What's Nigel Farage's Beef with the European Union?

One of Britain's biggest political victors of 2014 have certainly been UKIP. Farage's men have risen from sharing the BNP's status as the nation's political laughing stock, to... well, still laughing stock (as any casual viewer of BBC's Mock The Week will certainly have observed), but a party that is now genuinely feared by the 'Big Three'- Cameron's Conservatives, Milliband's Labour and Clegg's Liberal Democrats. It's difficult to believe, but a recent Observer/Opinium poll suggested that presented with a genuine chance of a UKIP victory in their constituency, 31% of British voters would vote UKIP.

Their spectacular rise in popularity has been no accident- if Farage was a surfer, he'd be a darn talented one. He has ridden the massive waves of Euroscepticism, Immigrascepticism, Welfarescepticism, many of the scepticisms you could think about that have grown in the frustrated hearts of many voters not just on the right, but much of the centre also. Oh, and perhaps we have the BBC to thank as well for their rise.

Anyway, back to UKIP policy- perhaps their most significant manifesto promise is the swift exit of Britain from the European Union, the EU.

The EU is both a politically and economically binding union that, according to the organisers itself, "has delivered half a century of peace, stability and prosperity, helped raise living standards, and launched a single European currency, the euro". If the EU could be considered a single economy, which it often is, it would be the largest economy in the world- perhaps unsurprising however when one considers it is an amalgamation of 28 economies.

The Euro currency is perhaps the most prominent factors binding European nations- but it affects the British public little in a direct sense- for Britain is outside of this 'Eurozone', the union of nations sharing the Euro as its currency. Of course, we have the pound.

But what does directly affect Britain with regards to the EU are unifying policies such as free inter-EU movement of labour, inter-EU tariff-free trade, and the power to implement these measures in itself. Let's discuss these three and see just what UKIP and its supporters see as the problem.

Free Inter-EU Movement of Labour 

Ah, well this has been a controversial issue for sure. Immigration has been constantly featured in the news outlets of Britain for the past decade- debates have erupted over whether there should be more, whether there should be less, whether there shouldn't be any at all. Farage and his crew have frequently blasted the 'unconditional open door' to EU immigrants that is enforced upon Britain, like all EU states, by the Union. Article 45 of the EU treaty entitles EU citizens to rights such as that to seek employment in an EU country with no need for a work permit, enjoy equal treatment with nationals in access to employment, working conditions and all other social and tax advantages. It also rules that EU countries must acknowledge an EU citizen's qualifications- so if a doctor has achieved his qualifications in Britain, he must be also acknowledged as a doctor if he wants to move to Belgium for example, without having to take further education.

UKIP's line has been very clear on this issue- that immigrants are coming to Britain seeking better pay (Britain's minimum wage is nine times that of Bulgaria's for example) and standard of living (the NHS, better education, better infrastructure). These are surely natural desires- a father will naturally do his best to provide a better life for his family.

But Farage and co. believe this is bleeding Britain economically. UKIP have frequently criticised immigrants for coming to leech off Britain's divisive social welfare system, that can provide residents with benefits such as free healthcare and unemployment allowance. UKIP argue this is draining the economy as EU citizens from Eastern Europe in particular take residence in the UK, and benefit from social welfare 'without contributing a fair amount' to the economy. They are certainly correct that many people have chosen to move to Britain from Eastern Europe- Polish is the most commonly-spoken non-native language in Britain - but whether they are not contributing a fair amount is not so certain. Chef Jamie Oliver, owner of over 30 branches of his Jamie's Italian restaurants throughout the UK, claims "if we didn’t have any (European immigrants), all of my restaurants would close tomorrow. There wouldn’t be any Brits to replace them"- he cites the improved work ethic of many immigrants, suggesting strongly that they do contribute a fair amount. Perhaps what he forgot to note was also that many immigrants from Eastern Europe demand lower salaries than their British equivalents- the building industry has been particularly indicative of this- you can see via a quick google search of 'Polish builders' that they are in high demand due to their cheap rates and work ethic.

UKIP's solution? Farage has suggested that he upon victory in an election, he would enforce a five-year ban on immigration- he strangely admits he would even pursue this policy if it would have a negative impact on Britain's economy; telling BBC Radio 4's Today programme "If you said to me do you want to see another five million people come to Britain, and if that happened we would all be slightly richer, I would say, do you know what, I would rather we were not slightly richer." He believes this ban would return employment back to the 'British youth' rather than immigrants, and thus boost employment rates among the natives. Hmm, this may perhaps slightly smell of racism.

