one that will one day kill me, I make decisions that result in losses. Regularly.

I get the impression that most people do not approach life like this. They are risk averse and crave certainty. Governments understand this and enact increasing amounts of legislation in an attempt to deliver a risk-free world, or at least one where the outcomes are certain, even if non-optimal.

This trend is dramatically illustrated by the recent story of the jailing of six scientists and an official over their advice over the earthquake risk in L'Aquila ahead of a deadly 2009 quake. The consequence of this will surely to inhibit scientists from making any kind of prediction in these matters. Although I can imagine an un-educated jury coming up with this sentence, it's hard to understand how a judge, who presumably is very familiar with assessing probabilities and expert evidence, could have decided the case in this way.

I understand that the case is slightly more complicated than presented by the WSJ: that it was the non-scientist who came up with the summary recommendation, which proved to be wrong. But the idea that scientists can go to prison because their forecast proves to be wrong is indeed chilling.

Reference:

Re Court Convicts 7 for Failing to Warn of Quake WSJ 22 Oct 2012.

Thinking Fast and Slow

Just in case you came here because you know me in real life

By Steve Hemingway on October 10, 2012 2:05 PM | No Comments | No TrackBacks

In the course of blogging since the end of the 90's I have received, to within a very close approximation, zero feedback. I stopped looking at server logs long ago, since the only person who seemed to visit with any regularity was Mr Google.

To my horror, more and more of my friends and acquaintances I bump into around the village and town make a comment along the lines of 'I was worried about you as I'd noticed that you haven't posted any entries recently'. Some of them express surprise that I sound so reasonable in real life when my on-line presence conveys the strong impression that I am some kind of swivel-eyed free-market zealot.

I am not entirely sure how to react to these remarks, but I feel that I'd better make some kind of statement here that I am indeed a very reasonable and genial person in real life and that I have signed testimonials to this effect, obtained with only the most minimal threat of force.

I am not entirely sure that people are referring to this blog, or to my occasional posts on Facebook or Twitter. These are often links to articles by Austrian or generally free-market economists, by vaguely libertarian politicians such as Nigel Farage, Dan Hannan, Ron Paul or even to the random, but funny, rants by the likes of Old Holborn.

I do post some longer thoughts on Facebook in the Herts Investment Club group. Please consider joining that if you are interested in a discussion of stockmarket investing.

Anti-bullying, social conformance

By Steve Hemingway on March 30, 2012 5:02 PM | No Comments | No TrackBacks

When I was a kid one often heard the rhyme 'Sticks and stones will break my bones, but words will never hurt me'. Verbal bullying was not unknown, as evidenced by the frequency with which I heard this, but to my knowledge there was never a big problem of bullying. I should know as I was a pretty weedy specimen who would definitely have been a strong candidate for being 'picked on'.

I never really heard any discussion of bullying, per se, but I think that the general view must have been that it was vaguely character building, and that sticking up for oneself was a skill that was very useful to acquire, even at the cost of the odd black eye. Actually, I was never involved in physical violence, I imagine because in most normal groups there's a general innate sense of fairness, and because, presumably, I was sufficiently amusing or useful to the group that I count on at least some support from the stronger boys.

In the past society was much more male-dominated, and even military-dominated. Being called names and being bullied was not high up the agenda when there were widespread first-hand memories of young men were going off to die in WW2 and even in the trenches of WW1. Admirably these primeval instincts towards group violence have been largely blocked, so we no longer worry about this.

One would hope for the development of a harmonious utopia full of peace and love, of the sort that John Lennon famously Imagined. Unfortunately we do not have this. We are constantly told about the problems of bullying in forms never before discovered: for example cyber-bullying, bullying by girls. Although it is now explicitly illegal to express hatred toward someone on account of that person's colour, race, nationality (including citizenship), ethnic or national origin, religion, sexual orientation, or ownership of a ginger barnet, Unfortunately it is not illegal actually to ha

No Bullying sign - School in Racine, Wisconsin (Photo credit: Wikipedia)

te people on account of these attributes, not to roll one's eyes, or indicate in some other non-verbal and implicit way one's disapproval, even though you can now go to prison for three months for posting some offensive jokes on your Facebook wall.

So, to stop bullying, which we used to think was a relatively harmless childish activity, we've introduced something approximating to thought crimes, failed to force people to stop being racist, and, maybe most importantly, utterly failed to improve people's self-esteem generally. Although there are no statistics on this, the incidence of depression and neurosis in the UK is now very high, with a huge proportion of adults experiencing 'some form of mental health problem' in the course of a year. Shockingly, it is claimed that nine out of ten prisoners have a mental health disorder. Even if these figures are exaggerated, things are surely no better than in the robust days of the 50's.

