Trade and the Zero-Sum Fallacy

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Economics is Fun Series – Part 4 – Trade

Another great video from the Adam Smith Institute. This week Madsen Pirie looks at trade and also dispatches the zero-sum fallacy (the “big cake” argument which says that trade must leave someone worse off). He also recommends a way to make poorer nations richer – “buy their stuff”! Watch and learn.

Want more? Watch the previous episode on specialisation.

Massive drop in deaths from natural disasters

Natural Disaster Summary Chart 1900 – 2011

deaths from natural disasters

Here’s a really interesting bit of data via @HansRosling about the amazing decline in deaths resulting from natural disasters. Even though the number of disasters reported and the number of people affected has climbed substantially (no surprise given the better telecommunications and technology we have access to these days, and the global growth in population), the number of deaths from natural disasters has dropped by around 90% since 1920. As Matt Ridley has argued in The Rational Optimist, this may be explained as much by preparedness and relative wealth of the affected region than anything else: in 2007 category five hurricane Dean hit the well prepared (and relatively wealthy) Yucatán Peninsula and killed around 45 people; a year later the category four cyclone Nargis hit the poorly prepared and impoverished Burma killing around 138,000 people.

Source – http://www.emdat.be/natural-disasters-trends

Steven Pinker on why life is no longer nasty, brutish and short

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The Peace Dividend

A great Ted Talk here by Steven Pinker on the ongoing decline in violence. Not only does he present the hard data to show that the decline of violence is a fact, but he also gives several plausible explanations as to why the decline is happening.

Two points in particular that stand out for me. First, as technology and economic efficiency make life longer and more pleasant, we are clearly putting a higher value on life in general. Second, Peter Singer’s thesis that our “circle of empathy” has evolved well beyond encompassing only family and friends (in part because technology is making it ever easier to “trade places” with other people’s feelings and emotions). Powerful stuff and well worth your time. Hat tip to Oliver Sycamore for this one.

Less sizzle, more steak: how to get a president elected

Audacity to Win - David Plouffe
I remember when I was first passed a copy of The Audacity to Win by a good friend. He was in a state of nervous excitement when he handed it over. “You have to read this,” he said. “It’s amazing.”

I turned the hardback over in my hands. It was heavy and had a truly boring picture on the front of two suited guys hanging out in a locker room. It took me a second or two to realise one of them was Obama. The author’s name was weird too: David Plouffe. What kind of name is that? It didn’t look particularly promising. Sensing my apprehension, my friend ploughed on. “He’s the guy who took Obama from obscurity to presidency in less than two years. It’s a must read, believe me.”

My friend wasn’t wrong. I started it somewhat reluctantly at the weekend, but found myself turning the last page only three days later – an altogether astounding feat for someone like me; I never read much of anything these days unless it’s attached to an e-mail. And I don’t read much of them, either.

Plouffe (pronounced Pluff, by the way) is an extraordinary character. Part nerd, part hard guy and all-round workaholic, he is a strategy supremo and the mastermind behind the single most amazing election campaign ever run.

As a campaign team, they began life with no money, no equipment, and no access to any kind of talent whatsoever. Plouffe compared them at this time to a small start up company with only to an idea and a couple of laptops to hand. Given that they were also intending to run against the force of nature that was Hillary “I’m in this to win” Clinton, their chances of success were as close to zero as you can possibly get.

What they did have, however, was a candidate they absolutely believed in: Senator Obama.

That said, beliefs like this are nothing special in the campaign business; every other campaign team feels the same about their candidate (except they have the access to money, connections and the talent to back it up too).

So where to start?

Plouffe started by throwing out the campaign rule book. Instead of running his campaign the way they were always run – that is, by going round raising money from the big sponsors – he started doing research on the people who actually vote for the candidates at the grass roots level, building up the data and then building his campaign strategy up from that. He thought (rightly, as it turned out) that he could try a different tack when it came to raising funds. His evidence showed that, at the grass roots level, people were really keen on the central Obama message of change. They were fed up with the old style of politics and bought Obama’s message that it simply wasn’t fit for purpose any more. Not only that, the evidence showed that they might also be willing to contribute funds to make that change happen.

What follows is a master class in evidence-based strategic thinking.

First, they chose to stick to a really simple message – in this case ‘change’ – and then develop a single strategy around it. The team decided from the outset that they would rather have one strategy and stick to it, even if it failed, than six or seven competing strategies.

Second, if the evidence shows you should be doing one thing, but your instinct tells you to do something else, go with the evidence. The team were showered with abuse from the Clinton camp. They said the Obama campaign strategy was wrong; that they should be looking for the big money, and that they simply couldn’t win. Everything they knew and had learned about running campaigns screamed at them to change tack. But the evidence said otherwise, and so they stayed on course. What worked was one message; one strategy; sticking to one path (not many).