Farage believes a work permit system should also be enforced, via which checks would be made about a potential immigrant's suitability to work in Britain.

Inter-EU Tariff Free Trade

This is an interesting issue because it is one that UKIP have not really vocally opposed- in fact it is seen as the best bit of EU membership, allowing Britain to trade with other countries such as France and Germany without many of the extra trans-national fees that non-EU countries like the USA or Brazil may have to cough up. 

This is perhaps where UKIP's proposal to leave the EU falls, however. This free trade agreement benefits British businesses and if we were to leave the Union the tariffs would return- harming not only British businesses wishing to trade outwards but also European businesses looking to invest in Britain, who would similarly be faced by non-EU tariffs. 

A solution proposed by some would be the formation of treaties with EU nations to restore free trade, simply on an individual nation basis. However, as well as the time and diplomatic issues this would entail, it may just be impossible. Some EU member states may see Britain as betraying the Union (Angela Merkel has already suggested Britain is doing so within it) and may as a result refuse to sign agreements, resulting in real losses for Britain's economy.

EU Legislation

A widespread worry over the European Union is its undemocratic, centralised nature.

What is called the 'democratic deficit' has become frustrating to many EU citizens- a Pew Research poll found the majorities of seven major European countries believe their votes for EU representatives have no effect- including a staggering 81% of Italians. As a result of voter disenchantment at the complex, bureaucratic nature of EU decision making, voter turnout has falling dramatically in recent decades- by almost 20% between 1979 and 2009.

The EU lacks the very democratic values that it has set as a prerequisite for its member nations. According to The Atlantic, the European Parliament is the only one of seven EU institutions that is directly elected by EU citizens- and clearly even that is not satisfying much of the public.

The EU have meddled in national affairs- for example as a result of the recent Eurocrisis they took control of Greece's financial policy (though at the cost of a huge financial bailout), and more recently they have slapped a £1.7 billion bill on Britain for underestimating its economic growth. 

Eurosceptics believe leaving the EU would remove the EU's power over Britain in terms of policy and also discipline. They say too many decisions are being made in Brussels (a phrase you'll often hear in the EU debate, Brussels being the EU's base city) rather than in Westminster- and they argue more powers would be transferred to the British government, and therefore the British people, who hold the government responsible.

The EU debate will certainly continue to be a major talking point for the forthcoming 2015 UK General Election. The major parties have all promised referendums on EU membership should they come to power, and they have certainly been shaken by UKIP's growth from a protest vote into a potential candidate for power in Downing St- David Cameron and more shockingly Labour's Ed Milliband have set immigration at the top of their agendas in search to sway potential UKIP voters towards them. The high-profile defections of two Tory MPs earlier this year to Farage's party, and rumours of even Labour MPs following suit show truly how close in policy the political parties in Britain have become. 

The next decade is key for Britain- whoever wins the next General Election, membership of the EU will be a primary focus and whether the disenchanted among the public will sway government policy, we shall see. 

Why does EA's FIFA disappoint some people EVERY YEAR?

It happens every September. A new FIFA game comes out and along with it comes a barrage of hate. "FIFA 15 is the worst FIFA yet. EA just hype up the game to let everyone down.", exclaims user 'oritepal' on the EA forums. Nathan Ditum of The Telegraph claims "FIFA 15 fails to greatly differentiate itself from its previous incarnations"- user 'Bada_bing8' agrees, dubbing 15 "another pointless iteration".

These people are often justified in their criticisms- EA seems to have a habit of hyping up their 'upgrades' to the game that change it little- they even dedicated a whole trailer of such revolutionary features, such as visibly breathing players and, best of all, moving corner flags. Meanwhile they often postpone their often impressive upgrades for later iterations.
And this is before we get to some of the worst aspects of FIFA- including endless in-game microtransactions, and sometimes unbearable online servers.