It occurs to me that dealing with bullying is not unlike dealing with teachers who give you a bad grade, lecturers who turn you down for a place at the university of your dreams, and bosses who reject your job application. The intent of the person of authority is not to bully, but the feeling of rejection by the recipient may be similar. Having survived bullying and recognised that there is life after these unpleasant episodes is all part of growing up. Or am I going a step too far here?

References

Mental Health Foundation.

Guardian report on Matthew Woods

Labour and Poverty of Aspiration

By Steve Hemingway on February 9, 2012 3:33 PM | No Comments | No TrackBacks

I have been reading Chris Mullins autobiography, the latest volume, "A Walk-On Part". He comes across as a thoroughly decent man. Of course everyone wants to be loved, and it would take superhuman objectivity to present oneself in an entirely neutral light, but I find it hard to believe that he is hiding anything very objectionable about his personality.

He is a true socialist, and believes that the moral case for redistribution of income is so strong that it justifies the damage to incentives and the consequent loss of total economic output. He does not put it this way, but this comes across from what he writes. This is an entirely respectable argument, which cannot be resolved by debate but by measurement, itself a very difficult matter. Not that Chris is concerned about ideology. His diaries are a great read and illuminate the characters of the major figures of the Blair years far more brightly than their own autobiographies are ever likely to.

Although these diaries are now very old, covering the period 1994 to 1999, the issue of income and the redistribution of it is as fresh as ever. In spite of their being, now, a Conservative-dominated administration, feelings seem to be stronger than ever that income is too unequally distributed in the UK and the USA. The Occupy Movement, in spite of its rather incoherent aims, is widely supported, and plutocratic candidates like Mitt Romney are now struggling to get elected in a way that would have been suprising even five years ago.

I am sure that the cause of this change in sentiment is the fact that people are both feeling poorer, and feeling that there is a dwindling chance of them becoming any less poor. Somehow it's much easier to tolerate extreme wealth if one's own income is at least moving in the right direction.

This is all very familiar, but it seems to me that the debate is very limited. It seems to me that inequalities of income are a consequence of inequalities of power. Lawyers, doctors, bankers, private equity investors, CEOs, hedge fund managers, bankers, actuaries, fund managers, accountants all benefit from a power structure which they can exploit to get, to a varying extent, above-average incomes. They may well have above-average academic success and personal qualities, but this is largely a result of a competition to do these jobs, as opposed to the nature of the jobs themselves. Of course there is a competitive aspect of some of these jobs, and, in some cases, maybe law and investment banking, there is a winner-takes-all aspect which means that inevitably only candidates at the extreme of the distribution will be successful.

Correcting this situation would mean taking on powerful vested interests. These high-earning groups are heavily represented both directly, and via well-funded lobbying. It is hard to see how taking on these pillars of the establishment could be done by a Conservative administration, but it's very sad to see that the previous nominally socialist administration not only did nothing, but did not seem to appreciate that tackling the sources of inequality would be much more effective than (weakly) trying to tax it out of existence. This would also have avoided many of the problems of incentive destruction that we have seen.

My Medical History My Property

By Steve Hemingway on February 7, 2012 5:44 PM | No Comments | No TrackBacks

I am very fortunate to have had a life largely devoid of contact with the medical profession. I know however that a large part of the time I spend in any sort of interaction with them is my racking my brain to remember when exactly I had the final vaccination for Hep B, and writing down one more time that I am not allergic to penicillin.

This information is relatively straighforward for me because my medical history doesn't change much from year to year, and my memory is serviceable enough to remember the odd new fact that arises. Things were much more difficult for some elderly relatives who had a range of medical interventions just at the time their memory was getting more unreliable. In one case a number of separate hospitals were involved, and, of course the GP. You will be unsurprised to hear that practically no information passed between these various branches of the same organisation, the magnificent NHS, peace be upon it.

My father in law had a file relating to treatment of his eyes that was the thickness of a telephone directory. His sight was not good. When I helped him attend outpatient clinics I saw a porter working full time bringing huge shopping trolleys, groaning under the weight of similar paper files, to the consultant. As someone who has worked with computers almost his whole life, I inwardly wept that the the NHS, in the 21st Century could rely on such Victorian technology to keep people healthy.

It has long been recognised that more use of IT should be employed in the NHS, but, like most large organisations, it has always taken the view that 'knowledge is power' and that it should share it only in extremis, and certainly not make it available to the actual patient. The resulting fiasco is well documented. Like many central government IT programmes it failed expensively and spectacularly in its most recently incarnation as "Connecting for Health"

I was talking to someone today who had recently had an operation. She mentioned that when discussing the procedure with the anaesthetist she had been advised to have a local anaesthetic as 'we nearly lost you last time' (when she had undergone an operation under a general anaesthetic). This may sound reasonable until you realise that had this person had to have an operation in any other hospital than the one that had previously operated on her (possibly with any other anaesthetist) her chance of dying would have been enormously increased: because nobody had mentioned to her the problems encountered in her previous procedure.

