The Micklethwait Alpha

This idea is the work of Brian Micklethwait who kindly presented it as part of his talk at the Rose and Crown. It is a conceptual or intuitive hypothesis, I think, though Brian may have statistical observations to back it up. It relates to the net benefit, or cost, of reforms of two kinds: market liberalisation and state interventions. The idea is that the net benefits form an alpha i.e. the greek α, when you graph them. Brian has asked me to draw out his explaination from the longer talk and make it sharable online. Happy to oblige.

I’ll let Brian explain the idea:

I think this idea has some power. It would explain, as Brian told us, why people are less keen on market liberalisation even though they might recognise that state intervention isn’t a sustainable alternative. Also, it helps us directly by giving us a new framework for our thinking. Whether we agree with Brian’s view of what would be happening at each point, if we just look at the graph and think about what we think would happen at each point, say for a pair of policy ideas, then we can begin to break down a decision. That is, we can use this model to decide on policy options, and to generate new arguments.

At this latter job, the hypotheses is indeed effective. Indeed, as I prepare this post I am thinking of areas where it needs work, or at least some further justification, and areas where it really does inspire in a very positive way. I mention that it needs work not to be negative, but becuase I’m looking forward to it, but more on that later. The point of this post is, as Brian asked me, to make the basic idea on it’s own a sharable Thing in the blogosphere so that we as a community can chip in and critique or support the elements of it.

While that goes on, as it will, I think that it is also interesting to extend the graph sideways. So I will leave you with just that. The Micklethwait Alpha, with a bit more added on each end. This what I think that might look like, or not, I’m not sure yet:

Extended Micklethwait Alpha

Extended Micklethwait Alpha

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