Despite this, FIFA is the best-selling video game in the UK, and has been so since its release. Hundreds of thousands, or even millions, of gamers worldwide are quickly hooked onto each FIFA iteration as soon as it is released- I myself have been one of them before.
Why? The answer's pretty simple. These gamers aren't stupid- they don't buy games that suck- FIFA evidently has a lot going for it. It's an addictive game, but that's not the only reason why people buy it.
People often buy it because there's nothing better. Football is the world's most popular sport, so evidently a good quality, constantly innovating football video game is what many people want. But FIFA doesn't always offer this- as we've covered earlier.
So, someone who knew nothing about video games would ask the question- why don't they buy another football game? A better one?
The principle is a core of business economics. It's what people believe to be the democratic part of consumerism- that if you don't like a product 'x', you stop buying it, and buy another, product 'y'. If enough people do it, the company making product 'x' will see a fall in profits and therefore to boost them, they will improve product 'x' to be as good as 'y'.

But this can't happen with regards to FIFA. Why? Because there's only 1 alternative to FIFA- and that has been suffering in past years. Pro Evolution Soccer (PES) has always been in FIFA's shadow in the sports game industry- Konami, makers of PES have not even been able to launch PES 15 by the key September month- they expect to release in early November, two months behind FIFA.

The difference between the success of the two titles is staggering- in 2012/13, EA sold 13.5 million copies of its FIFA 13 title- Konami a paltry 1.9 million. PES 15 in priciple is competition to FIFA, but in reality it is nowhere near.

EA has almost total domination of the football games market- they have no effective competition, they have a monopoly. What does this mean?

This means they have little pressure to develop their games, to innovate, to make them better. If FIFA 16 is not that much better than 15, EA will be safe in the knowledge that they're not going to lose all of their customers- simply because PES is not effective enough competition to steal away customers. This makes complacency- the key reason why EA perhaps does not improve FIFA as much as they could every year.

It's also why EA can afford to offer so many microtransactions- they stand nothing to lose from it, because people will not avoid FIFA solely because of them; PES doesn't even have a similar game mode. EA can only profit from those who choose to spend extra money furnishing their Ultimate Team.

So, why couldn't PES improve and catch up? Again, the answer is monopoly. If you've ever played PES, you'll notice that many teams don't have real kits of club badges, or even names. Chelsea FC is creatively called 'London Blues', Arsenal 'North London'.
This is because PES needs licensing to use the real kits and badges of these clubs- but who holds exclusive rights to Premier League licensing? That's right, EA- it's exclusive to the FIFA series.
And this issue has for long been the key weakness of PES. No matter how realistic the match engine is, it's a straight turn off for many if they can't play in the kit, or even use the name of their favourite club.

Windows Vista, the software that gave nightmares
to millions of users.

Monopolies can cause businesses in general to become lazy, complacent and stuck in the past. Significant examples other than FIFA could include Microsoft in the noughties (stuck in the daze of Windows XP's monopoly), and AT&T and Verizon in the USA- cellphone providers who have been the bane of many a phone user's life in America, largely due to poor customer service and inflating contract prices.

And many monopolistic companies will be happy to gobble up any potential competition. In 2011, AT&T made an attempt to acquire T-Mobile, the closest competitor of the two aforementioned providers. Why? Because if T-Mobile then got a larger share of the cellphone market, AT&T would not be threatened- if they owned T-Mobile, they'd in fact make a profit from that. T-Mobile's share of the market would be gobbled up by AT&T- decreasing competition and furthering market monopoly.

There are so many ways a lazy company can block competition and thus increase their monopoly. There are basic stuff we don't always notice- for example patents are a formidable way of blocking competition in a new and emerging market.
On the other hand, companies can open up themselves to competition- like Tesla, who earlier this year opened up all their patents to their competition. Giving up patents, exclusivity rights, whatever monopolistic agreements, will not create an easy ride for any company but it can give them the kick they need to provide genuine improvements to their products.

If EA was not hiding behind their exclusive Premier League licensing, if PES shared the same rights, FIFA would be far more threatened- PES would still have a far way to go but perhaps EA would receive the kick it needs to provide genuine and lasting innovation to its customers.

The American Nightmare: How the American Dream has tainted American society.

"The American Dream is that dream of a land in which life should be better and richer and fuller for everyone, with opportunity for each according to ability or achievement."

James Truslow Adams, The Epic of America

One of the things that have defined the relatively young nation of the United States of America has been the sense of hope, the optimism and self-belief that is encapsulated in the notion of 'The American Dream'. 

