# Norman Dixon’s On the psychology of military incompetence

In fact, the book’s contents are much friendlier than the title suggests. They involve an unhealthy portion of psychological sudo-science to the extent that some of the key decisions of the Crimean campaign are traced back to mother-son early relationships of the commanding general.

Overall, interesting book, but not too interesting.

# The Empire Might Not Have Died (or at least not then and in that way)

The Empire… by Mikhail Zygar is a zeitgeisty book on the Russian revolution that was meant to hit the market on the said revolution’s centenary. This timing alone is sufficient to get skeptical of the amount of work that goes into such a publication – when the thing seems to sell itself. Another prior concern is authors credential – the author is not a career or academic historian, so how familiar is he with primary sources?

Despite these concerns and partially to test them I’ve decided to go for the book. The fact that this period of the late XIX-early XX century is my favorite helped too. For me this is the period when people invented modern society – but this was when the society and its technology were simpler. Arguably making for a good starting point to understand our circumstances.

What the book turned out to be is a decent review of the autobiographies and personal diaries of the contemporaries. There is a visible skew in favor of the artistical/theatrical/literary crowd and relatively less space is left for those who represent economic policy, external policy or military, but never the less it seems to cover a lot of ground.

Locally one review complains over the rather narrow pitch of the book which is supposedly is only written to argue one relatively conventional point: more liberal access to political power might make the country more stable. I don’t agree with that – and see no evidence that the text can support such a claim. Indeed, this pitch is only openly made in the last and relatively short part of the epilogue. Otherwise, the author remains true to his goal of reviewing the diaries without openly imposing conclusions.

One less pleasant part of the book is the footnotes. Basically, all the footnotes have one and the same meaning: “Look this is exactly what is happening today.” By the third footnote, the meaning of all the following ones is so obvious that you read them just to see that you were right. These footnotes introduce a feel of vulgarity which is close to what the canned laughter does to comedy.

And these imposed comparisons are probaly do not fit two well with [2] providing several examples, or they are so obvious that they border on something like:

“Prime minister Vitte’s agitation grew and he orders tea to regain his calm*.
*In the early XXI century Russian public officials, even those working in the government, drink tea. Some have already switched to coffee – but this remains the norm”

Still skipping these footnotes is easy so they are not a fatal flaw.

All in all “Empire..” makes a decent light reading and provides a decent review of the feel of the pre-revolutionary years in Russia. It has certaintly been above what I expected.

# Jonathan Strange and Mr. Norrell

“Jonathan Strange..” is a decent fiction reading.

I do not remember where I have seen the recommendation to read it but I am certainly greatful.

There are quite a few themes in the book but for me the most touching have been the bits describing the relationship between Mr. Norrel and his books.

# Growth in the British Economy: Treating Demographic Challenges with Indicative Planning

“Growth in the British Economy” is a book about an economy in relative decline. It is a story about a Government attempting to protect country’s share of the global economy.

This is also a program for growth reforms for Britain in early 1960-s prepared inside a think tank called Political and Economic Planning (PEP).

The authors suggest what they believe a set of issues holding back growth in Britain. These challenges are many:

• cultural: may be the Brits do not value prosperity in a “vulgar” economic sense as much as an American or other European nations, may be growth is slow because they have other and higher priorities to pursue.
• the regulation: one nationalized industry (railways) skews the competitive environment in the transpiration sector and lobbies for heavier taxation of the long distance tracks; declining coal demands cross subsidies from oil users etc.
• demography: government tries to meet its social liabilities but faces of an ageing population and increasingly inadequate parameters of the pension system (pension age for women is 55, for men 60).
• The oversized military myopically maximizes spending possibly undermining long term growth of the economy.

As is usual with such documents the diagnosis is much more elaborate than a proposed treatment.

Essentially the solution that the authors suggest is an afterthought, a small epilogue.

The solution they offer is some vague form of “indicative planning”, “enhanced industry coordination”, “guidance on the allocation of investment”. All these suggestions are heavily diluted by the disclaimers that this coordination should infringe on the market forces.

The book is part of a much broader argument for more direct involvement of the state in the market that raged through the late 50s and for most of the 60s. It ended with an ascent of Margaret Thatcher into the high office on the back of the disillusion with the gradualist labour recipes. A more aggressive privatisation and deregulation program followed.

So did the debates Did these policies promote growth and did the gradualist policies have subtracted from it? The series of real GDP per capita growth rates for 1800-1900 compiled by Angus Maddison suggests that the growth rate after the WWII has been roughly stable and has been averaging just above 2% per year.

