Archive for the 'Welfare' Category

To what extent should the media mention that somebody is from a minority?

Published on 28 August 2011 in Ethics, Justice/Law, Sex and Welfare. Tags: , , , , , , , . 0 Comments

It turns out that Tim Cook, the new CEO of Apple, is gay.

Felix Salmon suggests that this makes him the most powerful gay man on earth (an idea of which I am sceptical – surely at least one head of state among all the nations of the world has been queer at some point) and that the media ought to be celebrating this fact, or at least making mention of it:

Personally, I don’t care.  Why should I?  Fundamentally, the only relevant facts are those that inform me about his ability to do his job, and knowing whether he’s a member of ethnic group X, holds religious view Y or is turned on by Z is of no use in that regard.

In a completely post-bigotry world, those things might (or might not!) be included in a puff piece that wanted to tell you about Tim Cook, the man, as a sort of background colour (“raised a Catholic, Mary-Anne’s atheism was a source of family friction in her early adulthood, but …”), but they’d play no part in people’s opinion of him as a manager and so would never appear in a serious article about the future direction of whichever company he works for.

Salmon’s point, I believe, is that (a) we’re not in a post-bigotry world and so there is a lead-by-example case for publicising Cook’s sexuality in the same way that people discussed that Hillary Clinton is female and Barack Obama is black; and (b) even if we were, the media is going out of its way to make no mention of it even in the puff pieces, that it’s going out of its way to self-gag and so, ironically, subtly reinforcing the closet.

I dunno.  I think that stuff like this is only relevant to public discourse — even puff-piece writing — if at some point it helped shape the subject’s motivations in life.  Furthermore, I believe that for at least some queer people now, and eventually for all of them, their sexuality (will have) played absolutely no role in shaping their motivations in anything other than who to look for in a partner.

As such, I’m instinctively sceptical of a need to draw attention to it.  Not even the puffiest of puff pieces would spend time discussing people’s preferences over ice cream flavours unless the subject made a point of bringing up their obsession with chocolate-mint.

When it comes to playing a role as a societal leader, I can’t help but feel that it’s up to Mr. Cook to decide for himself.

Dani and I rewatched “Good Will Hunting” last night.  I think there’s a parallel with the kid who’s a genius.  I always get angry when Ben Affleck’s character (the well-meaning, but idiot friend) tells Matt Damon’s character (the genius) that “you don’t owe it to yourself man, you owe it to me … ’Cause I’d do fuckin’ anything to have what you got. So would any of these fuckin’ guys. It’d be an insult to us if you’re still here in 20 years” [IMDB].  It’s Rawls’ veil of ignorance turned arse-end backwards.  It’s also complete rubbish.

I can see a moral argument for why Rawls’ veil implies that society at large should help people who drew particularly shitty numbers, but why should any one individual be required to do something just because they drew a particularly awesome number?  The whole goddamn point of Rawls’ veil is that nobody consents to it in the first place and so, as a society, we ought to not force people into the pigeon-hole that the lottery put them in.  Just because you were born into a poor family doesn’t mean you have to stay poor.   Just because you’re black doesn’t mean you have to like basketball.  Just because you have an IQ of 180 doesn’t mean you must do research.  Messers Affleck and Damon need to reread “Brave New World”.

Nobody can deny that Barrack Obama is black, but the extent to which he makes speeches to the black community declaring that they can be black, proud and successful is entirely up to him.  People working to bring about racial equality might feel he has an obligation, but he really doesn’t.

If Tim Cook wants to try to improve the acceptance of gay people in society at large, he can, but the idea of saying that he ought to just because he’s gay himself is illiberal.

France is set to ban the burqa and niqab

Published on 15 September 2010 in Europe, Justice/Law, Politics and Welfare. Tags: , , , , , . 0 Comments

The French Senate has passed the bill after the General Assembly (lower house) did in July.  From that HuffPo piece in July:

Officials have taken pains to craft language that does not single out Muslims. While the proposed legislation is colloquially referred to as the “anti-burqa law,” it is officially called “the bill to forbid concealing one’s face in public.”