The American Dream is founded upon the idea of the USA being a perfect meritocracy- that is a place where success is purely based on merit, on one's own efforts, regardless of their socio-economic background. So long as an individual worked hard, he could achieve his dreams.
So what are the 'rewards' of achieving the American Dream? Wealth? Social Status? Not exactly. Above all, happiness is probably the goal most associated with the Dream. After all, happiness is what every person seeks, regardless of whether they are subscribed to the American Dream or not.
But how does one achieve happiness? A popular belief that has existed throughout time and perhaps was never stronger than in the America of the Roaring Twenties, is that money=material=happiness. Put simply, it is the belief that money can buy you happiness.
Of course, money is indeed often a route to comfort (it's easier to cry in a Ferrari than in a tent), but happiness is a concept that does not equate to comfort but builds upon it. Comfort is just one of the many things that has potential to bring you happiness; many people can claim to be 'comfortable', but not truly happy.

The shallow belief in money and the power it brings being the only means to happiness is what links the 'American Dream' to the modern diseases of superficiality, materialism and consumerism. People see material as their end goal; taking it for granted that happiness will follow. It won't: just see any of the large selection of celebrity crises, they are pretty good examples of how money, power and fame does not guarantee happiness- in fact they can sometimes work to its detriment.

Further issues arise from the concept of the 'American Dream'. Society has little role to play in the Dream other than simply facilitating the rise of certain individuals. The 'every man for himself' attitude encouraged by this idea, that you can and should work hard for yourself to achieve your Dream has created selfish individuals who use their talents not to benefit society as a whole by contributing real value to society- be it by selling products that will better peoples' lives, or by alleviating poverty- but use their talents simply to their own gains- at most the gains of their close family and friends.

It's certainly true that like chocolate (yes, hang on with me here), money, after a certain point, is subject to the notion of marginal value. Some economists believe it is good to have massively wealthy individuals in a nation- see the earlier article on trickle-down economics- but more often than not, after a certain point wealth becomes of little value to an individual. 
It's like chocolate because one bar of chocolate is often very tasty. Maybe even the second. But after the third or fourth it becomes sickly- to the point that where you might have paid for the first, you might actually pay someone else to take the tenth. The value of the chocolate declines after a certain point- money does the very same, simply because the toys that the rich can purchase only go up to a certain value before they simply become ridiculous investments.
Take Bill Gates, the second wealthiest person in the world, with a fortune of over $80 billion dollars.
In an interview with The Telegraph last year, Bill clearly told the reporter: "Money has no utility to me beyond a certain point."- and it shows in how the wealthy are collecting money on an outstanding scale. 
This can be seen in how the collective wealth of households with more than $1m in investible wealth rose by 66% since 2008- despite global economic output rising only 16% in this time.
The wealthiest individuals of society have no actual use for much of their money- this isn't something too crazy to imagine. Bill Gates already has a home worth $150m, and most probably every material possession he could desire- so what else is he going to spend his $80b on? Interestingly enough, it is for something to benefit society at large- Gates has given over $8b in charity to improve global health, most notably fighting for the eradication of diseases such as polio. 

I digress. Back to the point, the American Dream harbours a sense of individualism that is detrimental to society at large. Bill Gates is relatively unique in his spending- the increase in wealth of the richest in society shows that most are pretty much hoarding cash for a rainy day that may or may not come. 
And the Dream also gives society an excuse to neglect the poor and unfortunate. Yes, of course there are poor people in every country who will be there largely because of their own deficiencies- usually attributed to their own lack of effort- but the belief in America being this perfect meritocracy has simply boosted the ego of much of the wealthy and given them an excuse not to contribute even a tiny part of their wealth to the unfortunate in society. It promotes the often incorrect belief that every poor person is their exclusively due to their own shortcomings. 

A prominent example of the corrupt side of the individualism encouraged by the Dream include the behaviour of bankers in the various financial crises of the past century. Acting out of self-interest purely, they gave away cheap, risky credit that ultimately they benefited from, at the massive cost of almost every customer they dealt with. 

Ultimately, the belief in America (or any country in the world, for that matter) being a perfectly plutocratic 'land of opportunity' is far from the truth. After all, a pure plutocracy would be one without the tradition of family inheritance, the sort that fed with a silver spoon the wealths of individuals such as Donald Trump and Mitt Romney. 

America has in many senses stayed true to the American Dream- and while many have gleamed success from it, one could argue that it has tainted society with an individual-centred spirit that has boosted certain individuals at the cost of numerous others.

