Running, and Trends

Almost a year ago now, I took up running, and somehow managed to stick at it, against all historical precedent. The first thing that hooked me was being able to look at my data after the event using apps on my phone. Then once that wore off, I think I had the running bug and just really enjoyed getting out and about, exploring places.

In that time, I've been working on code in R with Genaro Sucarrat and Felix Pretis to implement indicator saturation, a technique that involves adding dummy variables for every observation in a sample, in batches to avoid perfect multicollinearity. It's an econometric method that's gaining in acceptance and use - it doesn't distort inference, and helps ensure the assumptions placed on your error terms are closer to being satisfied. A look through David F. Hendry's recent working papers and articles gives plenty of reading material on the procedure.

The applications of a procedure such as this are huge; very simply it's a very effective method of outlier detection, and also for structural breaks. Split trends can be considered also, and indeed they are in a not-yet-released version of our R code.

One of the virtues of not having been running long is that I'm still on an upward trajectory, getting faster over time. This translates into structural breaks, and perhaps split trends, if my runs are to be plotted as a time series. Really good/bad runs might come out as outliers too.

Here's the actual output if I run indicator saturation on my runs:

What does it say?

It says that back a year ago (run 0), I was running at about 7 minutes per kilometer, which translates into running 5km in 35 minutes, and 10km in 1 hour 10. After run 34 I got faster, about 6 minutes per km, with a slight further improvement to 5 minutes 48 seconds per km at run 50. This held right through to run 122 when my pace shifted up (down on the graph) a little further to 5 minutes 13 seconds per kilometer, which is where I remain now.

There's three outliers, which of course I can explain - one is an ill-fated adventure with a backpack with my laptop in (running to work - I now run without laptop and use a desktop at work), the other two are very slow trots back after very long runs where I ran out of steam some distance from home.

Overall - no trends, which is probably not a bad thing, as I might start putting pressure on myself to keep a trend going, which might not be healthy...

Renationalise the railways? No!

At least one of the Labour leadership contenders (and the one most likely to win), plus many others, think we need to renationalise the railways.

Here's the latest, and supposedly credible, salvo fired in the crusade: the Conversation's Case for renationilising the railways.

My objections are not ideological, they are based on the basic principles of economics, and on a critique of lax standards of empirical verification.

I'll respond to each argument given in the Conversation's piece:

1) "Transport for London shows the success of an integrated network run by the public sector" TfL shows that public ownership works on a smaller scale, therefore it should work on a larger scale. Obviously a weak argument, there's no reason why it should work on a larger scale just because it's worked in London.

2) The public support renationalisation. Just because many people think something, does not make it the right thing to do. Of course, policies are more likely to succeed if they are popular, but simply willing something to work won't mean it will work.

3) Fares would go down.

a) This is because apparently there would be cost savings from nationalisation; things like avoiding the tendering process, avoiding duplication of duties in different rail companies. It's not clear to me that this would deliver much in terms of savings. Rail companies are geographically distinct by and large, and will need various types of management in all parts of the country. I see no reason why any duplication would fall just because what are essentially routes become publicly run rather than privately run.

b) Such an analysis is beautifully blinkered, since it looks at some one-off change as if that's all that would change. It totally ignores the dynamic impact of competition, for example. Even if there were some savings from getting rid of the tendering process, what about the costs of monitoring the publicly employed staff to ensure they are doing a good job, and up-to-scratch job? That would still need to occur, and many would argue would actually become greater once the railways were in public ownership. Public sector inefficiency is a well known phenomena, and there's no mention of this whatsoever in the TUC report linked up in the Conversation piece.

c) The evidence provided for fares falling is that fares have gone up a lot since privatisation. It's this kind of argument that says hospitals make people more sick. We have no idea what would have happened to fares had the railways remained public. The argument makes no reference whatsoever to forces pushing those fares up, such as the cost of oil, and greater demands being placed on the system.

d) This argument relies on the idea that all costs savings would be transferred into cuts in fares. Why is this realistic? No mention is made.

e) Apparently a saving is the paying of dividends. This appears to be a great misunderstanding of how the world works. It appears to assume that shareholders get these dividends in return for just being them, while they sit around doing nothing useful. They put their capital into these firms, they contribute to decisions being made by these firms, they are a crucial part of corporate governance. So by cutting them out, clearly a cost to the taxpayer is incurred since the taxpayer has to foot that capital investment that previously shareholders were putting in.

