The bread or the lily is BACK and has been resurrected at thebreadoralily.tumblr.com. Come along!

Stephanie Flanders in the house

Stephanie Flanders, BBC economics editor

Just back, sopping wet, from the Nuffield media seminar. Who was in town today? Stephanie Flanders (personally, very exciting)! Her speech on lessons she had learnt as a journalist from the financial crisis was fascinating, and I hope to write about it when my exams are over... Oh... is that another economics editor walking through the door?! (They seemed to get on very well.)

And... Martin Wolf, economics editor of the Financial Times

The Truth About Your Dentist

Following the interest in a post I wrote earlier this year - "The economics of my moldy molar", I just wanted to let you know about a new Dispatches documentary entitled "The Truth About Your Dentist". 

Unlike my dentist who just didn't offer me the more expensive treatment, their undercover investigation provides evidence of dentists telling patients they can only have more expensive treatments, like root canal therapy, at private rates. 

It seems that the current state funding is deficient, so that dentists quickly run out of money to pay for all of the demanded NHS treatment. If this is the case, then a dentist should inform you before examination, so that you can find a surgery that does have the funding to treat you. 

This program is particularly good at informing you of your rights as an NHS patient.  

Measuring Well-being?

The negative economic impacts of the recent crisis are well known. In the US, for example, unemployment rose from 5% to 10%, a quarter of households lost more than half of their assets between 2007 and 2009, the stock market collapsed, and wages fell.

But what about happiness and well-being? 


A large new data set promises to make it possible to investigate. Since January 2008, Gallup Poll has surveyed 1,000 Americans a day, and the questions cover emotional health and life evaluation. You can have fun here looking at how states vary by how stressed/happy they are!


Using this data, Angus Deaton (Princeton University) is studying how the crisis affected reported measures of well-being, and he presented his findings earlier this week at St Catherine's College, Oxford (unfortunately I don't have the slides). He showed us that, as you would expect, the subjective well-being measures significantly and substantially suffered when Lehman Brothers collapsed and during the US election, and rose at the time of Obama's inauguration. 


The introduction of well-being questions into the Gallup Poll is part of a broader concern that traditional measures of economic health, like Gross Domestic Product, are not relevant to assess well-being, and other factors like the environment too. The recent commission on 'the measurement of economic performance and social progress', set up by Monsieur Sarkozy, brought these ideas to the world stage, and in the UK the Office of National Statistics is introducing well-being questions into household surveys.

There are problems, however, trying to measure happiness and well-being directly, and Deaton faced some of these in his analysis. One issue is that 'hedonic' measures (concerning happiness, stress and worry for example) quickly revert after a negative impact. Our ability to adapt is a great coping mechanism, but it puts into question how informative these measures are of event and policy impacts on welfare. 

The survey design also proved very important. It's not just the way questions are asked, but the order in which they are asked, that affects people's answers. Deaton found one particular inexplicable date on which there was a large jump up in reported well-being. It turned out that from that day questions on well-being were not asked straight after the questions concerning politics (another issue Gallup Poll is interested in). This shows just how sensitive these measures are to irrelevant factors. (And that politics makes us unhappy!)

Deaton ended by showing that the stock market turns out to be one of the best indicators of subjective well-being, which is intriguing and perhaps worrying given that the these measures are trying to measure happiness directly, as distinct from economic measures. 

The most important economic story of our time?

You may have heard of the BRICS, and the acronym may even have passed your lips, but do you really know what it means?

Brazil, Russia, India, China, and South Africa are the biggest and fastest growing emerging markets in the world, and China is set to outpace the US at some point between 2018-2040 (depending on which estimate you use).

On Friday evening at the Nuffield College Media and Politics seminar, Hamish McRae (associate editor of the Independent and prize winning financial journalist) declared that this shift of power to the emerging world is the most important economic story of our time.

Economics is all-pervasive and the effects can already be seen here in the UK. For example, India is now the second largest foreign investor in the UK (just behind the US), and the largest manufacturing firm in the UK is Indian firm Tata, who recently rescued Jaguar Land Rover. Injections of investment by India, who is not suffering from a recession, are very helpful for UK recovery now, but we might end up suffering from the impacts of these rising powers if we don't adapt to the changes. 


It is easy to have a narrow domestic view when our own economy is suffering and tough policies are being implemented. If we don't take a global and longer term perspective, however, we risk jeopardising future prosperity. To make sure the UK (similarly for other Western countries) can adapt to the changing economic landscape, investments need to be made now to encourage innovation and productivity in sectors the UK has a competitive advantage in, like science, education and culture (this is something I have written about before). Exporting these to the growing pool of consumers could really boost our economy. On the other hand, if our changing position in the global economy is neglected, then other countries will take up these opportunities and we will lag behind (this means lower foreign investment, fewer exports, more unemployment...)


The repercussions aren't just economic; economic power often proceeds political power. It is likely that we will see a change in the composition of our global institutions. Already the G7 has become the G20. When is India going to get a seat on the Security Council? Should the UK remain on it? Further, just as American culture spread throughout the world, could the BRICS bring cultural and societal change to us with their uprising?