SOURCES (and recommended reads):

Telegraph interview with Bill Gates http://www.telegraph.co.uk/technology/bill-gates/9812672/Bill-Gates-interview-I-have-no-use-for-money.-This-is-Gods-work.html

The Ultra Rich Are Hoarding Cash As Inequality Anger Simmers http://www.businessinsider.com/r-cash-stash-may-reflect-fear-of-wealth-going-out-of-fashion-2014-25

The World's Richest People are Sitting on Gigantic Piles of Cash that aren't Earning Them Anything http://business.financialpost.com/2014/06/11/the-worlds-richest-people-are-sitting-on-gigantic-piles-of-cash-that-arent-earning-them-anything/

Brian Miller, Mike Lapham The Self-Made Myth: The Truth About How Government Helps Individuals and Businesses Succeed (Berrett-Koehler Publishers, 2012)

The Bill and Melinda Gates Foundation http://www.gatesfoundation.org/ 

Why Tesla Motors Could Be the Most Important Car Company in the World.

Tesla Motors founder Elon Musk- often dubbed 'the
real life Tony Stark'.

One of the hottest new companies to come out of the golden hills of Silicon Valley is not another computer-based company, but, for the first time, a car company. 

Tesla Motors, the brainchild of a founder of PayPal, Space X and numerous other ventures Elon Musk have set out to revolutionise the car industry.

Although it's not overly apparent at the moment, much of the conventional car industry today is broken. Yes, cars are being innovated, crammed with more technology in the shape of screens, cameras and whatnot, and they are becoming more comfortable and so on but fundamental environmental problems still exist (yes, despite the increasing MPGs we are seeing). 

First and most important is the issue of the environmental impact that cars today hold. In 2011 the number of cars worldwide surpassed 1 billion, with newly boosted economies such as China and India in particular seeing huge increases in car usage. And the growth is not expected to stop any time soon; in the same year, the OECD's International Transport Forum claimed we could see up to 2.5 billion cars on the roads by 2050.

Now there are two major environmental issues with such a large number of cars- firstly, the large majority of cars on the road (particularly in newer economic giants such as those in Asia) pollute huge amounts of harmful gases- mixtures of various hydrocarbons, carbon monoxide and dioxide, which all contribute to a polluted air that with it carries increased risk of cardiovascular disease and cancer to humans, poor nutrition for plants and ominously it is a major cause of global warming, which, causing the melting of polar caps, could in future lead to huge natural disasters. 

Cars are certainly dangerous to the environment- according to the US Environmental Protection Agency, transportation (most of which is in the form of cars) contributes 27% of the greenhouse gas emissions in the USA.

Smog, one of the many unpleasant effects of pollution,
shrouds Paris.

Another key issues relies in the scarcity of the resources required to continue our dependency on automobiles. According to the World Bank, for every 1000 citizens of the USA there exists 786 cars in the country- when you consider the large chunk of people unable to drive, this makes for over a car per person, and the 300 million population of the US makes these statistics even worse. The US, while a prominent example, is not alone in this obsession with cars- the UK's figure lay at 516, still a large amount.

So we are so dependent on cars- but the large majority (over 95%) of cars sold in the US are conventional petrol/diesel affairs. Considering this, the seemingly endless growth of car ownership and the fact that BP claimed there to be only 53.3 years of oil left on the earth, it really does seem we can't afford to continue depending on these vehicles because one day in the near future, we will not be able to run them (one can state that, as has often been the case, new oil reserves will be found in the future, but can we really afford to rely on that anymore).

So, back to Tesla. Basically, they want to circumvent all these issues associated with conventional fossil fuel cars. So how do you do that? Make hybrid cars, of course.

But that's not enough; hybrid cars are hybrid, remember- a mixture of petrol/diesel and electric power. They still require these preciously damaging commodities to be used to work, and above a certain speed they still pollute.

The Tesla Model S, Musk's first major entry into the electric
car market.

So Tesla set its sights to popularise the fully electric car, with their first stab at the premium saloon market coming in the very easy on the eye Model S, and a forthcoming more affordable 'Model 3'. The aim is to bring electric cars (which require absolutely no fossil fuels to be inserted, nor burns any harmful gases) into the mainstream, but a certainly interesting move by Tesla has been that, unlike most companies, they seek not to monopolise this new industry by innovating internally and patenting endlessly to block out competitors. 

