Writing on the Wall

We are in the middle of a financial crisis. I know so because it's in the paper every single day.

Some people say we should help ensure liquidity for the banks. Others that the banks are hording the liquidity and that "we" (a euphemism for "the government") should lend directly to individuals and companies. Others again seem to think we should give the money to public works though in Denmark, the fear-induced economic slow-down has hit the retail sector more than it did construction.

I say they all got it wrong!

The first thing we do is remove the advertisements by the companies that already went belly-up.

The picture in this blog entry is from Copenhagen airport where all the luggage trolleys still have Sterling Airlines ads on the back. Sterling was based in Denmark but had an Icelandic owner. They filed for bankruptcy on November 29th.

And yet, 45 days later, they still ask us if we think about our next flight. I am sure some people are. Like the ones who bought tickets only to be told hours later that there was no arline anymore. I wonder what exactly they are thinking (the ad doesn't tell us).

Or another Icelandic company, Glitnir bank, which has a big poster, also in Copenhagen airport. A school of fish is together showing the sign for infinity, and the text reads: "Is nature trying to tell you something?". It might be telling us to remove the poster.

When the posters and the ads are gone, then we can talk about how to move on. Right now, the Icelandic relics are taunting us.

Nice, Neat and Wrong.

I truly dislike bad statistics, and today, I found a very ugly example of this: The Global Peace Index.

One of the things we – all humans – like to do is rank everything and use it for comparisons: Danes will compare themselves to Norwegians and Swedes, they do the same. We all like to see how much better Scandinavia fares compared with the rest of the world. It is a natural urge and can be great for starting a discussion. But at the same time, an index serves as the basis for a brief news story confirming existing stereotypes.

Today’s example comes from the Reuters story: «US ranks low, just above Iran on new peace index» .

The short version is: a philanthropist, a small group of researchers and the Economist Intelligence Unit (as an economist, I can appreciate the humour in ‘economist intelligence’) got together to create the «Global Peace Index», a composite indicator of 24 variables that indicate and rank how peaceful 121 countries are. To quote Global Peace Index President Clyde McConaghy said:

«(…) peace can and has and will continue to be measured.»

That may be true, but that doesn’t say that this index has achieved that result.

The primary story was that: Iraq is at the bottom, the US fared pretty badly (worse than Yemen, better than Iran). Norway was at the top of the list, followed by New Zealand and Denmark (which earned it an honourable mention in a Danish newspaper ). And the final bit: Leo Abruzzese, the North American editorial director of the Economist Intelligence Unit said that in general the most peaceful countries were the smallest, the most politically stable and democratic.

Have you learned much new from the story? I didn’t either, but it did confirm the prejudices I was supposed to have: ‘I am good, other are not’. But it doesn’t really tell me much. Let us look at what it is they have made. First the idea of a composite indicator:

Composite indicator:

Definition:
A composite indicator is formed when
individual indicators are compiles into a single index, on the basis of an underlying model of the multi-dimensional concept that is being measured.

Context:
A composite indicator measures multi-dimensional concepts (e.g. competitiveness, e-trade or environmental quality) which cannot be captured by a single indicator. Ideally, a composite indicator should be based on a theoretical framework / definition, which allows individual indicators / variables to be selected, combined and weighted in a manner which reflects the dimensions or structure of the phenomena being measured.

Source: OECD Glossary of Statistical Terms

A composite indicator can be a great tool for some things, but they tend to oversimplify things, and the potential for bias in the indicators is sometimes rather high.

And then there is the issue of whether or not they measured the right thing in the first place. Let us take the example of the US. They allegedly scored low because of the number of wars it is involved in, large numbers of soldiers killed on the battlefield and high defence spending as well as by having the world's largest prison population per share of overall population and relatively high levels of violent crime. To me, that doesn’t quite work.

A belligerent country may try to invade others, peaceful ones may be engaged in a defensive war. Would the US during World War 2 be considered peaceful? Very unlikely, but they did not go into the war until attacked. They lost a lot of soldiers in battle and had high spending on the military, just like Germany and Japan did at the time. But do we learn much from an index that cannot distinguish between the two?

The US probably puts too many people in jail, but is that a measure of not being peaceful? Other countries use the death penalty very liberally against political opponents. That isn’t measured.

Another example was Israel, which ranked lower than Iran. Is there a greater chance that a suicide bomber will strike in Tel Aviv than in Teheran? Yes, but does that measure peacefulness? The Iranians were also rated as having more trust in other citizens. I wonder if that is because they don't have to fear suicide attacks. Just a thought.

At the end of it all, the index seems to measure whether the citizens can live in peace combined with whether their government (democratically elected or not) is using official military force abroad. Two different things, with one common denominator: they don’t explain the cause, only the action. If anyone wants a discussion about peace, they need to include measures for why countries see their soldiers dying abroad, what the alternatives to prison is and whether overt military actions are the only measure of creating the opposite of peace. What about supporting terrorist groups in other countries?

I will not claim that the US seems peaceful these days, but the group itself quote Albert Einstein: « Peace is not merely the absence of war but the presence of justice, of law, of order--in short, of government». I would like to see the Global Peace Index try to reflect that instead. It was a nice thought, but let's go back to the drawing board.