I was particularly interested in Hamish McRae's emphasis of another aspect of the phenomenon. He stressed that with humble and open minds we need to look out and enquire why these countries are doing so well. Perhaps there are lessons to be learnt from these rising powers?! For example, Hong Kong's health system which provides better health outcomes than the UK might be of interest to the minister of health, Andrew Lansley. China and India certainly understand that the West might not have all the answers. Mervyn King, I am told, was recently talking at lunch about how Chinese and Indian officials no longer ask for his help to design banking regulation! I wonder if he has looked into their banking models.

The Future of Banking: a roundtable discussion

Future of Banking from Bob Denham on Vimeo.

My friend Bob Denham did some recording at The Future of Banking roundtable I organised in March, and has made this short film. It includes interviews with Professor David Vines and Ben Dyson. Unfortunately, he was restricted in what he could film and who he could interview by the Chatham House rule, but you can get a taste of what happened if you couldn't make it, or if you want to remember the event...

The Alternative Vote #6: The Don't Know Campaign Decides

Tomorrow, we have the rare chance to vote in a referendum that will determine whether the current First-Past-the-Post (FPtP) voting system will be replaced with the Alternative Vote (AV). After researching the valid arguments for and against (and weeding out the irrelevant and false), I have decided to vote YES! 

The arguments posted in this series have judged AV along two lines: 1) the impact it will have on government and policy, and 2) the impact it will have on the voting system.  

Charles Roddie's account of why you might vote NO begins from the starting point that a good voting system is one that leads to the government you most desire. He identifies the changes that AV would bring as i) more seats for Labour and the Liberal Democrats, and ii) an increase in the likelihood of hung parliaments. The first issue is subjective and if, like Charles Roddie, you are strongly opposed to 'left' leaning policies, then you might want to vote NO. A note of caution when judging AV on policy outcomes though: as Charles Roddie says, there will be unknown indirect effects (Will new parties form? Will incumbent parties change their tactics?) and there is little cross-sectional or time series evidence from which to predict how the British political landscape might change. The second issue is important because it questions the ability of AV to produce stable government. Whilst coalition power play is unwelcome if it distracts politicians, AV is a tried and tested voting system that has shown to produce tolerably stable governments. 

The issues Alisdair Cairns and Andrew Mell raise in their posts help to explain why AV is superior to FPtP when judged along the second line - how well it translates votes into political seats. 

If you are not used to mathematics, then Alisdair Cairns' post is quite technical but helpful to really understand how the winner under the two systems might differ. I think you can summarise the results as saying that AV is slightly better than FPtP at selecting popular winners (satisfies the majority criterion and clone independence) and discarding popular losers (AV doesn't let a condorcet loser pass).

AV does fall down in terms of 'consistency' compared to FPtP (AV doesn't satisfy monotonicity, participation or convexity). This means that, in theory, perverse results could arise. For example, non-monotonicity says that your favourite candidate might be more likely to win if you rank them lower. Non-participation implies that there are cases in which not turning out might improve the chances of your favourite candidate. In defense of AV, I would say that non-participation represents a special circumstance rather than the norm, and that in order to manipulate non-monotonicity one would need to know who all others were voting for, which is infeasible.  

Moving on from theory, how will AV change how votes are collected in practice?

Over the last 50 years there has been a significant drop in the share of the British electorate voting for the two main parites. Whereas in the 1950's over 90% of voters favoured Labour/Conservative, at the last election it was 67%. Nonetheless, FPtP continues to disproportionately represent the two main parties in parliament because of the plurality rule. Under the current system it is possible for parties with less than 40% of the vote to get most of the seats in the Houses of Parliament, which is a gross failure of representation. Can this be a legitimate voting system?!

Andrew Mell also reports that, currently: Most MPs win without a majority of votes, a significant number of voters vote strategically, and turnout has fallen below 60%. 

AV would be a step towards bringing our voting system up to date with the will of the voters. AV requires that a candidate achieves at least 50% of votes to win, which means that it is more representative. The ranking of preferences under AV also means that you can put your favourite candidate first without fear of your least favourite winning. (In case you need a reminder of how FPtP and AV work, see my post on how the proposed system works.)

The super majority rule under AV also means that winning candidates will have to work harder than they do under FPtP. Since Andrew Mell's post went up, the new economics foundation has estimated that AV will increase the marginality of 44 safe seats. MPs in these constituencies will no longer get away with complacency and they will have to increase their effort.

That preferences are better reflected in results under AV, and that there will be heightened pressure on representatives to respond to the concerns of constituents, will help increase the incentive to vote.  

Charles Roddie's post highlights the fact that we should be suspect of what politicians (and others with high stakes in a particular party) say about AV, as it is in their self interest to promote a system that increases their likelihood of their re-election. Indeed, the Liberal Democrats asked for the referendum, and I understand that 99% of the NO campaign funding came from Conservatives! Rather than being honest about their interests in the voting system, politicians have been outright lying about how AV works.  Andrew Mell raises the issue of the trumped up claims from the NO campaign that AV will be expensive (for more on this see post #1 too). There have also been misleading descriptions suggesting that AV counts some people's votes more than once. In fact, each voter's ballot is considered in each round (as long as they want it to and indicated a ranking). If your preferred candidate is winning, then you are fortunate that your lower preferences need not be considered. 

I think AV is a small but worthwhile change to improve the effectiveness and legitimacy of our democracy.

Have you made up your mind? x