Not Magic Boxes

Clarke's Third Law, it's called.

Any sufficiently advanced technology is indistinguishable from magic.

It would be far from the most original idea to submit that technology is pretty advanced these days. I have here in my pocket a smartphone (three years old - practically ancient) with a touchscreen of the sort that would have astonished 1993 me. It looks like it came out of Star Trek, for Christ's sake. You can even talk to it and it answers back!

But on Star Trek the ship computer can answer complex questions that require all sorts of interpretation, guesswork and knowledge. It displays a true intelligence. All Siri can do is the same old fuzzy database matching that wouldn't have impressed 1993 me a bit. It's quite cleverly done, but it's a trick. Same as everything else. Our entire IT infrastructure has has been painstakingly constructed, piece by piece, in expensive research efforts. Not useless, by any means, but certainly not magic.

But to politicians it's all the same. They really do see a magic box which does stuff, and us - programmers and IT professionals and other such people - as wizards. They're especially concerned that we seem to be indoctrinating their children into our world without them really understanding it. All they've done is make perfectly reasonable requests like for the magic boxes for displaying information from anywhere in the world be restricted to certain types of information. If we were in a fantasy world that might sense. The magicians have cast their spells to enchant the boxes! Surely they can tweak the spells a bit, so the magic boxes have parental consent controls.

But it's hard. Filters can work two ways. Automatically, or a blacklist. Automatically is rubbish. To get them working properly you need full AI, which ranks alongside nuclear fusion in technologies that we shouldn't rely on ever existing. Blacklists are also rubbish. And, anyway, neither work for an Internet where you can encrypt information just as trivially as registering a new website.

To Cameron we're a bunch of stubborn people who could perfectly well do what he wanted. He thinks the "no", or the "we're doing the best we can" from Google and the ISPs is a negotiating position, rather than a technical reality. He has, after all, never had a job where's he's had to deal with physics and resource constraints rather than just manipulating people. He initially tried sweet-talking the internet industry, but they've not changed their line. So he's resorting to the threat of the law, because that's the next step if you're trying to get your way and you're the government.

Except, he's not alone. The Internet porn nonsense has triggered this particular rant, but we've seen more or less the same problem with copyright (they've blocked Pirate Pay how many times now?), and more recently with libel (hello Lord MacAlpine) and breach of various court orders (Trafigura, Baby P, Jon Venables). And it's not the first time a government has misunderstood the Internet but felt it ought to write a law altering the way it worked (cookies, anyone? oh, and the snooper's charter.) And this is only going to get worse. We saw a few months ago the shocked reaction to a 3D printed gun. Yes, it's not exactly viable as a murder weapon today. But ten, twenty years down the line, what then? It will be as impossible to make a 3D printer suitable for general use yet incapable of making a lethal weapon, as it is to make a phone cable unable to transmit pornography. New Scientist ran a piece about using 3D printers to synthesize drugs, where the research team naïvely thought they could make sure nobody could hack the machines to print bad drugs.

All our laws around publishing and information are stuck in a pre-Internet age, and are fundamentally incompatible with a world where you can't stop the signal. In some areas - because of their manifest absurdity - they have lost popular consent and are effectively unenforceable. Where they have been altered they have had to resort to increasingly draconian measures in the hope of having any sort of effect. An entire sector of law has become obsolete in a generation, due to massive technology shifts. We need to have a serious discussion about what to do about that. And, if kiddies really were being scarred for life by porn (hah), we'd need to come up with an appropriate reaction to that: a mass public information campaign to parents about the services and software and hardware that is already available to restrict their children's use of the Internet might be a good place to start.

David Cameron is not capable of participating in that discussion. Very few politicians are. It's not just that he's not an expert in the subject matter, but that he lacks the humility to take advice from experts (see: Khat). Only a handful of what Charles Stross calls the "ruling party" have ever lived in the real world, where you can't stop a tide by parking your throne on the beach. Computers are not magic boxes, and we can't be heading further into the 21st century with our policymakers acting like they are.

NHS, the internal market and dirty tricks

There was an article yesterday about NHS procurement. Purchasing is not exciting, which is a shame, because getting it right is massively important. When we do hear about it in the news it's often tabloid-manufactured outrage that some kind of custom object needed for some reason is more expensive than a mass-market one.

But this case, this is genuinely shocking. Not simply because of the numbers (although half a billion a year is nothing to be sniffed at), but because of this quote:

Joe Stringer, from Ernst & Young, said the discrepancies were "staggering", and he warned that the problem was getting worse. Trusts, he said, were reluctant to share information for fear of helping their competitors.