This got me thinking, and confirmed what I had always thought: that it is not sufficient for patients simply to have a right to see their medical records, but that their medical records should by law be made available to them, automatically, via a simple web page, or portable digital record. Most people do not need to worry excessively about privacy: a portable format medical record would be much more valuable to them than the knowledge that their records were safe from News of the World hacks.

The professions would oppose this, of course, for purely selfish reasons, and to preserve their monopoly position. Most patients would take the view that 'the doctor knows best' and might never access their records. But for many it would be a modest benefit, for some it could be a life saver. For the NHS it would represent a huge saving of money.

From a practical point of view it would be sensible to adopt one of the existing Electronic Medical Record formats. Many exist, but I suppose the Not Invented Here syndrome would induce our beloved NHS to invent another, incompatible one.

Continue reading My Medical History My Property.

Fraud and incentives

By Steve Hemingway on February 5, 2012 2:53 PM | No Comments | No TrackBacks

One of the causes of the Global Financial Crisis was fraud. Lots of people lied about their income, the value of the property they were about to buy, and their liquid assets in order to get a loan. Although the ultimate creditors (quite possibly now the taxpayer) cared a lot about this, nobody in the chain otherwise did. Certainly the brokers, who were incentivised by fees were not remotely bothered that borrowers were lying. In fact they much preferred the 'self-certified' loans, because these tended to carry higher interest rates and much higher fees.

The banks themselves didn't worry too much, because in many cases they could sell on the loans practically as soon as they hit their balance sheets. The whole system rewarded fraud, and sure enough fraud became endemic. The fault though is not the individuals: they just behaved exactly as an economist would expect them to behave. The fault is clearly the politicians who yielded to lobbying from organisations who wanted the fees to keep rolling: various bodies in the financial sector. The endless problems of 'mis-selling' financial products, most recently PPI, will continue indefinitely unless something very radical is done.

Banks regularly are affected by spectacular fraud conducted by insiders. The most celebrated case recently is that of Kwame Adoboli who managed to lose $2.3 bln for UBS by breaking the rules, but he's merely the latest in a long line. What is noticeable is that no matter how many compliance officers and complicated systems these banks use, the frauds continue to be conducted, and that whenever fraud is exposed it has caused a big loss for the bank. Somehow it seems likely that frauds that net employers big profits do not go to court.

The pressure on all parties to make money is the cause of this fraud, but somehow when designing remuneration schemes, this never seems to be taken into account. Senior executives, rewarded by when share prices go up, have a huge incentive to gear up, start buy-back schemes, issue special dividends. The result is that the system is gained: they win, but the shareholder loses. Nobody has both the power to change the rules of the game and the chance of gaining from the use of better rules. Maybe this is where the government can get involved, although it seems hard to see how this could withstand the opposition that this would generate from those who benefit from the current system.

The End of the High Street

By Steve Hemingway on February 3, 2012 11:08 AM | No Comments | No TrackBacks

The UK retail sector accounts for about 10% of all jobs. It accounts for about 8% of GDP, at least double the size of the agricultural sector and only just behind manufacturing in terms of its importance.

But it is in severe trouble. In Stockport one in four shops is empty. Shops in shopping centres carefully designed by town planners with their superior ability to know the future. In the country as a whole, one in seven shops is empty, and a large number of the rest are occupied by extremely marginal traders, like charity shops, which depend on special tax breaks to keep open.

If you are reading this you probably haven't been to a shop, at least a physical one, in weeks. You wonder what on earth those 3 million shop assistants are doing. I certainly do. Certainly whenever I hear of another plan to 'regenerate' a town centre by p

Image via Wikipedia

utting more retail capacity in it, I think that the developer and the councillors will have long gone before ordinary people finish paying the cost of this malinvestment.

Retailing is an industry in retreat. Regeneration of town centres would be much better achieved by converting some or all of the retail premises to living accommodation. Of course extremely low interest rates may disguise the true extent of the disaster that is retailing, but the time will come when these return to normal (unless the Bank of England fails to wean itself off the low rate drug that it is on).

So the key takeaway from these facts: short the retailers and commercial REITs.

Related Links

One in Seven Shops Empty

BIS Retail Sector Stats

Facebook

By Steve Hemingway on February 1, 2012 3:09 PM | No Comments | No TrackBacks

A: What's all this about the Facebook IPO then?

B: It's being floated, going to jump to being one of the most valuable companies on the US stockmarket overnight.