It refers neither to Islam nor to veils. Officials insist the law against face-covering is not discriminatory because it would apply to everyone, not just Muslims. Yet they cite a host of exceptions, including motorcycle helmets, or masks for health reasons, fencing, skiing or carnivals.

I’d really like to read a literal translation of the bill.  I’m curious whether it effectively also bans this sort of thing or this sort of thing.  Do French citizens have a right to privacy?  Wouldn’t this bill violate such a right?

Why I (probably) oppose the RMT’s strikes at London Underground

Published on 8 September 2010 in Economics, Justice/Law, Labour, UK and Welfare. Tags: , , , , . 0 Comments

Here is a quick, dirty and poorly-written explanation why I (probably) oppose the RMT’s strike action at London Underground:

The Tube, like most public services, is a monopoly.  As such, Transport for London (TfL) has pricing power and the ability to extract economic rents from consumers.  To whom would those rents flow?  There are three possible groups:  Capital owners (bonds), Capital owners (equity) and Labour (the suppliers of the stuff, not the political party).

The owners of capital in the form of bonds have no ability to insist on being paid economic rents because they cannot credibly threaten to walk away.  There are plenty of other (institutional) investors that are perfectly happy to step in and receive the low interest rates paid by TfL because TfL has the backing (implicit or otherwise) of the UK government and investors value that security.

The sole owner of capital in the form of equity is the UK government.  They have no desire to extract economic rents.  Indeed, they have an incentive to keep economic rents to a minimum because their existence is, on net, welfare-destroying for Britain as a whole.

That leaves the suppliers of labour.  If no TfL worker was unionised, then individual employees would be unlikely to be able to insist on receiving economic rent (i.e. a wage in excess of the value of their marginal product).  By being unionised, however, the employees have collective bargaining power and are therefore able to insist on economic rents.  They can do this because they can credibly threaten to stop the tube from working.  The current strikes are a demonstration of the credibility of any future threat.

There are two further issues to consider, however.  First:  what if without the union, workers would be unfairly exploited — paid less than the value of their marginal product?  If this were the case, the increased bargaining power of unionisation would be justified as it would offset the exploitation.  This is not a problem, however, because the owner of the Tube — the UK government — is not a a profit maximiser.  It is a (zero-profit seeking) service maximiser.  They have literally no incentive to pay less than the employees are genuinely worth.

Second:  what if, when paid the value of their marginal product, TfL employees end up with incomes that are less than the cost of living?  Once again, this fails as an argument for unionisation of TfL workers.  It is the job of the government to guarantee a living wage to all workers across the country, regardless of their job.  If TfL employees are concerned about this, they should be canvassing for an increase in the national minimum wage, not insisting on a higher wage just for themselves.

Therefore, to a first approximation, there is no justification for the unionisation of (and hence, no justification for the strike action by) London Underground employees.

Don’t put a nappy on me just because you’re mollycoddling idiot #8,749

Published on 1 September 2010 in Australia, Justice/Law, Politics, UK, USA and Welfare. Tags: , , , , , , , . 2 Comments

I hereby present the latest iteration of my telling the world how it ought to be run, damn it.  The topic today is:

With (very low) probability, p, event X might occur at location Y, causing offence, harm or even death to a person of type Z.

There are many examples of this sort of scenario.  Here are a few:

  • X:  Fall off a swing
  • Y: A public park
  • Z: A small child
  • X: Trip and fall
  • Y: Footpaths (sidewalks) with cracks in the concrete
  • Z: Old, clumsy or spatially unaware people
  • X: Bringing your dog
  • Y: The outside seating area of a cafe
  • Z: People that are allergic to, or just have an aversion to, dogs

Here is another, eloquently opposed by M.S. at one of The Economist‘s blogs:

  • X: Drown
  • Y: Lakes in Massachusetts state parks
  • Z: A weak swimmer

I’m sure that you, my eager and most imaginative audience, can describe any number of other examples.

What should we do when confronted with these scenarios?  Most people think that the world positions itself along a line separating, at one end, complete government regulation and at the other, zero government regulation and, instead, the use of tort law and civil suits to restrict the “bad” behaviour.  This is poor logic, however, because it is overly simplistic; it presupposes that we need to do anything at all!