No, they are, spectacularly, doing quite the opposite: in a bold move earlier this June, Tesla opened up its collection of 249 patents to use by any competitor 'in good faith', something Elon Musk claimed to be part of the 'open source movement' with the intent of sparking genuine market development and competition in the bare area of electric cars.

In normal business terms, this is a ludicrous move- patents, after all, have been the focus of this mega conflict between two technology giants, Apple and Samsung. Conflict over patents cost these sides over a billion dollars- so why are Tesla just letting go of all of them?

It's a textbook example of what economist Umair Haque calls a development of 'market resilience' in his book The New Capitalist Manifesto. Tesla could have kept tight hold of the revolutionary patents they possessed, and with their incredibly 'cool' brand they could have dominated the electric car market for the next decade via their exclusive technologies. But no- Musk and co. opening up these patents has the effect of opening up the market to fair and vibrant competition. Tesla perhaps a year or two ago would have easily been crushed by huge competitors- but now it can stand on its two feet it wants to kick of the stabilisers and compete. 

BMW have already made their entrances into
Tesla's market with their i3 and i8 electric cars.

Opening up the patents shows a desire to see development in the market, and is actually a dangerous move for Tesla. BMW could tomorrow launch a Model S competitor in a fully electric 5-Series- the huge marketing and already existing prestige of the brand could possibly reduce Tesla to just a minor 

player in the market. Mercedes, Audi, Toyota, Ford, all these brands and more could do the same.

This is where the 'Resilience' mentioned by Haque comes into play; Tesla, by opening itself up to market competition, will have to fight to grow, fight via innovation, genuine development of technology, and so will its competitors if they want to grab a share of this growing market. Tesla won't have the security of a cocoon of patents- but neither will they have the temptation of laziness that comes with market security- just ask Microsoft about what complacency brought by monopoly did for them in the noughties (cough, Vista, cough).

Tesla opening up their patents was a bold move indeed, especially by a relatively new entrant into the automotive market. But it is a truly innovative, progressive move that will hopefully boost the automotive industry as a whole, and help us escape from the tyranny of conventional gas-guzzlers by providing a cleaner, affordable and most importantly more sustainable alternative.

It will be a long, hard battle for Musk and Co.- but we wish them the best of luck.

Long live Tesla. 

SOURCES (and recommended reads):

The Capitalist Manifesto by Umair Haque is a real eye opener to the next generation of corporation- the Googles, the Teslas, the Nikes and the Wal-Marts (yes, really, you'll have to read the book to find out why). It's definitely worth a read: http://www.amazon.co.uk/The-New-Capitalist-Manifesto-Disruptively/dp/1422158586

Space X, Elon Musk's latest venture into the stars: http://www.spacex.com/

Number of Cars in the World surpass 1 Billion: http://www.huffingtonpost.ca/2011/08/23/car-population_n_934291.html

We Could See 2.5 Billion Cars on the Road by 2050: http://www.ipsnews.net/news.asp?idnews=55943

Global Warming and Natural Disasters: 

http://www.theguardian.com/environment/2009/sep/06/global-warming-natural-disasters-conference

Transport responsible for 27% of US Greenhouse Gas Emissions: http://auto.howstuffworks.com/air-pollution-from-cars.htm

World Bank Global Car Ownership Stats: http://data.worldbank.org/indicator/IS.VEH.NVEH.P3

BP: Not much Oil left in the world: http://gas2.org/2014/07/03/bp-estimates-world-just-53-3-years-oil-left/

Elon Musk Announcing Release of All Tesla Patents: http://www.teslamotors.com/blog/all-our-patent-are-belong-you 

List of current 2014 Tesla Motors Patents (as of 5/10/14): http://stks.freshpatents.com/Tesla-Motors-Inc-nm1.php

Overview of Apple-Samsung Patent Conflict: http://www.cnet.com/news/apple-v-samsung-patent-trial-recap-how-it-all-turned-out-faq/

Tesla Official Website: http://www.teslamotors.com

BMW Official Website: http://www.bmw.com

Are Humans Rational?

Economics is a fascinating subject to learn from; it deals with an endless range of topics, from the markets and businesses of the world we live in to poverty and social welfare, from how best Nike could produce shoes to how you are affected by your government's policy. This is really just the tip of the iceberg, but for everything that happens in the world it could be argued that there is an economic explanation behind it. No, really- economics can explain things ranging from health phenomenons like obesity (largely due to the flooding of cheap fast food onto the streets), to why BMWs are often so good (apologies for the shameless self promotion). Just read the brilliantly accessible Freakonomics books and you'll get the idea- economics is everywhere.