I posted a brief note on twitter about this yesterday, and it got retweeted a lot. Some people replied, blaming the Tories. They've missed the point. The internal market in the NHS was already there. There are hundreds of little NHS purchasing departments making small orders and unable to use mass buying power to get good rates, even if they had been sharing information.

And they have a disincentive to share best practice, because of the NHS internal market. Trusts aren't being compared to some platonic ideal of efficient, they're simply trying to be as efficient as they can be compared to their rivals. That means not giving away their lead, if they've got one, say by having the best purchasing people. This is fine when you are selling potatoes or shirts, but when we're talking about providing medical care from state funds, it's another matter entirely.

If trusts already are reluctant to share information, to the general detriment to the health service as a whole (and it's not me or some leftist bloggers that's saying that, it's Ernst and Young), why should it stop there? This is already an ethical violation, but since it has taken the form of lack of action rather than action, it gets a bit of a pass. But the lines between not acting when you should and acting when you shouldn't can be rather blurred. Inaction is not neutrality. The internal market creates perverse and direct financial incentives for unethical actions. I fear it is only a matter of time before we see the first NHS dirty tricks scandal.

You may have been watching the Olympic closing ceremony last night, or not. I gave up halfway through and went to look at meteors. Something caught my eye during it - the medals awarded to the Men's Marathon.

Turns out it's tradition to award a set of medals during the Olympic closing ceremony. The IOC say:

After the athletes' parade, a medals ceremony is held. The IOC, with the help of the OCOG, decides which event will have its medals ceremony during the Closing Ceremony (it is generally the marathon for the Summer Games).

In London in 2012 it was the Men's Marathon. In Beijing in 2008 it was the Men's Marathon. In Athens in 2004 it was the Men's Marathon. In Sydney in 2000 it was the Men's Marathon. In Atlanta in 1996 it was the Men's Marathon. I could continue.

let's sell honours

There are an increasingly large number of people with huge piles of money. In trickle-down land, this is supposed to result in them spending this money and distributing it to everyone. In fact they appear to be hoarding the money, and making only safe investments (look at bond yields!). We are told that placing arbitrary taxes on them will discourage them from having made that much money in the first place. Well, whatever, let's go with that.

There's a practical limit on how much they can spend on their lifestyle, so there's a great demand for status symbols. We can see this in the art market.

The people benefiting from this art bubble are mostly the slightly-less-rich who bought stuff when it was cheaper. How can we get in on this action? Well, taxing it is difficult when the art market is global. Selling off the contents of the National Gallery is probably a non-starter, and in any case we can only do it once - it won't provide an ongoing source of income.

Anyhow, art isn't the thing, it's just a good demonstration of the willingness of high net-worth individuals to pay silly amounts of money for status symbols. See also: football clubs and newspapers. Perhaps we should create a status symbol of our own to sell to them. Something that can be made by the state for zero cost, and can't be replicated by any other actor. And something that doesn't represent an actual difference in material conditions.

I have just the idea - peerages! Once the House of Lords reform goes through, the peerage will be disconnected from the legislature entirely. What better way to get the nouveau riche to voluntarily pony up some money for society than to sell them prestigious titles? We already know people are willing to pay for honours - there might even be more people interested if it weren't so shady.

The system I propose is quite simple. Every year, set a blind auction, with a number of life baronies available for sale, along with one viscountcy. We'll see how much money we can raise. We run the risk of peerage inflation, so we'll keep earldoms, marquessates and dukedoms in reserve. I have absolutely no idea how much money we'll raise - the market will decide that, but in the worst case where it doesn't cover its administrative costs, we can just discontinue it after a couple of years.

Why not? I mean, what's in danger - the dignity of the honours system?

housing benefit and the argument for social housing

You may have heard, there's a recession on. They're expensive things. Tax receipts drop and people start claiming benefits. The number of households claiming housing benefit in Great Britain increased from 4.2 million in November 2008 to 5.0 million in March 2012. The total housing benefit bill has increased from £16 billion/year to £27 billion/year. I can't find a figure for exactly how many people that represents, but it's certainly at least 7 million.

How has this happened? The statistics show that 98% of the rise has been from under-65s. The rise was split about equally between the employed and the unemployed, although the employed and pensioners still make up a majority of clients.