I favour a midway point between regulation and tort law, but more importantly, to my mind, we usually don’t need to do anything when confronted with these possibilities. Life inherently has risks and, while we should act to avoid exacerbating those risks, we should not necessarily seek to remove them altogether.  There are three reasons for this:  First, because removing all risk is simply impossible and it is usually the case that reducing risk in one area causes it to rise in another; second, because exposure to some risk is crucial in the development of well-adjusted people and a properly-functioning society; and third, because to restrict people’s choices in order to lower the risk they face is to deprive them of their basic liberty to choose whether to accept that risk for themselves.

Let me summarise my view in this not-even-remotely-to-scale little plot. Think of the horizontal axis as a measure of how easy it is to demonstrate harm to a point of warranting action by “the authorities.”

There are 10 dots of each colour.  Broadly speaking, Australia and the UK have chosen the government regulation approach.  In Australia, every major political party seems to agree that the “solution” is always more (they would say better) regulation.  In the UK, the Lib Dems and Tories make occasional mutterings suggesting that they might agree with me, but for the most part they’re in lock step with Labour (UK), which likes the status quo.

America is a bit more varied.  By and large, they have adopted the approach of letting tort law and the fear of civil suits induce the effect of (remarkably strict) regulation, but when America does use explicit government regulation, it tends to be something of a light touch.  Democrats seem to want to move closer to the British/Australian model, while Republicans seem to either like their status quo or wish to move to the Libertarian ideal.

Small government / Libertarian idealists typically want no government regulation and, to the extent that things need to be dealt with at all, they want everything to happen through the courts.  Although they want small government, what government they do want, they want to be strong (e.g. in the enforcement of the law).

Speaking about America, M.S. in the above-linked-to Economist entry writes:

I would gladly join any movement that promised to do away with this sort of nonsense. For example, Philip K. Howard’s organisation “Common Good” (TED talk here) works on precisely this agenda. Common Good’s very bugaboo is useless, wasteful legal interference in schools, health care, recreation, and so on. But what you quickly note with many of these issues is that they’re driven by legal liability concerns. You have a snowblader in Colorado suing a resort because she crashed into someone. You have states declining to put up road-hazard signs because the signs prove they knew the hazard was there, which could render them liable for damages. You have the war on children’s playgrounds. The Massachusetts swimming ban, too, is driven by liability concerns. The park officials in Massachusetts aren’t really trying to minimise the risk that you might drown. They’re trying to minimise the risk that you might sue. The problem here, as Mr Howard says, isn’t simply over-regulation as such. It’s a culture of litigiousness and a refusal to accept personal responsibility. When some of the public behave like children, we all get a nanny state.

Which is exactly what I’m saying about America in my summary, but I think (at least, from my reading) that M.S. is assuming that the opposite of a litigious society is personal responsibility.  That’s not true, I’m afraid.  The level of personal responsibility is orthogonal to whether your society chooses litigiousness or state regulation.

Nevertheless, I suspect that M.S. (and Matt Yglesis) and I are on the same side in this debate.  Let people decide for themselves; they’re adults, or should be.  Don’t put a nappy (diaper) on me just because you’re mollycoddling idiot number 8,749 over there.

Improving the Euro

Published on 31 August 2010 in Economics, Europe, Finance, Politics and Welfare. Tags: , , , , , , , , , , , . 5 Comments

On BBC Radio 4, Jonathan Charles — the BBC’s European correspondent in the 1990s — has done a special on the Euro and the trouble it’s experiencing.  It’s well worth a listen if you have 40 minutes to spare.

It reminded me that I’d meant to write a post on two things I think ought to be done in improving the long-term outlook for the single currency.  None of this is particularly innovative, but I needed to put it down somewhere, so here it is.

First, a European Fiscal Institution (EFI)

At the start of February, when Greece and her public debt was dominating the news, I wrote:

Ultimately, what the EU needs is individual states to be long-term fiscally stable and to have pan-Europe automatic stabilisers so that areas with low unemployment essentially subsidise those with high unemployment. Ideally it would avoid straight inter-government transfers and instead take the form of either encouraging businesses to locate themselves in the areas with high unemployment, or encouraging individuals to move to areas of low unemployment. The latter is difficult in Europe with it’s multitude of languages, but not impossible.