A: Does this mean that Mark Zuckerberg is going to sell all his shares and lose control then?

B: No, he's set up two classes of share capital to keep control.

A: Doesn't that mean that everyone will end up as a minority shareholder vulnerable to being oppressed by Mr Z and his cronies?

B: Oh, no, a charismatic guy like Mark would never do a thing like that. Look at stock markets in Asia. Minority shareholders are always treated with scrupulous fairness.

A: So, how come it's so expensive. Don't social media sites tend to come and go like flared trousers and padded shoulders? After all, it's not as though we've never had them before: remember MySpace, Bebo, Orkut, QQ, Faceparty, Friends Reunited. And LinkedIn, don't forget LinkedIn, the kind of 'Facebook for grownups'.

B: Oh, but FB is different. It's run by, err, hackers, and it's really difficult for competitors to break into this market because well, uh, it would take a long time for people to move their stuff from FB to anywhere else now.

A: I thought that Google was muscling in on FB's territory, with Circles and stuff,

B: Oh, Google can't really compete with FB. They, err, don't have the money, or the personal data of users, or competent programmers, or global reach, or lots of servers, or access to your email, or, ... oh well, maybe FB will share some of the revenue stream with Google,

A: So, for FB to be worth so many squillions, they must be making a ton of money right now. How do they do that exactly? I guess they have all sorts of clever tariffs and charges that heavy users hardly know they are paying for access to the site, right?

B: Err, they make their money from their display ads, you know those ads that tell you how to lose weight, or wrinkles on the right hand side of the page.

A: What?? Display ads? Like Yahoo was focussed on back in 1993? I thought the idea was that with all the stuff FB knows about their users they can deliver laser-targetted advertising to them so that the ads will cease to be irritating and all be fascinating, alerting users to just what they want to buy now.

B: Err, maybe ......

Bankers Pay Will Cease to Be Excessive

By Steve Hemingway on January 30, 2012 10:02 AM | No Comments | No TrackBacks

If something cannot go on forever it will stop. This quote, attributed to Herb Stein seems to be a tautology or more accurately a statement of the bleedin' obvious, and it's hard to see it as a statement containing much wisdom. But somehow people frequently fail to act on this obvious truth.

It's possible to understand why some processes should get going, but sometimes it's hard to see exactly the agent which will stop them, or the time when this will happen. Certainly in the field of prediction, it's always a mistake to predict the event and its timing together and in a readily testable way.

Lots of things seem as though they have been going on for a long time and will never stop. Libertarians like me look at the inexorable rise of the size of the state. Others look at the 'top 1%'. In another fields entirely, there is a huge concern about the increase of CO₂in the atmosphere.

The issue of executive pay is particularly live right now. Fred Goodwin is still in the news, three years after he was sacked. Roger Beale has a cartoon in today's FT of a banker, sitting in the back of his limo complaining "This really has gone too far. The next thing you know they'll be expecting me to work for just my salary." When the FT thinks that this sort of comment on bonuses will go down well with its readers one wonders who is left to defend the bankers - apart from Angela Knight and Digby Jones.

The increased income going to CEO's reflects their increasing power. This in turn is a result of less and less direct holding of equities by individual investors and the increased principal agent problem. It also of course reflects the increased effectiveness of lobbying by big business, and especially the financial secto

Image via Wikipedia

r, to deflect any tendency of governments to compensate for the failure of shareholder democracy.

Ultimately however lobbying will fail. There is a limit to the extent to which campaign contributions can nullify voter anger. Mitt Romney had to spend $16,000,000 just to persuade members of his own party in Florida to choose him as a candidate for the presidential election in preference to a deeply, deeply unattractive alternative in the form of Newt Gingrich. This process will surely ultimately discourage the likes of Romney, as is has John Corzine, Fiorina and Meg Whitman from defending the indefensible to the public.

The fact is that there really is a lot of money that can be extracted from the rich. The top one percent control 21% of the total UK wealth, according to the impeccable source. This equates to about £420 billion according to my calculations. Although it's not as though this could be liquidated overnight, and even if it could be and could be seized to redeem gilts, it does amount to about 40% of the official deficit, which would go a long way to improving our lot.

Of course if all that wealth were in the form of gilts, we'd be back to square one, but I'm pretty sure that's not the case.

Anyway, I'm not predicting anything, and certainly not when it will happen, but it seems to me inevitable that in due course we'll see a lessening of income and wealth inequality in the UK (and US). Inequality of income is a reflection of inequality of power. Although bankers and CEOs think they have the whip hand, they actually do not and eventually politicians will respond to voters, 99% of whom are not in the top 1% (and never will be, no matter how much redistribution goes on, but that's another story).