There has been a modest increase of claimants in social housing, but the number in private accommodation increased by 60%, from 1 million to 1.6 million. During this period the average award in the private rented sector went from £100.35 a week to a peak of £111.76 and then declined to £107.24. The total amount being spent in this sector went from £495 million per month to an all-time high of £762 million.

In other words: since November 2008, because of the recession an additional £7,000 million has been given to private sector landlords by the government.

Who are these private sector landlords? Well, we know that the amount of private rented accommodation went up in England from 2.1 million in 1997 to 4 million in 2010. There are 1.4 million outstanding buy-to-let mortgages in the UK, which accounts for most of that.

So, it looks like a large number of people are living in buy-to-let properties, and paying enough to cover their landlord's mortgage payments (unless the landlord is unwisely depending upon capital appreciation to make up the difference). In the olden days, Housing Benefit could make mortgage payments, but only on interest - this has appears to have been replaced with a Support for Mortgage Interest payment. Neither of these things would repay the capital for a very good reason - it wouldn't be a very good use of taxpayer's money to pay off someone's mortgage.

I am not entirely clear on why it is a good use of taxpayer's money to pay off someone's mortgage if they are a buy-to-let investor. Furthermore, it appears that lots of buy-to-let investors dodge tax, possibly because they were unaware that only the interest part of their repayments can be set against the rental income. Regardless of whether or not this was intentional, some buy-to-let investors would only have done so because their sums were wrong, and they could not actually legally run at a profit (I've asked HMRC for their estimate of tax evasion from this, it'll be interesting to find out). Tax evasion-led buy-to-let investment probably inflated the housing bubble somewhat, even!

So, there is a problem. Housing benefit is going directly into the pockets of people who were already rich enough to have invested in extra housing during the housing bubble (and also, let's not forget, people who won the right-to-buy lottery), who are possibly also tax scammers. Housing benefit claimants are, let's admit, not going to be massively price sensitive as long as they are within the allowed limit (I mean, why should they be?), so what incentive is there for private landlords to reduce the amount they are charging?

To their credit, the Tories have diagnosed some of this problem, but they then attack it from the wrong end. The state is paying for approximately 1/3 of private rented accommodation. It should have immense negotiating power in the housing market, but it cannot exercise this because this is split between millions of negotiating agents acting independently, and who are being played off against each other by those landlords willing to accept DSS tenants... So, we have their solution to this which is: caps on what people can claim. Which will fairly inhumanely move people out of a few hotspots, perhaps saving the odd million or ten, but it will do nothing to address the underlying problem.

So, how can the state actually properly exercise its massive buying power? One way might be to impose rent caps from the other side. I somehow don't see a Conservative government doing that. Funny thing is though, it used to be part of the political discourse (along with price controls and a 95% marginal rate of income tax!), having only really been abolished by Thatcher. So, are there any approaches that simply involve the government as an actor rather than using its legislative power to bypass the free market? Well, it could block-rent an awful lot of private property, getting a better deal on rent than the individuals could manage on their own, and then sub-let to people eligible to claim housing benefit.

Hang on, this is getting awfully reminiscent of something, isn't it? So: it could get in the game itself. This is why social housing was such a good idea in the first place. The rent covers its operating costs, but the the average social housing award is £30/week less than a private one. That saving over fifty years will easily cover building costs, and then the state will have the asset, not the random third party.

But perhaps we don't need to do a massive building programme just yet. Another factor is that there are over a half a million empty houses in England alone, although it's not entirely clear whether they are in the right places or of the right sort - certainly many of them will be part of the flat glut. If these were all forced onto the private rented market somehow, then that would result in a 20% increase in the availability of homes, which would have to reduce market rates a lot. Bringing them back doesn't need to involve expensive administrative effort from councils, but could be done through the taxation system. Just keep raising the council tax on vacant properties until the total number decreases to an acceptable level. Simples. Or this could be addressed through the planning system. I mean, they have planning permission as dwellings, after all, not as home-shaped art installations. Surely leaving something empty for a long time is a change of use?

tl;dr Housing benefit increases are the result of the inequitable distribution of capital.

LIBOR and the bailout

In my previous post I asked some obvious questions about the LIBOR scandal, which are beginning to be picked up on. From going through the news archives for October 2008, I've now got some answers. So, here's a narrative :-

In September 2008, things had got quite bad already, with banks being unwilling to lend to each other - which is to say LIBOR was too high. We now know that this figure was an underestimate, disguising the magnitude of unhealthiness.