Let me hang some meat on those not-even-bones.  I like the idea of a partially shared, European Fiscal Institution (EFI) that can conduct counter-cyclical spending, subject to strict limits on its mandate.  I am deliberately avoiding calling it an “authority” because that implies a certain freedom of action, which I oppose.  Instead, I think that an EFI should:

  • be limited to implementing commonly-agreed automatic stabilisers (in particular, a universally-agreed-upon minimum level of unemployment benefits);
  • be able to issue its own “Euro bonds”;
  • have a mandate to retain the very highest regard for the safety of its borrowing; and
  • be funded (and its bonds be guaranteed) by member countries in a manner part way between proportionate to population and proportionate to GDP.

I do not think that membership of such an institution should be required of any European country.  If a non-Euro country wants to be in it, fine.  If a Euro country wants to not be in it, fine.

The unemployment benefits provided would be the absolute minimum that everyone could agree on.  I want to emphasise that this should be extremely conservative.  If it ends up being just €100/week for the first month of unemployment, so be it; so long as it is something.  Member countries would provide additional support above the minimum as they see fit.

This will have several benefits:

  • It will help provide pan-European automatic stabilisation in fiscal policy.
  • It will provide crucial intra-European stabilisation.
  • It will increase the supply of long-dated AAA-rated securities at a time when demand for them is incredibly high.
  • It will decrease the ability of Euro member countries to argue that they should be able to violate the terms of the Maastricht Treaty at times of economic hardship as at least some of the heavy lifting in counter-cyclical policy will be done for them.

Second, country-specific lending standards

A crucial problem with a single currency is that it imposes a one-size-fits-all monetary policy on all member states, even when those states’ economies are not perfectly synchronised.  Synchronisation was, and is, one of the requirements for accession to the Euro, but perfect synchronisation is impossible.  In particular, inflation rates have varied significantly across the Euro-area, meaning that the common-to-all interest rates set by the ECB have been, by necessity, too low for those economies with the highest rates of inflation (e.g. Spain) and too high for those with the lowest rates of inflation (e.g. Germany).

But the (causal) link from interest rates to inflation travels via the extension of credit to the private sector, and the level of credit is determined not just from the demand side (with agents responding to changes in interest rates), but also from the supply side (with banks deciding to whom and under what conditions they will grant credit).  Monetary authorities in individual member countries therefore retain the ability to influence the level of credit through regulatory influence on the supply of the same.

Altering reserve requirements for banks operating in one’s country would be the crudest version of this mechanism. A more modern equivalent would be changes to the minimum level for banks’ capital adequacy ratios.  Imagine if the Spanish banking regulators had imposed a requirement of 10% deposits on all mortgages from 2005.

I suspect that the new “macro-prudential” role of the Bank of England, in addition to its role of more conventional — and, with Q.E., unconventional — monetary policy will grant them the ability to engage this sort of control.  I think it will become more important over time, too, as the British economy continues its (to my mind inevitable) decline relative to the Euro-area, the UK moves closer to the textbook definition of a “small, open economy” and the BoE thus finds itself more constricted in their choice of interest rates.

Update 13 September 2010:

The new Basel III capital adequacy requirements are out and they appear to enable exactly this second idea.  Good!

In today’s episode of Politically Dicey But Important Topics Of Research …

Published on 1 July 2010 in Academia, Development, Health Care and Welfare. Tags: , , . 0 Comments

The newspaper article summarising the research: http://www.guardian.co.uk/science/2010/jun/30/disease-rife-countries-low-iqs

People who live in countries where disease is rife may have lower IQs because they have to divert energy away from brain development to fight infections, scientists in the US claim.

The controversial idea might help explain why national IQ scores differ around the world, and are lower in some warmer countries where debilitating parasites such as malaria are widespread, they say.

Researchers behind the theory claim the impact of disease on IQ scores has been under-appreciated, and believe it ranks alongside education and wealth as a major factor that influences cognitive ability.

[...]