Some quotes to take away:

Politics and growth, p.ix: “The existing political system, to which great value is attached in the West independently of its economic performance, may permit a rate of growth of, say, 4 to 5 per cent per annum, but may be destroyed if the attempt is made to achieve 8 to 10 per cent”.

The core values might not include prosperity, p.xi: “To be directly concerned with making money is still sometimes regarded as inferior to being one, preferably more, stages removed from industry or trade. […] But if the real reason why the British economy does not grow as fast as some other economies would be good to see this recognised and incorporated into the philosophy of British life.”

The labour market rigidities, p.xi: “The British worker is as persistent in his demands for higher wages as workers in any other country. But the crux is that he is not so prepared for example as the American is, to take risks, move to a new job, and fight for advancement.”

On the railroad vs. motor vehicle transportation, p.91: “Another factor which has probably increased the amount of regular heavy goods traffic sent by road is the system of motor vehicle taxation. There is evidence that, at present, it bears more lightly on the heavy road vehicles, which in fact are those which do the most damage to the road”.

On the tax system in the incentives to work, p.118: “The most striking finding of the survey was that only between 3 and 5 per cent of the male sample had sufficient knowledge of the tax system to be able to “take that factor accurately into account in deciding their working behavior”.

The disinflation, p. 191: “For at least three years while the Government pursued restrictive credit policies industrial output rose very little. What started as an attack on demand inflation continued as an attack on wage inflation into a period when several industries already had excess capacity”.

How tax system influences firm size distribution, p.214: “The tax system has given special concessions to farmers and craftsmen. Moreover, tax evasion is easier in small firms and is in fact widespread. Altogether, therefore, a small-scale operation is profitable from the tax point of view, even though it may be less efficient.”

# Democracy for realists: Pointing at holes in academic electoral theory

Politics is daunting from a basic economics perspective (that’s where I usually stand): monetary and fiscal policy debates mostly overlook the distributive questions. Fiscal policy is usually viewed in terms of size of the deficit or the debt path stability. Allocation of spending is usually not discussed.

So I was looking for some structure for thinking about electoral cycles.

As an outsider to the field I hoped for a source which recent, tells the general story at an introductory level and is written by authors well regarded in the field.

Democracy…” seemed to tick the boxes and after reading I would suggest the text to any curious outsider like me.

The book general thesis is that the current mainstream view of how elections work is flawed. The mainstream view or as authors call it the folk theory of democracy argues for one of the two mechanism through which elections match people’s preferences with the politicians willing to deliver policy outcomes:

• Preference aggregation, i.e. elections aggregate policy preferences of the households across issues and push the polititians to the median of the political spectrum,
• Retrospective disciplining, i.e. voters discipline the parties and candidates by evaluating their track record.

The first argument does not survive the theoretical critique, there are issues of scaling it to voting on multiple policies at once.

The disciplining mechanism does not have the support from the data. Authors show how the voters irrationally reward and punish candidates for droughts, floods and shark attacks – events that are beyond control of the political power. They also show how that the “memory” of the average voter probably extends just about two quarters before the elections.

How do the elections function then?

Authors do not provide a general positive theory – the critique of the current consensus is their main focus.

Nevertheless, they suggest that presiding over a significant recovery may have longer term effects (irrespective of the contribution to it). Authors use the great depression to show how irrespective of ideology and policy the voters punished the incumbent and committed themselves to the opposing party for decades to come.

Otherwise voting to the authors has more to do with the sociology and “identity” of history he voter: the vote goes to the candidate which stands for “people like me” irrespective of the particularities of the policy proposals.

Assorted quotes to keep:

Economy and voting, p.97: “He concluded that economic fluctuations – most notably, election-year changes in real per capita income – ‘are important influences on congressional elections, … accounting for something like half of the variance of the congressional vote, over the period considered'”

On optimal policy when shocks are large, p.104: “Indeed, as the magnitude of random forces increases, the incumbent’s equilibrium level of effort goes top zero (since no feasible exertion of effort can increase her chances of reelection by enough to be worthwhile)”.

The dilemma, p.109: “in that case incumbent politicians face a dilemma: should they implement the policies votes want or the policies that will turn out to continue to voters’ welfare?”

The surprise, p.110: “In a detailed study of politics and policy-making in Latin America, Stokes (2001) underlined the tension between post campaign promises and ‘neoliberalism by surprise’s once the winners took office”.