The UK government announced a massive rescue plan on Wednesday October 8, 2008, including central banking interest rate cuts from the Bank of England, the ECB and the Fed. The main aim of this co-ordinated measure was to reduce LIBOR.

It did not immediately work. By the end of the week it instead went up. Of course, they had been lying about it before, and they were lying about it now. Maybe the true rate had decreased, it's just that they had to lie less about it.

It not having lowered spooked the central banks, so the next Monday they (this time the BoE, the ECB and the Swiss National Bank), announced unlimited emergency loans. The same day the government agreed to pump capital into RBS, Lloyds and HBOS. This second intervention did have the effect of making the rates drop. Meanwhile, Barclays was able to decline government money and get new money from Qatar. This was seen as the end of the immediate crisis.

We of course know now that this key element - LIBOR - that policymakers were so worried about, and was sold to us as the justification for these massive bailouts, was rotten to the core because the bankers had been lying to each other and to us. Make no mistake: this was not using a back-channel to manipulate arbitrage to get slightly better margins in risky deals. This was the deliberate manipulation of state policy by massive lying, for financial gain.

We're never going to know what would have happened otherwise. Two things are certain: The problems in the financial industry would have been fully revealed, and therefore central banks' actions would have been different. Would the central banks have made Wednesday's offer bigger? Would they have gone straight to Monday's offer? Would they have just said "actually, no, you're not too big to fail", and made good on those deposit guarantees? Would Barclays' new investors have done so if Barclays had not been lying about LIBOR?

A banking sector that had completely failed and was mostly in state hands would have been a very different thing to what we got. Perhaps the idea of publicly-traded retail banks would be utterly discredited and we'd be talking of mutualising the entire sector by now? They just narrowly avoided an utter rout, and this is how - by scamming us.

Railways: a history and a future

Nationalisation is not a word you hear very often these days, but it might just get in to Labour's 2015 manifesto, at least with regards to the railways. (actual report is here) How did the system end up in this state, and is there any hope for the future?

Let's go back in time to the 19th century. Railways were initially built by private companies and run as independent businesses. Even then, though, there was some level of state involvement, as land acquisition was hard, and the railways relied on private Acts of Parliament to compulsorily purchase the land. Without these Private Acts there could have been no long-distance railways. These companies were run as for-profit concerns, but there was a "railway bubble", and lots of money was wasted building routes that could never be economic, or duplicated other routes. People lost their savings.

Step forward half a century, and you have the railway industry just before the first world war, which you'd think of as the peak. However, many railway companies were losing money. After the war the railways were Grouped - which is to say that Parliament amalgamated them into four large companies (the Great Western, the London, Midland and Scottish, the London and North Eastern, and Southern).

By the 1940s, it was clear that that motor vehicles were leading to a paradigm shift in transport. In 1948, the four companies were suffering badly (arguably due to the war), and were nationalised as British Railways, by Clement Atlee's socialist Labour government. The railways continued to lose money into the 1950s. The Modernisation Plan of 1955 made some important changes (such as the withdrawal of steam), but made several miscalls, in particular seeing a future in wagonload freight.

It is in this context that we come to Mr. Beeching, who was tasked by Harold Macmillan's government with cutting the losses in an industry which was by now assumed to be on a permanent decline. He found the lines that were most unprofitable when considered on their own, and closed them. In doing so, the network effect was broken. No more was the railway a way of getting from point-to-point anywhere in the country, and faced with the choice of driving to their nearest railhead and taking the train, or just driving to their destination, many people just chose the latter - especially given the investment in motorways. But eventually, a strange thing happened - this decline levelled out. This was a combination of roads now becoming congested, and initiatives like the InterCity 125, which made long journeys massively faster by rail.

British Rail continued ascendant in the 1980s, with an internal reorganisation ("Sectorisation"), electrification of lines, the introduction of new standardised trains for suburban operation, and an increase in passenger numbers while its subsidy remained level. Government even saw the benefit of urban railways in regeneration, with improvements to Merseyrail, the North London Line, and the creation of the DLR.

And then John Major came. Now, privatisation was fairly fashionable in the 1980s, but Thatcher left the railways well alone. I'm old enough to remember the bitter fighting over the privatisation, and I remember a particular concern being the structure the industry would have.