The actual research article: http://rspb.royalsocietypublishing.org/content/early/2010/06/29/rspb.2010.0973.full?sid=f65fe5b5-b8d4-4e62-82ee-60c7bd44e3d3

Abstract

In this study, we hypothesize that the worldwide distribution of cognitive ability is determined in part by variation in the intensity of infectious diseases. From an energetics standpoint, a developing human will have difficulty building a brain and fighting off infectious diseases at the same time, as both are very metabolically costly tasks. Using three measures of average national intelligence quotient (IQ), we found that the zero-order correlation between average IQ and parasite stress ranges from r = ?0.76 to r = ?0.82 (p < 0.0001). These correlations are robust worldwide, as well as within five of six world regions. Infectious disease remains the most powerful predictor of average national IQ when temperature, distance from Africa, gross domestic product per capita and several measures of education are controlled for. These findings suggest that the Flynn effect may be caused in part by the decrease in the intensity of infectious diseases as nations develop.

For reference, the Flynn effect:  http://en.wikipedia.org/wiki/Flynn_effect

The Flynn effect describes an increase in the average intelligence quotient (IQ) test scores over generations (IQ gains over time). Similar improvements have been reported for other cognitions such as semantic and episodic memory.[1]  The effect has been observed in most parts of the world at different rates.

The Flynn effect is named for James R. Flynn, who did much to document it and promote awareness of its implications. The term itself was coined by the authors of The Bell Curve.[2]

The effect’s increase has been continuous and approximately linear from the earliest years of testing to the present. There are numerous explanations to the Flynn effect and also some criticism. There is currently a discussion if the Flynn effect has ended in some developed nations since the mid 1990s.

The future of civil society (I hope)

Published on 30 April 2010 in Politics, The Environment, Thinking on the margin and Welfare. Tags: , , , , , , . 3 Comments

In the Netherlands:

Potholes, stray garbage, broken street lamps? Citizens of Eindhoven can now report local issues by iPhone, using the BuitenBeter app that was launched today. After spotting something that needs to be fixed, residents can use the app to take a picture, select an appropriate category and send their complaint directly through to the city council. A combination of GPS and maps lets users pinpoint the exact location of the problem, providing city workers with all the information they need to identify and resolve the problem.

The application covers a wide range of familiar nuisances, from broken sidewalks to loitering youth (who will hopefully respond favourably to having their picture taken by concerned citizens). Compared with lodging a complaint by phone or in writing, BuitenBeter creates a nearly frictionless experience and will no doubt prompt a wider group of people to become active reporters of issues that need the city’s attention.

Besides giving people an easy way to send through detailed reports, city officials also believe the concept will create shorter lines of communication, and will facilitate quicker feedback from local government to citizens. Developed by mobile solutions provider Yucat, the BuitenBeter app will soon be available for Android and Windows Mobile phones, too. Eindhoven has signed on for a twelve-month trial, and Yucat hopes to roll out the system to other cities in the near future.

This is brilliant.  More!

America and health care

Published on 23 March 2010 in Economics, Health Care, Justice/Law, Personal, Politics, Religion, USA and Welfare. Tags: , , , , , , , , . 0 Comments

In the light of the recent passage by the U.S. House of Represenatives of the Senate’s version of healthcare reform and the ensuing wailing, gnashing of teeth and smearing of soot in the hair by opponents of said reform, let me give my view – as an outsider – on the matter:

It’s a question of morality.

It astounds me — and, frankly, every other non-American USA-watcher in the developed world — that the richest nation on earth, whose very constitution proclaims the pursuit of life, liberty and happiness to be it’s highest ideals, whose citizenry so loudly profess to live by Christian virtues, would not guarantee that some form of basic, minimum healthcare be available to all of its citizens independently of their ability to pay.  It utterly astounds me.  If I were American, it would disgust me that this had not happened 50 years ago.

If my income and my wealth is above average for my society, I have an ethical duty to subsidise the health care of those who are, for whatever reason, at the lower end of the spectrum.  Yes, there are issues of free riders and of personal responsibility, but they simply do not matter when answering the basic question.  The government of a country, acting on behalf of that country’s people, has a moral imperative to provide a minimum level of care to all of its citizens.

