All entries for January 2008

January 23, 2008

Free to choose.

In 1980 Milton Friedman (the Chicago school economist, famous for his promotion of laissez faire economics and winner of the 1976 Nobel prize) made the popular 10-part documentary ‘free to choose’, here I have linked to a website which shows all the episodes for free.

Each episode is divided into two parts. The first 30 minutes consists of examples of free market success or government failure, which Friedman narrating. This bit tends to be a little simplistic, and quite frankly not that interesting.

That second half however consists of a spontaneous debate between about 6 different people from a broad spectrum (e.g. businessman, academic, trade unionist) as they discuss the pros and cons of the free market. While these debates tend to be incoherent and fragmented, it naturally engages you due to the lack of a script sterilising the situation. One nice quote from one of the debaters is shown below:

“ I don’t care about good intentions, brains, integrity. The fact of the matter is that they [the government] aren’t smart enough to manage the wages and prices of every American. They don’t do it well” (Donald Rumsfeld, 2nd episode).

January 11, 2008

New Hampshire and the Stock market.

The result New-Hampshire election results seems to imply quite a criticism of the efficiency of the stock market. In particular it affirms Keynes’s speculation that they were controlled by ‘animal spirits’.

What is in-trade?
The in-trade website is basically a political betting website. There are bonds that pay out, say, $100 if Clinton wins the 2008 election and $0 if she doesn’t. These bonds are then traded among market players (with there typically being a volume of thousands in each market). Therefore if the market price for this bond is $23 then this implies that the market believes that Clinton will win the 2008 election with a probability of 23%.

Total Predictive Failure:
In the new Hampshire elections McCain won for the republicans and Clinton won for the democrats. But looking at the history of in-trade market prices for the ‘McCain to win New Hampshire’ and ‘Clinton to win New Hampshire’ shows that these totally shocked the market.
A little more then a month ago the market predicted McCain to win the election with a probability little more then zero. While a week ago the market was clueless over whether Clinton or Obama would win (hence giving them both a 50% rating), and then totally misinterpret the Iowa result and thus leading them to place nearly a zero probability on her winning just days before she won.

McCain’s price history:
Clinton’s price history:

January 06, 2008

MP political diversity.

Browsing on the Internet I found a cluster diagram on Public Whip which spatially displays MPs political locations with respect to how they vote, and this is done for the 1997, 2001, and 2005 parliments.

Below is the diagram for the 2005 parliment. A red dot represents a labour MP, blue for conservative, etc. If two MPs always voted the same way then their dots would be on the same point. Thus the greater the distance between the two MPs, the more different they are.

Parliment 2005

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