The bias, p.277: “For example, the 1988 ANES survey asked the respondents whether, ‘compared to the 1980, the level of inflation in the country has gotten better, worse or stayed about the same’. There correct answer top this question was clearly ‘much better’ – they inflation rate has fallen from 13.5% in 1980 to 4.1% in 1988. Almost half (47%) of “strong” Republicans gave c the correct answer, while only 13% said inflation had gotten worse. However fewer than 8% of strong Democrats aknowledged that inflation had gotten much better on President Reagan’s watch, while more than half claimed that it had gotten worse (Bartels 2002a)”

On partisanship, p.301: Partisanship arises because a party presided over an economic recovery from a devastating depression, or because the party embodies bonds of racial or ethnic or class solidarity, or simply because we have been taught since childhood that a particular party represents ‘people like us’. Issue congruence between parties and their voters, insofar as it exists, is largely a byproduct of these other connections, most of them lacking policy content”

# Anton Gorsky: Russian Middle Ages

In this day and age when humanity apparently declared total war on sudoscience, however innocent or inconsequential, it is time admit that some crypto-sci-fi is on balance furthering the task of educating of mankind. It does so by creating an opportunity for knights of uncompromising scientific rigour re-emerge from their dungeons to clear general public’s confusion (once again). One illustration of this dynamic is Anton Gorsky’s “Russian Middle Ages: What do Fomenko and Nosovsky conceal?”.

Putting Anatoly Fomenko, a mathematician turned science fiction writer, into the subtitle is no more than a marketing trick as the explicit mentions of Fomenko or his ideas are absent in the main text of the book.

The fourteen essays that constitute the book are attempting to address some of the more common misconceptions mediaeval Russia. I found them enjoyable but disparate. While being written clearly it seems to come from the class of books that include “100 largest bridges” and “799 mysteries of haunted houses”. It might be more properly named “14 things everybody gets wrong about mediaeval Russia”. The familial curse of such books is that they rarely if ever have ideas or thoughts that you walk away with. But mostly are structured along the lines of “this is wrong, what is correct we probably won’t ever know because it was long ago, but here is another nice fact which is not entirely related with the initial theme”.

Having said that I found the four part essay on the relationship between proto-Russia and the Golden Horde most illuminating.

Overall this is definitely not a coherent source on medieval Russia (it does not pretend to be), nor it is a retaliation against works of Fomenko. It is probably just a a mind candy for the “let’s again discuss how wrong and misguided Fomenko followers are” type of readers.

# Paxman, J., The English: A Portrait of the People

Paxman’s “The English..” is a collection of essays that discuss what sets apart those who call themselves ‘English’ as regards their values, heritage, aspirations. The comparison is mostly done against other peoples of the UK and the West.

The author attempt at identification of these differences is done in three ways:

• by trying to see the English from the foreigners’ eyes, i.e. by citing the reports and diaries of the notables who visited England, including Dostoevsky;
• by looking at the English stereotypes of the foreigners to understand what the image of the Other tells about the English themselves;
• by understanding what is the perception of the ideal England by the English themselves is, which terms to be a ‘pseudo-cottagey’ misty hill utopia.

The discussion is seemingly intentionally inconclusive, and the goal seems to be discussion itself, rather than actually trying to find ‘the answer’. The style of the text matches its (lack of any particular) goal: the narrative advances by historical anecdote and the odd statistic, and when you’ve heard a couple of dozen of the the book simply ends.

Some of the reviewers of the book cited Paxman’s lack of focus and less (significantly less) than scientific approach as the weak points of the book. But then again this is basically the question of expectations: the author is neither a historian, nor a sociologist, and he does not pretend to be.

He some times makes statements such below, producing a whole new general theory of  democracy and city growth in two sentences:

On isolation and freedom, p. 34: “Freedom from the fear of sudden invasion also promoted individual freedoms: more vulnerable countries justified strong, top-down systems of government which could summon an army at day’s notice. The fact of being an island even dictated the shape of English cities: when there was a natural defense in the sea, there was no need for towns to be contained within walls; the consequence was that they grew higgledy-pigggledy”.

And it can be argued that this statement has little basis except for the authors opinion. But the book is explicitly not serious and for entertainment purposes only. Having this in mind, I would say that this is a quite enjoyable light reading.