The more general argument that is behind all renationalisation is that the current system doesn't work particularly well. That assumes the current system is the only way in which the railways could be organised privately. It rather obviously is not. The problem of under-investment under Railtrack referred to in the article is a consequence of the incentive structures put in place by the government for the "private" market created. Just as the "competition" between franchises is something monitored and closely controlled by the government. As a result, it's not particularly private at all, it's heavily controlled and monitored - about as private as UK universities, in reality.

When I can get another service as quick and convenient from Didcot to Reading that competes directly with First Great Western (FGW) on a day-to-day basis, that's when I'll see some proper competition forcing FGW to get their act together. There's no competition on this route since no other train service does it, nor can any bus service do it in a competitive amount of time.

So no, the current system is not an argument for renationalisation. It's an argument for setting up a proper competitive market for our trains.

Corbynomics and Letters

The Labour leader to be, Jeremy Corbyn, has had two recent letters from economists supporting his economic policies, and a third appears is in the works. I've had the opportunity (twice!) to sign the forthcoming third letter and thought briefly about it before deciding against it. Why?

I think my main reason is the utter futility of it all. I think such letters only ever serve to give credence to the public perception of our profession - notably that anything can be justified with a bit of economic reasoning (maybe plus some hand waving). And as such, everyone can find the economists' letter that most closely accords to their own thinking and use it as evidence to support that view.

The other thing is that these letters make an appeal to the "mainstream" consensus of economics, as if this actually means anything. Simon Wren-Lewis makes the best point about this:

In 2009, most of the world was following mainstream economics in undertaking a fiscal stimulus to combat the impact of the financial crisis. But in the UK a certain politician decided to ignore ‘economic credibility’, and instead proposed doing the opposite: what has subsequently become known as austerity.

Hence departures from "mainstream" economics need not be the stuff of what our press determines to be crazies, but canny politicians.

Corbyn and Labour

I lean to the left, and hence I've always associated with Labour and to some extent the Lib Dems over the Tories. Studying economics brought me towards the centre (hence I only lean left these days), but there's little doubt that economics is not the neo-liberal profession many outside of it believe it to be. There's plenty even in basic economic theory that questions any unfettered allegiance to markets (say, a half hearted examination of the assumptions surrounding perfect competition or monopolistic competition).

Labour under Blair and Brown from 1997-2010 was arguably the most economically competent government we've had in the UK in a long time. There was no ERM-like fiasco, and there were many decisions taken after considerable economic evidence was canvassed (e.g. the euro). Labour had the right idea about immigration, embracing it as a way to enrich our economic and social lives. Like anything it isn't perfect, but the benefits far outweigh the negatives of it.

However, Labour is now in the electoral wasteland and the current crop of leaders, with the exception of one, are pretty uninspiring. The one who is inspiring appears to have generated the biggest push in Labour membership in decades and would appear on the face of it to be good news for the party.

He's sufficiently left wing that the right-wing press don't like him much, and the sad thing about his rise is that it's been accompanied, by and large, by attacks by those nearer the centre. Attacks that don't really address why renationalisation of the railways and energy companies would be a lousy idea, but instead simply say "you're wrong, we know you're wrong" without saying why it's wrong.

Equally, the fervour with which Corbyn's supporters dismiss anyone slightly less left of centre than Corbyn is sad. The other three candidates are not right wing, they are not Tory lite (if anything, it's the Tories that are Labour lite given the most recent budget).

