Stumbling and Mumbling

If I were James Purnell...

…here’s how I would defend his welfare reform white paper to the Labour left:

This paper is about increasing support for the worst off. Some benefits will rise by as much as £17.60 a week (par 33); single parents who get child maintenance from fathers will no longer get income support cut (7.15); and benefits will rise more than inflation (5.46). And there’s increased spending to help people look for work or come of drugs.
But the problem is, I couldn’t announce all this on its own. The right-wing press would scream about “hand-outs to scroungers” and for some reason I’ve never fathomed, my boss gives a damn about tabloid headlines. So I’ve had to sugar the pill. That’s what all my talk about obliging people to look for work is about.
This will only apply to some benefit recipients. Many - the “work ready” and “no conditionality“ groups (the most disabled and parents of young children) -  will see no change in their obligations (26 and 4.14).
Where the change applies is in the “progression to work” group. But these changes are largely about mere box-ticking. All they’ll have to do is pretend to a “work focused interviewer” that they’re looking for work, or preparing to do so.
In some cases, they’ll be serious. If they are, we’re offering them more help. If they’re not serious, the interviewer will just tick the right boxes.
Look, all of us in work have to waste time on imbecilic box-ticking exercises. Why shouldn’t the unemployed as well? We’re promoting social solidarity.
Granted, these will also be expected to do “work related activity”. But this “could vary considerably and may, at least at first, have very little to do with job seeking” (4.19). It might just mean sitting on the bog reading the Sun - which is what they’ll do at work anyway.
It’s just a bureaucratic palaver which keep the right-wing quiet. If those twats believe the unemployed are looking for work, they'll be less likely to oppose future benefit increases.
And remember, I do say (4.24) that we’ll “never” oblige people to apply for specific jobs.
Of course, I don’t want to bully the unemployed into work. At a time when jobs are becoming increasingly scarce, we should leave the few jobs there are for people who really want them. An efficient economy requires that some people be unemployed, because the disutility to them of working, and the hassle their colleagues and bosses suffer from working with idiots, outweighs their puny productivity. All that guff I gave in my speech about not wasting talent was just the crap Gordon wants to hear. No-one else believes it.
Yes, I’m promising to launch “work for your benefit” schemes for the long-term unemployed. But these are only pilot schemes (6.10). If they fail, we’ll drop them. If they succeed, we gradually convert the benefits into a living wage and expand the schemes. You guys always wanted “a massive programme of public works.” Maybe that’s what we’ll end up doing.

Karen Matthews & cognitive bias

If there’s one lesson to be learned from the Shannon Matthews affair, it’s that there are no lessons to be learned.
Put it this way. Human nature being as it is, some welfare mums are criminals, some are heroes struggling under terrible circumstances, and many are just ordinary folk. There’s a distribution of qualities.
But we can infer nothing at all about the shape of any distribution, or its average or standard deviation, from just seeing one extreme data-point.
So, how come so many people think they can “learn lessons”?
Cognitive biases, that’s how.
One bias is the availability heuristic. It’s natural to think that events that spring readily to mind are common, and representative of the wider truth. So, when asked the question: “are welfare mums idle criminal scroungers?” Karen Matthews springs to mind, and people think “yes, they are.”
Now, very often this sort of bias is correct. For example, if we want to consider whether Arsenal are a better team than West Ham, we find it easier to recall Arsenal victories  than Hammers’ ones, and so come to the right answer.
Where the bias goes wrong is when it’s conjoined with another error - the ignorance of selection biases. Karen Matthews got media coverage precisely because she was atypical; “man shoots dog” is not news, but “dog shoots man” is. What we cannot know from the case alone is just how atypical she is.
Here, though, another bias comes in - the confirmation bias. We see what we want to see. So, David Cameron sees Ms Matthews as evidence of a “broken society”, Bea Campbell as evidence of “impoverished” state childcare services,  Norman Bettison as an exception to a community with “moral spirit” , James Bartholomew as a creation of a demoralizing welfare state, and Mr Eugenides as evidence that the commentariat are full of bull.
They may be right or wrong.  But none are “learning lessons.” They are merely having their prior beliefs confirmed.
Stan Moss shows us a neat example of this. He points out that people of all classes commit horrible crimes, but none of us infer that working in banks or serving in the RAF has a corrupting effect. We don’t do so because we don’t have a prior belief that they do so.
So, maybe there are no lessons to be learned here, except that political debate is riddled with cognitive errors.
But then, in saying this, mightn’t I too be committing the confirmation bias, and seeing what I want to see?