Some assorted quotes:

On the selectivity of the historical memory, p. 64: The image engraved on the hearts of patriots was that of General Gordon making his last steps of a fort in Khartoum, as heathen savages overwhelmed the gallant British garrison. In fact, what made Britain rule the worlds was better displayed at the battle of Omdurman twelve years later. […] what determined the outcome was the fact that the British happened to have six Maxim guns. As the Dervish forces rushed the lines, the gunners had only to get the range. The casualty figures tell it all: 28 British dead for 11,000 Dervish. “It was not a battle but execution,” wrote an eyewitness.

On peacetime heroism, p.79: “The magazine [This England] has its own ‘Silver Cross of St George’, awarded to heroes nominated by readers, like the retailer who defies regulations by continuing to sell paraffin by the gallon, instead of in liters.”

On the strictness of the religious dogma, p.95: “I once asked the Bishop of Oxford what do you needed to believe to be a member of his Church [of England]. A look of slight bafflement crossed his face. ‘An intriguing question’, he answered, as if it had not occurred to him before. […] When the bishop went on, he opened with an inevitable English preface, ‘Well it rather depends’.

On the latter theme there’s a quite characteristic episode of ‘Yes, Minister’.

# B. Oakley, A Mind for Numbers: How to Excel at Math and Science

B. Oakley’s  “A Mind for Numbers” [ru, en] is one of those books which make you feel embarassed to admit purchasing and worse still reading them. I’m coming clean now admitting that I’ve done both.

One extenuating circumstance would be that I’ve been again in a rush an in need of an airplane companion. Another is that I saw Oakley’s class at the Coursera  and thought that a book might be its useful substitute.

I won’t write much because there isn’t much to write about.

Book’s content is neither related to math, nor sciencce despite the title.

It is another one of the hoards of self help books. Its message is also simple and does not require the 200+ pages the author devotes to it (spoilers): if you want to learn something than a) do your homework, b) exercise consistently as you are not going to acquire persistent k owledge in a learning blitz, c) may be use a pomodoro technique.

The bottom line is that the book is worth neither time, nor money it costs.

# Pizano, D.: Conversations with Great Economists

Overexcited Colombian and the 20th century Greats talk past each other.

So the other day I was preparing for a short flight and sadly this is the time when your choice of book companion is influenced by its size. On this front the tiny tome of “Conversations…” has a certain competitive edge.

The genre of “economist interviews another economist” is well established and I’ve encountered few cabinets lacking “Inside the Economist’s Mind“.  So I looked forward for hopefully more of the same: light talk on the issues of the day with occasional comment on the ongoing theoretical debates.

What I found out that this book is something quite different.

On the surface of it, the book indeed contains interviews with seven top 20th century economists. However, the style of these interviews is peculiar. The root cause of this peculiarity is the author.

Diego Pizano as he introduces himself is a son of the co-founder of the Universidad de los Andes Fransisco Pizano while in the interviews he mentions that he works on “the possibility of making the dynamic input-output tables for Colombia”. However, as it soon transpires his true passion is different.

His main goal is to make it as clear as possible that he “believes that one ought to distinguish between ideological and epistemological propositions”. The interviews more or less are centered on this statement to which his interviewees typically respond as did Leonid Kantorovich: “I cannot get into detailed analysis of all the ideas you have presented and thus I prefer to state my own position”.

The author also makes quite a few statements like this: “I do not know if Keynes followed the debates connected with the differences that can be established between Die Natur und Kultur oder Geistwissenschaften. But it is paradoxical that he ended up closer to Shakespeare, Nietzsche and Kierkegaard than to Descartes and Mill” to which he gets a reserved reply such as Joan Robinson’s “The line of research you have presented is interesting and I am of the opinion it could be fruitful and illuminating to continue to analyze those aspects of Keynes’s work”.

My impression is that most of the notable comments in the book are made despite the efforts of the author, not because of the them.

Overall, would not recommend this book, it will only suit the most devoted followers of any of the seven Greats who would like to tolerate author’s interviewing techniques.

# CBR’s inflation expectations estimates: introduction (1/2)

Inflation expectations at some point have become the corner stone of CBR’s monetary policy. Changes in their level are cited in each and every monetary policy press release. The most recent reference is as follows:

“… In addition, inflation expectations of households escalated in November, although projected to decrease.”

In order to identify these expectations CBR regularly orders “Public opinion” fund to conduct countrywide surveys. These surveys ask a variety of question on topics ranging from preferred savings vehicles to consumer confidence. Additionally two types of questions on inflation expectations are asked:

1. open question about numerical estimate of inflation 12mo ahead;
2. multiple-choice question on prices 12mo ahead.