I am not saying this as a screaming socialist.  I freaking hate socialism.  I love the market (when it’s allowed to function properly with full transparancy).  I support (at least partially, and possibly fully) privitised social security.  I like the idea of small government.  I rage against the nanny-state in Australia and in the UK.  I worry about encouraging dependency and a sence of entitlement in those people assisted by the government.  But those concerns take a back seat on this issue.

So, yes, the second question (a two-for) is to ask what the minimum level should be and how to pay for it.  But first question should have been a no-brainer.

If all the country can afford is a polio shot and a packet of aspirin, then that’s what they should provide (hopefully a charity or two might help out, too).  But if the country is the richest in the history of the planet, they should be able to stump up for a bit more.

And, yes, for the next criticism, this particular reform by the U.S. Congress is nominally promising more than it will reallly provide when it comes to the fiscal deficit.  Yes, again, given America’s political structure, U.S. government spending won’t be truely corrected until there is a real crisis approaching (as opposed to the make-believe crises being proclaimed by people opposed to the bailouts and stimulus package(s)).

I don’t care.  The child of an unemployed, drug-taking high-school dropout should not be deprived of basic access to a doctor just because we’re angry at their parents.  Nor should their parents, come to that.

Thinking about Human Rights (and UNICEF)

Published on 16 February 2010 in Development, Economics, Health Care, Justice/Law, Prostitution and Welfare. Tags: , , , , . 0 Comments

Before I begin:  UNICEF has a campaign in the UK at the moment to raise awareness of children being denied their rights around the world.  You can see the homepage for the campaign here.  You can donate here.

Here are some things to keep in mind when thinking about human rights:

  • A right is a particular form of liberty.  It is the freedom to do something.
  • An obligation or mandate is the opposite of a right.  A right involves a conscious choice; thus the phrase “to exercise one’s right.”  If there is no choice available, there is no right.
  • One person having a right often implies denying another right from a second person.  Suppose that you work for me.  If I have the right to fire you, you cannot have the right to a guaranteed job with me.  If you have the right to go on strike, I cannot have the right to fire you for going on strike.
  • Sometimes having a right does not impede the rights of others.  A right to make use of a non-rival good is the classic example.
  • Exercising a right is not necessarily in a person’s best interest.  I have the right to gamble all of my money at a casino, but it probably wouldn’t be wise to do so.
  • Every decision of consequence for everybody, everywhere, is subject to a constraint of some kind.  There are only 24 hours in a day, the resources at your disposal are finite and, eventually, you will die.
  • If a person, operating under a constraint, chooses to not do something, it does not imply that their right has been denied to them.

These last two points, while logical, create problems for many advocacy groups.  Consider the woman who, subject to constraints in her finances and the wages on offer for various jobs she can perform, chooses to become a prostitute.  Consider the subsistence-farming family that, subject to constraints in it’s finances and the wages on offer for alternative work, chooses to keep it’s children away from school and working on the farm.

It is largely for this reason that many people advocate what they call “economic rights”.  Although there are various versions of this (e.g. minimum wages, the welfare state, etc.), you can think of them as a government, on behalf of the entire population, instituting a guaranteed minimum income.

Now, while there are strong moral arguments for such a guarantee (which I fully support and agree with), this is not a right.  This is a mandated transfer of income from high-income citizens to low-income citizens.  For the rich, it is an obligation (the opposite of a right) and for the poor, it does not directly increase the range of choices available to them.  Instead, it indirectly increases that range by relaxing one of their constraints.

I say again:  I fully support providing a minimum income to all people by means of a welfare state; nobody should live in poverty.  But this is not a right.  It is a moral duty.  Calling this an “economic right” is a deliberate obfuscation for marketing purposes.  People pay more attention and money when a person’s “rights” are being denied than when they simply have a moral obligation to help.

I love the work done by UNICEF. I think they are just about the best NGO on the planet. My wife and I donate money to them. They make an express point of telling you how much of the money you give will go to administration costs or to more fundraising.

I just wish they could raise those funds without confusing things by saying that Aklima’s right to education is being denied to her.  I recognise that they have to.  I just wish that they didn’t.