Leicestershire's gift

Ruaridh Nicoll is the world’s biggest ponce. Besides contriving to drive from Stamford to Melton through Quorn and Bourne, which suggests he employed David Blunkett as a map-reader,  he asks (via) “what good has ever come from Leicestershire?”
Apart from parliamentary democracy, the English language, multi-celled life, selective breeding, the theory of evolution, the abolition of the slave trade, the Whig view of history, the Greatest Living Englishman, tourism, the Quakers, the state of Connecticut, DADGAD, anaesthetics, Stilton cheese, pork pies, crisps, Blue Peter, Monty Python, BBC 2, Match of the Day, televised snooker, The Queen, Brighton Rock, Gandhi, extreme ironing, Philip Larkin, Adrian Mole, Inspector Morse, Loot, DNA profiling, England’s most capped footballer,  captain of England’s rugby world cup-winning team and Carla Connor, we have also given the world a sexual technique. Next time your good lady is giving you oral relief, ask her to say “Showaddywaddy.”

Picking the Met boss

The Economist describes the selection process for the next Commisioner of the Metropolitan police:

The candidates, whose names are secret for now, will be whittled down by a panel chaired by Sir David Normington, the senior civil servant at the Home Office, and then interviewed by members of the Met’s watchdog, the Metropolitan Police Authority, before the home secretary, Jacqui Smith, chooses one.

Why go through this palaver? Why - given that the Commissioner is not being democratically elected - not just put the names of suitably qualified candidates into a hat and pick one at random?
I mean the following. The time spent choosing a Met chief is time that could be spent improving the running of the Home Office in other ways. So it has a high opportunity cost.
But the benefit of using this time to pick a Met chief is small. For one thing, it’s difficult to pick top managers even when their track record is publicly known; this is the lesson from so many bad hiring decisions of football coaches. And for another, it’s quite likely that what makes for a successful Commissioner is how he handles “black swan” events. But selection processes cannot easily tell us who’ll do this.
Also, the candidates seem much of a muchness; all have lots of relevant experience. So it's unlikely that the "best" choice would be much better than the average.
Worse still, the people making this choice have no especial expertise in hiring top managers. There‘s nothing in the CVs of Jacqui Smith, Sir David Normington or Boris Johnson (whose influence might matter) to suggest they have significant ability in this respect.
So, time spent choosing the Met boss is unlikely to have benefits that exceed the cost of that time.
Indeed, there might be a positive advantage from choosing the chief by lot. A Commissioner who starts the job knowing that he is not necessarily the best possible boss is more likely to adopt a consensual, team-building management style which draws upon dispersed expertise than a Commissioner who thinks he is the best choice.
In cost-benefit terms, then, there is a case for Ms Smith picking a name at random.
Why might this argument be wrong?
One possibility is that there are ways of identifying the best candidate. If this is so, I’d appreciate seeing hard evidence as to what these methods are - the “judgment” of the Home Secretary is not sufficient.
A second possibility is that what matters is not picking the best candidate, or making optimal use of the Home Secretary's time, but rather merely appearing to make a good decision. Smith is practicing the ritual of rationality, not the substance of it. But rituals matter.
Thirdly, I might have made an erroneous assumption. I’ve assumed that the opportunity cost of time spent picking a Met boss is high. But maybe Smith and Normington are so incompetent at running the Home Office that it’s a good thing that their time be spent on picking the Met chief, rather than on decisions where they might do positive harm.

Agency, tax and welfare reform

Isn’t there an inconsistency, ethically speaking, between the government’s plan to get welfare recipients into work and its raising of tax on high earners?
What I mean is that the moral case for taxing higher earners is that their money is not their own. The rich are rich not so much because they are clever, hard-working and self-motivated but because they are lucky to have been born into the right place in the right society.  In other words, individual agency is not a major cause of wealth.
However, efforts to get welfare claimants back into work are based upon the opposite assumption. The idea here is that people on incapacity benefit can find work - even in a recession and despite lack of skills and experience - if only they try hard enough. In other words, individual agency does determine one’s economic status.
Now, on this score vulgar libertarians and the old left are both at least consistent. Libertarians give great weight to agency - “it’s my money, get a job you scrounger”. And the left don’t.
But how can you argue against agency for the rich, and for it for the poor?
Luckily, we have lots of recent research, much from (pdf) the  (pdf) US (pdf) but some from the UK (pdf) too, which shows that the leftist view has merit, that one’s economic fortunes are heavily influenced by one’s parental income or even health in the womb (pdf). None of this, however, obviously supports the implicit New Labour view that agency explains worklessness more than high incomes.
So, what’s going on here? Does New Labour have a coherent, evidence-based view on the link between agency, background and economic conditions? Or might it be instead that both policies are motivated merely a petty-bourgeois animosity towards those both richer and poorer than themselves?

Nationalizing banks

Seamus Milne says it’s time to fully nationalize the banks. Leaving ideology aside, it’s not obvious that this is a stinkingly bad idea.
For one thing, Seamus is right that the measures taken so far have not worked. As the Bank of England says today:

Despite the actions taken to raise bank capital, ease funding and improve liquidity, conditions in money and credit markets remain extremely difficult. The Committee noted that it was unlikely that a normal volume of lending would be restored without further measures.