Third, they turned on the technology. The Clinton camp didn’t bother much about any of that – after all, it’s not where their big sponsors were (fair enough); for them, technology was all sizzle and no steak. But Plouffe’s data showed that the grass roots people he was targeting used technology and social media all the time, so his strategy targeted them that way too. Again, it was all about the market evidence underpinning the strategy at every juncture. In fact everything they did was measured against the strategy; if it didn’t fit, it got dumped. Simple.

Fourth, to check the strategy was working, they set clear internal guidelines along the way. This way they could judge performance on objective markers, rather than vague subjective ones. Plouffe argues that this also improved morale in the team because judgements on performance are open and transparent. You want to raise money? Put it in the performance agreement, and assign it a name from the team.

Fifth, he built great teams that were focused, but had fun too. The team motto was ‘Respect, Empower, Include.’ But my favourite ‘Pluffy Rule’ concerning teams was his ‘no assholes’ edict. Even if people had the talent, they weren’t hired if they didn’t fit in with the team; the team came first, not talented individuals. Plouffe’s right on the money when he says that people just perform better when they’re not being shouted at (are you listening Steve Jobs?). Conversely, it’s been widely reported that Clinton’s team was rife with infighting and mud slinging.

In the end, it all came down to the vision, the evidence and the strategy that pinned the two together. As Plouffe said to his team, “We need to be sure we’re doing the right thing, otherwise we’ll spend the remainder of the time twisting in the wind and hating every minute of it, and we’ll lose.”

How did he know they were doing the right thing? Evidence, constant market research and analysis of the results they were getting along the way.

In the end, the evidence-based strategy won, and the old, ‘we’ve-always-done-it-this-way-so-why-change’ strategy lost. Their radical approach to raise campaign funds at the grass roots level, using technology and on the ground ambassadors, paid huge dividends in the long run. Along the way they had to suffer the constant ridicule of rival teams. It says something about their success that, when the dust settled, the Clinton camp came asking Plouffe’s team to help pay off their campaign debts. Seems their old style strategy had simply sizzled out.

So if you want an entertaining lesson in how to build a winning strategy based on evidence, buy the book; it’s well worth it. It’s got a horrible picture on the front, mind.

Audacity to Win, by David Plouffe is available pretty much everywhere, including Amazon.

Apocaholics Anonymous

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As the average age of a country’s population rises, so people get more and more neophobic and gloomy. There is immense vested interest in pessimism, too. No charity ever raised money for its cause by saying things are getting better. No journalist ever got the front page by telling his editor that he wanted to write a story about how disaster was now less likely. Good news is no news, so the media megaphone is at the disposal of any politician, journalist or activist who can plausibly warn of a coming disaster. As a result, pressure groups and their customers in the media go to great lengths to search even the most cheerful of statistics for glimmers of doom […] Apocaholics (the word is Gary Alexander’s – he calls himself a recovering apocaholic) exploit and profit from the natural pessimism of human nature, the innate reactionary in every person. For 200 years pessimists have had all the headlines, even though optimists have far more often been right. Archpessimists are feted, showered with honours and rarely challenged, let alone confronted with their past mistakes.

Matt Ridley, The Rational Optimist

On the grubby pursuit of wealth and glory

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Did Adam Smith answer his own question?

Perhaps no economist will ever again so utterly encompass his age as Adam Smith. Certainly none was ever so serene, so devoid of contumacy, so penetratingly critical without rancour, and so optimistic without being utopian. To be sure, he shared the beliefs of his day; in fact, he helped to forge them. It was an age of humanism and reason; but while both could be perverted for the cruellest and most violent purposes, Smith was never chauvinist, apologist, or compromiser. “For what purpose”, he wrote in The Theory of Moral Sentiments, “is all the toil and bustle of this world? What is the end of avarice and ambition, of the pursuit of wealth, of power, and pre-eminence?” The Wealth of Nations provides his  answer: all that grubby scrabbling for wealth and glory has its ultimate justification in the welfare of the common man.

Robert Heilbroner, The Worldly Philosophers

For those of you interested in reading a little more about Heilbroner, I can suggest the following article on Reason. But the best thing to do is read his supremely influential book The Worldly Philosophers – it’s a truly brilliant historical overview of the subject and doesn’t once reference one of those tedious graphs mapping demand and supply. Highly recommend.

Down with your staccato triangles of change!

SMITH_MARX

Adam Smith (Institute) vs Karl Marx

A really succinct and excellent piece by Madsen Pirie here on what Marx got wrong, particularly about his Hegelian model of change. As Pirie argues, change is more evolutionary than revolutionary, which means Hegel’s rather violent and triangular model of thesis, antithesis and synthesis is not a great means of describing what actually happens. Read Madsen’s piece on the ASI Website.