If I'm honest, the problem I have with Corbyn isn't his renationalisation plans, nor his seemingly inflationary QE idea, but that I am sceptical that this surge in support for him will translate into votes. Not least that the numbers registering to vote are way short of the 2m fewer votes Labour got than the Tories in the general election, but that these are the types of people who just don't vote. Once the fervour has died down and we get nearer to 2020, will they turn out and vote then?

I'd love it if they did, but I'm sceptical...

What I'm Working On

I marvel at the academics who seem able to be research active, teach effectively and somehow also blog and tweet regularly - how on earth do they do it?

The summer is normally the most exciting time for an academic because we get to work on what we want (within limits) - our own research.

This summer I've been attempting to finish up a number of projects, as well as try and nurture some interesting new angles. Quite a lot of interesting stuff came out of my forecasting teaching course that I began teaching almost two years ago now, and two things have emerged from there: forecasting football match outcomes, and forecasting Formula 1 outcomes. I still haven't managed to spend the necessary time, however, working out just how good my football forecasting is against bookmakers. I could do with an extra income source it's true...

I've looked at home advantage in tennis (incomplete but getting there), trust issues in football (almost there), market efficiency looking at political episodes (also getting there), and I'm about to turn my attention to issues surrounding market re-access for countries that default on their debt obligations.

Old but worth commenting on...

I've just come across some interesting views on macroeconomics and macroeconomics.  The most recent thing is some comments by Lawrence Meyer picked up by a number of bloggers.  One blogger in particular, a staunch Austrian who sees everything in economics having originated in one person (Hayek), points readers back to Arnold Kling's thoughts on empirical macroeconomics, posted back in February 2009.

What gets me most, and I think this is common for all economists who sit back and criticise another field, is that this guy hasn't got a clue what macroeconometricians do these days.  This is why I've stopped making such rash statements about DSGE models.  I have a feeling that they are progressing along certain lines I don't like and so I make general statements which one of my co-authors will constantly tell me are way off the mark.  So until I can make a proper assessment I've stopped.

Arnold Kling talks about how the empirical macroeconomist goes about his work.  He looks at data, and because of serial correlation, he takes differences - Kling goes as far as to say that to do otherwise "would be utterly unsound practice".  Thankfully Robert Bell in the comments takes him to task on this - as does any sensible Econometrics textbook, as Bell says.  Differencing destroys massive amounts of information on the levels of data series of interest, and economic theories consider the levels of variables (inflation, nominal GDP, consumption, etc).

The modern macroeconometrician looks into whether cointegrating relationships exist in the levels of the data.  Kling has concerns about imposing priors on the analysis.  Until recently I thought the Pesaran et al approach to cointegration (bounds testing etc) was no different essentially to the Johansen/Hendry et al approach - but now I realise there is a fundamental difference.  Pesaran et al assert you must have strong theoretical priors about the cointegrating relationships before you even begin - the Johansen school is instead more agnostic about it.

Basically, if stationary relationships exist in the data, you can look at them.  You can see whether they make economic sense, and if they do (and even if they don't) you can start to make economic inference about them - and of course only then in a qualified sense - this was a particular country in a particular time period.  But it doesn't render this kind of information useless, as a lot of economists (Austrians and theoretical macroeconomists - from very different starting principles).  It gives us some idea about the size of effects.  We get some rough bound on how big an effect is - and if we want to apply it elsewhere we have to consider whether or not that application is appropriate - critically so.  Probably the most harm is done to econometrics by its proponents claiming much too much for it.

Academic Snobbery?

A few weeks back I wrote about what I though was academic snobbery - I get a little agitated when I hear TV and radio interview "economists", who are commercial economists, employed by some company, rather than academic economists.

Over at Worthwhile Canadian Initiative Mike Moffatt has written on something very similar: The fact that non-economists perceive economists as being something they are not because of these guys that appear in the media and give black and white answers to questions which any serious economist knows have many shades of gray/grey.  Mike says that academic economists thus are not invited for these kinds of interviews because we don't give an exciting opinionated sound-bite.