However it's important to remember that many of the conclusions economics produces is reliant on us, as humans acting rationally- that is, simply put, in a way where we evaluate the pros and cons of a decision we are faced with, and take the decision should we see the pros outweigh the cons. 

Economics relies often on this notion of rationality with its modelling- a basic example is how economics predicts we as consumers may react to a sale. Take a very basic economic model, one that concludes that consumers are more likely to buy a box of Quality Street chocolates from Tesco, if the same box in every other supermarket is more expensive. This is a perfectly rational decision to make- why would you pay more for the chocolate and buy it from Sainsbury's when you can get the same one from Tesco? This economic model relies upon the axiom that all human actors in an economy are rational- they will always choose the option that benefits them most. 

But questions recently have been raised over this reliance on belief in rationality in economic modelling; the major argument against this is simply that not all humans act rationally. This argument may seem a bit strange in essence but there are two levels to this that we must consider first:

1) We may not act rationally with regards to the economic modelling we are subject to 

Taking the example of the Quality Streets in the supermarkets, the rational choice according to the economic modellers will be that people will take the cheapest option (Tesco); but almost certainly people will fall outside of this category. People almost definitely will buy Quality Streets from Asda even if they have knowledge that the chocolates are cheaper in Tesco, and this is likely to be not due to their lack of judgement but a whole host of potential factors- convenience, for example. 

Even if Quality Streets in Tesco are cheaper than Asda, if I live next door to an Asda and the Tesco is a 10 minute drive away, the overall rational decision would be to walk to Asda (and save fuel money), yet people who behave rationally and take such actions, in the economic model will not be considered so, giving potentially inaccurate impressions of factors such as price that are being tested.

Or, I may have a lack of information- buying the chocolates from Morrison's, ignorant of the cheaper prices in Tesco is still a rational decision as I am still taking the best decision as far as I know.

So factors other than price play important roles in our decision making- the use of rationality as a leveller does little to emphasise a certain factor in economic modelling.

2) What is rational? 

There's arguably no single measure of rationality- what I mean in saying this is that there is a concept of individual rationality but there can be further complications to this- such as being part of a larger group. Let's look at an example: say you need to buy your Quality Streets but this time it's on behalf of your boss, who will use company finances to pay you back for your purchase. The money-saving side of you tells you to go to Tesco, but your laziness tells you to go to the Waitrose nearby, where the Quality Streets are more expensive. Some people would go to Waitrose, (it's not their money after all), acting for their own rationale of convenience, whereas others would find it rational to go to Tesco and save money. In both cases, the person will be acting rationally- but both of them will have separate reasons and thus their rationales are different!

3) Humans are often irrational.

A failure of the claim to total human rationality is that, simply put, humans are often irrational. Our judgements are often clouded by emotion- to our benefit and detriment. A real life example of this could be behind one of the main causes of the recent economic crisis- as the bubble of borrowing grew larger and thrived, bankers got caught in the wave of optimism, willingly giving loans to people who in reality had a low chance of being able to return the money (though there is a conflicting reasoning for their actions). Emotion inevitably plays a large role in a lot of our decisions; think of every time you hear someone 'going with their gut', or 'taking a punt'-  these are examples of relatively irrational decision-making.

IBM's Watson supercomputer: an example of the pure, cold
rationality that no human can possess? 

Interestingly, this is often seen as an advantage that computers and technology as a whole has over humans; for example, this rationality and lack of emotion in judgement has been highlighted as a positive of IBM's Watson supercomputer, especially regarding its ability to perform medical diagnosis.

Of course there is another side to the argument- a common economist's response to these claims of human irrationality is that, when we observe a large group or population as a whole, these individual irrationalities are likely to balance each other out, as people may take different decisions irrationally. Perhaps a better way to put the assumption would be to phrase it as assuming humans are rational actors as a population, as a whole, rather than as individuals.

This is certainly a fair point, however doubt remains over smaller groups of people, where an individual's irrationality will hold more weight.

So, can economics afford to rely on this assumption that humans are rational? And in any case, is there anything that can replace it as a leveller of the population in economic modelling?