Monthly Archives: May 2010

I am writing this column on the morning after the general election. Much is unclear, but I strongly suspect that when you read it, people will still be talking about the subject of electoral reform.

The remainder of the article can be read here. Please post comments below.

After years of hard work I am about to finish my degree in economics. Maybe I shouldn’t say “years of hard work”. I skipped quite a lot. Now I’m worried that in the middle of a recession, I’m going to graduate with a lousy degree. Will reading “The Undercover Economist” get me through? Or should I be in the library?

George, London

The answer to this question can be read here. Please post comments below.

From 14th January, 2006:

After two years as a roving freelance columnist, I am leaving Washington DC and returning, at last, to Albion’s shores to work for the Financial Times. But how much should I be paid? In moments of delirium I imagine that the FT will invite me to name my own salary, at which point I shall magnanimously refuse to take advantage. But that daydream brings out the Undercover Economist in me: what salary would be fair? Washington DC isn’t cheap, but London is notoriously expensive. The question, “How much more expensive?”, makes less sense than you might think. You can compare the price of particular goods – Budweiser and Coors are cheaper in DC than in London. But I don’t drink Budweiser or Coors, so what does it matter? A sensible price comparison would have to look at the things that I do buy.
This is hard. In London I drink good English beer, but good English beer is expensive in DC so I drink less of it. Decent red wine is cheap enough, so I have that instead. DC offers several places where you can get a good restaurant lunch for the equivalent of £5, so I often eat out for lunch. It would be expensive for me to maintain the habit in London, but I won’t, and that’s no coincidence. It’s impossible to separate what things cost from whether I buy them.

Continued at timharford.com.

When my book The Undercover Economist was published five years ago, I would occasionally be asked whether I was in favour of sweatshops in developing countries. Not at all, I would reply. But I could see where the question was coming from, because I was certainly worried as to whether campaigning against them would do any good.

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We need shoes come rain or shine and the more shoes we have, the better prepared we are for the unpredictable circumstances we face in our daily lives. Because of this, we should buy shoes no matter how much they increase in price, because their demand will always exist – we can’t walk around barefoot. Perhaps I’m just trying to convince myself that £60 on a pair of shoes is a solid investment.

Shoe-shopper

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I am working on a column for next week’s FT Magazine about the mathematics of voting power. Here’s what I have learned.

It might seem unfair that the Liberal Democrats have received 23 per cent of the votes but just 8 per cent of the seats, while the Labour party has 29 per cent of the votes but five times as many seats. But it’s naive to think that 8 per cent of the seats translates to 8 per cent of the influence.

For example, imagine a 100-seat parliament with seats distributed Blue: 40, Red: 30, Yellow: 25 and Green: 5.  Imagine which combinations of parties could win a majority and you realise the three big parties might just as well have been given one vote each, with no votes for Green, which is never the decisive partner that makes or breaks a coalition.

There are two commonly used ways of translating voting blocks into voting power, the Shapley-Shubik method and the Banzhaf-Penrose method. (Want them explaining? Wait for my column.) But suffice to say that assuming 307 Tory MPs, 261 Labour MPs and 55 Lib Dem MPs, both methods conclude that Labour and the Liberal Democrats actually have the same voting power. With 23 per cent of the votes, the Liberal Democrats actually have 23-24 per cent of the voting power. The Conservatives have 37-38 per cent of the voting power, just fractionally above their share of the popular vote. (Evidently, these blank-slate methods omit some important considerations, such as ideology.)

If you want to do these calcluations yourself, go to Professor Dennis Leech’s website and click on ipdirect or ssdirect. “Quota” is 326 and the allocation of seats currently looks something like.

1 1 1 3 3 6 8 55 261 306 [Update: 1 1 1 3 3 5 6 8 57 258 307 - includes Sinn Fein and gives last 2 uncertain seats to Conservatives. This gives Labour and Liberal Democrats 21 per cent of voting power, each.]

Paste it in and tweak to your taste.

Last night, when everyone was saying “this looks like a hung parliament and a bad night for the Liberal Democrats”, that statement struck me as absurd. The mathematics back me up.

Update: The twitterati have misunderstood what I am saying here. It’s not that the Liberal Democrats are always fairly treated by the electoral system. Evidently not. But they have a perfectly decent crack of the whip this time round as I think we’ll see. They have 8 per cent of the seats but more than 8 per cent of the influence.

From 7th January 2006:

If you’re reading this, you’ve survived the New Year sales, an organised riot arranged annually for fun and profit. In the US, there is a similar tradition of giveaways the Friday after Thanksgiving, and similar chaos as the stores open. The furniture store Ikea has added extra exhilaration to the sales experience – you may recall that ambulances were required after an opening-night sale at a London store nearly a year ago, and there have been worse incidents, including an Ikea opening in Saudi Arabia in 2004 in which three people died.

These queues and crushes create a bizarre situation where no amount of price-cutting will make customers better off. To see why, imagine that you have two choices on sales day: the first is to go hunting for a bargain; the alternative is to stay at home eating turkey sandwiches.

Continued at timharford.com.

If a week is a long time in politics, you are reading these words a long time after I wrote them. It may be that the outcome of this week’s general election is now a foregone conclusion, but if not, the oddities of the British electoral system are to blame.

The remainder of the article can be read here. Please post comments below.

My partner and I are ready to register for gifts and we are seeking the most efficient way to do it. Most registries allow any gift to be returned to the store for cash. Additionally, one can often find 20 per cent coupons for this store (meaning that one can return a gift worth $100 and then buy it back with a coupon for $80). Which gifts should we register for? I am worried that if we register for lower-priced gifts, then people who have a higher willingness to pay will take advantage of the consumer surplus and buy a cheaper gift. Or should we just register for the gifts we want because the opportunity cost spent returning gifts and buying new items will be too high?

Meir, New York

The answer to this question can be read here. Please post comments below.

The Undercover Economist: a guide

Publishing schedule: Excerpts from "The Undercover Economist" and "Dear Economist", Tim's weekly columns for the FT Magazine, are published on this blog on Saturday mornings.
More about Tim: Tim also writes editorials for the FT, presents Radio 4's More or Less and is the author of "The Undercover Economist" and "The Logic of Life".
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