To replace British Railways - which is ostensibly being privatised because it is a limbering bureaucratic monstrosity - it was instead split into 1 infrastructure owner, 3 rolling stock companies (ROSCOs), and 25 train operating companies (TOCs), along with various other players, all of whom had complex contractual arrangements with each other, which had to be synthesised out of thin air rather than evolving out of best practice or informed negotiation. The reason for there being so many train companies is "competition". Now, it's easy to mock this and many have, as most journeys are monopolies - but they are not supposed to be competing with each other for passengers. They are supposed to be competing against each other for franchises. Every few years, they bid for control over a set of routes, and the DfT picks the option that conforms to a minimum standard of service while producing the best return for the exchequer. This is all very well unless the winning bid was so overoptimistic in their predictions they can't deliver and end up giving the keys back early. This has happened twice on the ECML now, which led to the formation of East Coast (run by the ironically named arms-length Directly Operated Railways).

It was promised that private money would be able to provide new investment, but in fact the ongoing replacement of old stock with shiny new trains was halted for two years. The infrastructure owner, Railtrack, was floated in spring 1996, which raised £1.9 billion pounds. The stock price rose by 300% over the next two years (and though there was an economy recovery and rise in the FTSE 100 during this period, it was nothing comparable), apparently because it starved tracks of needed maintenance money in order to issue large dividends, safe in the knowledge that the government would bail it out.

We know how that one ended: it didn't. But while the infrastructure has been brought under effective state control as Network Rail, the costs still suffer from years of "railway inflation" (or, as Modern Railways puts it, "boiling frog syndrome"), at well in excess of RPI. The government explained this in 2006 as the result of contractors being able to negotiate better prices. Each big project is divided into different contracts, each bit competing against each other to get the contractors. A proper monopsony would have better buying power, and it is for that reason, and others that Network Rail took maintenance in-house. But even after years of paying over the odds, it's difficult politically to force skilled workers within a sector to take a pay cut (especially if they are working overtime and odd hours in order that you can get the work done out of working hours, so that you don't have to pay compensation to other bits of the industry.)

But, we have, for all its faults, a dynamic new railway network today, don't we? So privatisation must have succeeded, in the end? We see modern trains appearing on our railway lines, new railway stations open, sometimes even old lines reopening, smartcard ticketing, the transformation of the old Silverlink suburban network in London. And passenger numbers are booming!

Except that the state has been the source of every single one of these innovations - TOCs only run new services when they are included in their bid, the DfT has to underwrite the trains because the rolling stock companies are afraid to, local governments have paid for the station reopenings and new lines, and Oyster and the London Overground were driven by TfL and Ken Livingstone. Passengers are only using the railways in greater numbers because the alternatives are also awful. Schemes to improve public transport are sometimes avoided because they would be too popular - witness the lack of a Central line station at Shoreditch High Street. TOCs who are the main companies that interact with passengers and therefore would be the people who can see the potential for the future, were all massively undercapitalised - all the assets are owned by Network Rail or the rolling stock owning companies, who were quite happy sweating the assets rather than borrowing to produce future returns.

You might be able to fix that by twiddling around with the structure, but an attempt to integrate TOCs and the infrastructure would have to deal with the problem of "joint running" - where two TOCs share lines. Longer franchises have been mooted, but even 20 years isn't close to the length of a new train's expected lifetime.

So, given that the Overground is working, then why not expand that model? It's certainly a massively popular vote-winner in London, which is why even Boris Johnson wants to put as much of the London suburban network under TfL supervision as is practicable, and there's not even a doubt that Crossrail will be run like the Overground.

If we accept that some level of subsidy for the railways is an essential part of making this country work (as we do without question for the roads) then the question is how this money is best spent. Savings can be made by reducing the industry's internal bureaucracy (there are how many CEOs and directors all earning six-figure salaries?). Use the industry's true buying power by ordering large numbers of standard trains, which then can be deployed flexibly in accordance with changing demand rather than being tied to one TOC's pitch. Finish with this stop-start flow of orders, which adds to Derby's costs, and instead try to keep its order book full. And we can try to save money on the operational side of things by rolling out driver-only-operation everywhere (I'm sorry, but if it's safe on the tube, it's safe anywhere), while making guarantees that guards will still have jobs elsewhere in the railway.

With this money, let's displace journeys that would otherwise take place on the roads. This certainly involves lengthening trains and platforms, and perhaps reopening stations and lines to provide a more coherent railway network, and introducing suburban services where they have been withdrawn. Maybe that involves electrifying lines before we are forced to rush-electrify the entire network by peak oil 30 years from now. And perhaps we pick our battles, abandon the attempt to compete with air travel, and not build HS2, instead spending the sum on smaller projects with a greater collective impact.