By averaging (or taking a median of) responses to the type 1 question one can obtain a so called direct estimate of inflation expectations. Its ease of calculation has a certain downside attached. Direct estimate has a known upside bias possibly explained by availability hypothesis, i.e. respondents reporting more recently observed or sizable price growth as inflation expectations (these are almost invariably related to food inflation), while less impressive price trends (i.e. stagnating rent) are left unacknowledged. Current CBR’s direct report provides a median of the numerical responses of 15.0% YoY and it has rarely been under 11.0% since 2010.

An alternative method helps partly alleviate the problem by simplifying the problem for the surveyed and asking them where relatively to current inflation would future trends lay.  This method is called probabilistic estimate and relies on responses to type 2 question.

Because it will be the focus of what follows let me cite the text of the question here:

“Do you believe prices in the next 12 months will:

• will be growing faster than now
• will be growing at the same pace as now
• will be growing at the same pace as now
• will not change
• will decrease”

Results are presented in the report (Russian only) as a chart:

Source: CBR.

So with a short introduction to why we do this and where the data come from let’s proceed with identification methodology.

Methodology [1]

In order to recover expected inflation with probabilistic method we should make two additional assumptions:

• family of the probability distributions of inflation expectations;
• the reference inflation rate to which the surveyed do benchmark their expectations, i.e. “inflation now”.

Next we assume that when answering questions people do have some confidence intervals, i.e. regions within which inflation is assumed to be qualitatively equal. That is if I think that inflation might be -0.5 – 0.5% in the next 12mo I would likely choose “prices will remain constant” option.

Fist let’s denote the shares of the answers as follows:

• is the share of surveyed reporting inflation will accelerate;
• is the share of surveyed reporting inflation to remain stable;
• is the share of surveyed reporting inflation to decelerate;
• is the share of surveyed reporting inflation to be zero;
• is the share of surveyed reporting inflation to be negative;
• is the share of the surveyed that had failed to respond.

Next we will get rid of those who find it too difficult forming 12mo ahead inflation expectations, making sure the remaining shares do sum to unity:

for

Graphically the whole picture might look as follows if we assume normal distribution:

At this point we might write the following system of equations :

where $\theta[/latex] is a vector of two parameters of the distribution of inflation expectations, and are sensitivities. This system has four unknowns: ,$l[/latex], 2 for $\theta[/latex] which makes the last equation redundant. The last step would be to solve the system for parameters of the and calculate the expected value implied by the estimated distribution. Example: Verify November estimates We now can try and verify CBR reported estimates of inflation expectations for the Nov-15 wave of the survey, which put it at 15.0%. As the chart above from this report shows: • is .19; • is .52; • is 15 • is .0; • is .0; • is .15. Because of the rounding effects these numbers do sum up to 1.01, so I divide them through by . After that we can get rid of the ‘do not know’ answers dividing through by$(1-\beta_6)[/latex], so we have:

• is .22;
• is .60;
• is .17
• is .0;
• is .0;

For simplicity we make the uniform probability distribution assumption:

Now we can solve the whole thing numerically. I use Mathematica, which is matter of personal preference, but a suitable routine can be developed even in Excel. I assume which is the YoY inflation rate during the week when the report has been published

[wlcode]

beta={0.19,0.52,0.15,0,0,.15};

beta=beta/Total[beta];

alpha=Most[beta]/(1-Last[beta])

π0=14.8;

pd=UniformDistribution[{a,b}];

sol=FindRoot[

{alpha[[1]]==1-CDF[pd,π0+s],

alpha[[2]]==CDF[pd,π0+s]-CDF[pd,π0-s],

alpha[[3]]==CDF[pd,π0-s]-CDF[pd,l],

alpha[[4]]==CDF[pd,l]-CDF[pd,-l]

},

{{s,0.1},{l,1.0},{a,10},{b,20}}]

[/wlcode]

The result is {s -> 3.00759, l -> 1., a -> 10.0573, b -> 20.0054}. Expected value of the uniform distribution is , so our estimate of inflation expectations is 15.0 exactly in line with the CBR.

Alternative, we can use Mathematica to calculate expected value of the distribution: [wlcode]Expectation[x, x \[Distributed] pd /. sol][/wlcode].

The results might vary due to the difference in the choice of the so full transparency would require the CBR reporting its choice of the ‘current inflation rate’ or the in the inflation expectation reports.

***

In the next post, we are going to decompose changes in inflation expectations into the change in the survey results and change in the .