The simple case for nationalizing banks is that they would be able to raise cash much more cheaply and easily than they can now; before today’s Bank Rate cut, 3 month Libor was 3.8% whilst the 3 month T-bill rate was just 1.7%. This would almost automatically allow them to increase cheap lending.
And a lot of conventional arguments against nationalization are just plain wrong.
“Government has no expertise in managing banks.”
Nor do existing bank bosses. That’s why we are in the mess we are.
“Nationalization reduces competition.”
The private sector solution to our crisis also entails a loss of competition; the Lloyds TSB-HBOS merger would never have been tolerated in normal times. And even in the best of times, competition between the banks wasn’t great.
“Nationalization reduces innovation.”
It’s innovation - all those CDOs - that got us into this mess. By contrast, the innovation that would be useful - Shiller-type insurance against macroeconomic disasters - has not occurred in part because private sector financial firms cannot appropriate the large social benefits that they would bring. Maybe public ownership would help solve this public goods problem.
“Nationalization leads to bad deals for customers.”
Few customers, however, are happy with banks today. And my personal experience - from looking for somewhere to deposit the money raised from selling my flat a few months ago - suggests that National Savings are at least as efficient as any private sector bank.
“Nationalization would cause lending to become politicized.”
It would be nice to have any lending, politically motivated or not. But any reasonable arms-length structure would address this problem. After all, the BBC is in effect nationalized but operationally independent.
So, full-scale nationalization is not a stupid idea.  Better still, it might not be an expensive one. As stock markets and the economy recover, it might be possible to privatize the banks at a profit sometime in the next few years. How else is government borrowing to come down?

Larry Summers & the role of economics

Larry Summers appointment as head of the National Economic Council has resurrected the controversy about his notorious World Bank memo, in which he argued that African countries were “vastly under-polluted.”
For me, though, that episode was a perfect - yes perfect - example of what economists can and should contribute to public debate. 
The thing is, economics is not a body of hard science that can be applied mechanically to social and economic problems. Nor do economists necessarily possess better judgment or foresight than others.
Instead, what economists have are questions, not answers. They can offer arguments based in logic and evidence but which contradict instinct and consensus. They can force people to acknowledge that some moral principles, keeping poor Africans safe, can conflict with others - making them richer. They can force people to think.
Yes, Summers’ memo showed that economic logic has limits. But it also showed that cosy morality has costs too.
Better still, Summers’ memo was intended to be the first words of a conversation, not the last. He was valuing debate as an intrinsic good. The question that leaps out of every line of that memo is: what if anything is wrong with this idea?
And this is what is so rare, and valuable. Too many policy pronouncements are intended to be last words, as if the puny mind of one individual suffices to solve tricky policy problems.
Worse, they are often  mere projections of ego. Among newspaper columnists - and in this regard Polly Toynbee, Melanie Phillips and Richard Littlecock are indistinguishable - this consists of a form of grunting intended to signal that the author belongs to the readers’ tribe. Among politicians, it consists in the effort to signal that one has “judgment”, in the precisely opposite sense of the Summers’ memo - being the ability to pander to the received ideas of the trash media. The upshot is that on the rare occasions when a politician does say something intelligent, he is howled down.
The great virtue of the Summers memo was that it showed a hope that policy debate can be something better than this, richer in evidence and logic and free of ego* and intellectually stimulating - that there is a place for thinking in policy debate.
Sadly, this hope was not fulfilled. But I like to think Mr Summers has not learned from experience.
* Anyone who points out that Summers has a big ego is missing the point here.

Misunderstanding GDP forecasts

Guido has done us all a favour by exposing the innumeracy of some Tories. He accuses the Chancellor of making “fantasy forecasts” and quotes a correspondent querying Darling’s forecast that the economy will grow by 0.75% this year:

Now, when the chancellor stood up at the dispatch box, three quarters of 2008 GDP growth were known:
Q1 0.3%
Q2 0%
Q3 -0.5%
In order to hit the forecast 0.75%, the economy has to grow at feisty 1% in the fourth quarter. Has the Chancellor been outside recently?

This is just drivel. Let me explain. Here is the series for known GDP (in billions, at 2003 market prices):
Q1 2007 = 313.2
Q2 2007 =  315.6
Q3 2007 = 318.0
Q4 2007 = 319.6
Q1 2008 = 320.45
Q2 2008 = 320.45
Q3 2008 = 318.9
Now, the Chancellor forecasts on page 184 of this pdf that GDP in the second half of this year will be £635.5bn. Take from this the £318.9bn we had in Q3 and we have a forecast for Q4 GDP of £316.6bn.
This is a fall of 0.7% from Q3, which is actually slightly more pessimistic than the Bank of England‘s forecast. Not a 1% rise.
So, how do we get a forecast for 0.75% growth this year? Simple. Just add up this year’s four quarters of  GDP - which comes to £1276.4bn - and compare it to last year’s, which was £1266.4bn.
We get year-on-year growth even with recession simply because the year started with GDP well above 2007’s level. For the same reason, we’ll probably see GDP fall in 2009 compared to 2008 even if the recovery begins next year because the year will start from a low base.
Now, I apologise for troubling most of you with such obvious triviality. I mention it just to show that some of Darling’s critics just haven’t the first idea what they are on about.