Who has more information, the Central Bank or the Private Sector?

Published on 5 November 2009 in Academia, Article Summary, Economics, Finance and Welfare. Tags: , , , , , . 0 Comments

A friend pointed me to this paper:

Svensson, Lars E. O. and Michael Woodford. “Indicator Variables For Optimal Policy,” Journal of Monetary Economics, 2003, v50(3,Apr), 691-720.

You can get the NBER working paper (w8255) here.  The abstract:

The optimal weights on indicators in models with partial information about the state of the economy and forward-looking variables are derived and interpreted, both for equilibria under discretion and under commitment. The private sector is assumed to have information about the state of the economy that the policymaker does not possess. Certainty-equivalence is shown to apply, in the sense that optimal policy reactions to optimally estimated states of the economy are independent of the degree of uncertainty. The usual separation principle does not hold, since the estimation of the state of the economy is not independent of optimization and is in general quite complex. We present a general characterization of optimal filtering and control in settings of this kind, and discuss an application of our methods to the problem of the optimal use of ‘real-time’ macroeconomic data in the conduct of monetary policy. [Emphasis added by John Barrdear]

The sentence I’ve highlighted is interesting.  As written in the abstract, it’s probably true.  Here’s a paragraph from page two that expands the thought:

One may or may not believe that central banks typically possess less information about the state of the economy than does the private sector. However, there is at least one important argument for the appeal of this assumption. This is that it is the only case in which it is intellectually coherent to assume a common information set for all members of the private sector, so that the model’s equations can be expressed in terms of aggregative equations that refer to only a single “private sector information set,” while at the same time these model equations are treated as structural, and hence invariant under the alternative policies that are considered in the central bank’s optimization problem. It does not make sense that any state variables should matter for the determination of economically relevant quantities (that is, relevant to the central bank’s objectives), if they are not known to anyone in the private sector. But if all private agents are to have a common information set, they must then have full information about the relevant state variables. It does not follow from this reasoning, of course, that it is more accurate to assume that all private agents have superior information to that of the central bank; it follows only that this case is one in which the complications resulting from partial information are especially tractable. The development of methods for characterizing optimal policy when di fferent private agents have di fferent information sets remains an important topic for further research.

Here’s my attempt as paraphrasing Svensson and Woodford in point form:

  1. The real economy is the sum of private agents (plus the government, but ignore that)
  2. Complete information is thus, by definition, knowledge of every individual agent
  3. If we assume that everybody knows about themselves (at least), then the union of all private information sets must equal complete information
  4. The Central Bank observes only a sample of private agents
  5. That is, the Central Bank information set is a subset of the union of all private information sets. The Central Bank’s information cannot be greater than the union of all private information sets.
  6. One strategy in simplifying the Central Bank’s problem is to assume that private agents are symmetric in information (i.e. they have a common information set).  In that case, we’d say that the Central Bank cannot have more information than the representative private sector agent. [See note 1 below]
  7. Important future research will involve relaxing the assumption in (f) and instead allowing asymmetric information across different private agents.  In that world, the Central Bank might have more information than any given private agent, but still less than the union of all private agents.

Svensson and Woodford then go on to consider a world where the Central Bank’s information set is smaller than (i.e. is a subset of) the Private Sector’s common information set.

But that doesn’t really make sense to me.

If private agents share a common information set, it seems silly to suppose that the Central Bank has less information than the Private Sector, for the simple reason that the mechanism of creating the common information set – commonly observable prices that are sufficient statistics of private signals – is also available to the Central Bank.

In that situation, it seems more plausible to me to argue that the CB has more information than the Private Sector, provided that their staff aren’t quietly acting on the information on the side.  It also would result in observed history:  the Private Sector pays ridiculous amounts of attention to every word uttered by the Central Bank (because the Central Bank has the one private signal that isn’t assimilated into the price).

Note 1: To arrive at all private agents sharing a common information set, you require something like the EMH (in fact, I can’t think how you could get there without the EMH).  A common information set emerges from a commonly observable sufficient statistic of all private information.  Prices are that statistic.