Stumbling and Mumbling

Governments vs capitalists

It's a nice irony that one of the most capitalistic nations on earth should be one of the few which has a government which is acting against the interests of capital.

This isn't, however, merely embarrassing for those bankers and tech billionaires who supported Trump. It's also awkward for a Marxian conception of politics.

"The executive of the modern state" wrote Marx "is nothing but a committee for managing the common affairs of the whole bourgeoisie." But Trump is managing these affairs appallingly. His tariff rises have wiped trillions off stock prices and threaten to cause a recession that will hit the interests of the whole bourgeoisie - not just of mainstream corporate America but also of the tech billionaires who have lost hundreds of billions.

Marx's theory isn't a fringe view. All those investment bankers who stayed in equities (until a few days ago!) in the belief that Trump wouldn't be as good as his word also seem to have believed it. They thought Trump wouldn't act against their interests because the prospect of a stock market crash would prevent him imposing such stupid tariffs: such a prospect is one of many levers that capital has over governments, which it often uses to maintain its power and influence.

So, where do recent events leave Marx's theory?

One possible defence of it is that Marx was speaking of the state, not of particular governments. And the state is still managing the common affairs of the bourgeoisie. Courts, for example, still defend property rights, and the Fed is trying to maintain some degree of financial stability.

Another defence is that Marx wasn't so daft as to think that the state always maximally pursued capitalists' interests. Governments do sometimes harm capitalism, but when the damage is big enough, they are compelled to either change course or be deposed. Allende, Mitterrand and Truss among many others discovered this. Maybe, somehow, Trump will too.

We don't, however, need to look far to find a government behaving more consonantly with Marx's theory: just look at Starmer's Labour.

Capitalism has always demanded two things from the state (though these can sometimes conflict): profitability and legitimacy. Labour is providing both.

For example, not nationalizing utilities helps to keep profits in private hands; Reeves' desire to relax merger rules will help big companies earn monopoly profits; her refusal to tax the rich ensures that profits remain in private hands; increased military spending is good for contractors; reduced planning restrictions boost the profits of developers and land owners; more infrastructure spending is good for construction companies; and "deregulation" can help firms make profits by cutting corners on safety.

Labour is also helping to legitimate capitalism. One way it is doing so is by raising the minimum wage and giving some extra rights for workers, thereby trimming the most egregious forms of exploitation.

But it is also trying to maintain capitalist legitimacy simply by keeping many questions off the agenda. Everybody knows that our economic performance has been terrible recently: real GDP per head has grown only 0.6% a year in the last 20 years compared to 2.5% a year in the previous 20 and 2% a year in the 20 before that. Why? Plausible explanations might include, among other things, the poor quality of management; the dominance of financiers and rentiers; high inequality; or an overly-complicated tax system with its many loopholes. Discussing any of these, however, would call our actually-existing capitalism into question and so antagonize powerful interests. It's easier to blame the powerless.

We should read this from Starmer alongside the attack on the disabled:

There is little that strikes working people as more unfair than watching illegal migration drive down their wages, their terms and their conditions through illegal work in their community.

He has to blame immigrants and the disabled, because to blame anything or anyone else would be to question capitalism. Which cannot be done.

It seems, then, that from a Marxian point of view we have a sharp, and paradoxical contrast: a (nominally) leftist UK government is slavishly promoting capitalists' interests whilst the (rightist) US government is attacking them.

But, but, but. It is often wrong to speak of capitalists' interests as if they were homogenous. Often, they are not. For example, financiers are content with weak aggregate demand if it delivers low real interest rates, but companies wanting to sell into a mass market are not: one reason why we have full employment for almost 30 years after WWII is that mass market capitalists then had more influence than financiers. Similarly, utilities companies want high energy prices but manufacturers want low ones; landlords want high rents, retailers low ones; banks want high interest margins, companies lower ones. And so on. When Ed Miliband spoke of a distinction between producers and predators he was driving at these sort of distinctions.

This is why Marxists have often spoken of the relative autonomy of the state: these conflicts of interest mean that governments can sometimes choose, at least to some extent, which segment of capital to side with.

And the Starmer government is making such choices. There aren't many employers saying "I really want to hire drug addicts, wheelchair users and people with chronic anxiety but I just can't find them". It is newspapers that are pressing the goverment to cut disability benefits, not the entirety of capital. Welfare benefits, remember, are not so much a payment to recipients as a payment through them and thus a way of supporting some capitalists. In cutting benefits to increase military spending the government is shifting profits from Tesco (share price down 15% since early February) to BAe Systems (share price up 22% since ditto).

By the same token, in allowing water companies to pour shit into seas and rivers Labour is siding with these monopolists against tourist businesses; in allowing energy companies to charge high prices it is siding with them against energy users; and in not adopting a land value tax it is favouring landlords over businesses that must pay rates and corporation tax to make up for that lack of revenue.

In all these respects, Labour is choosing some parts of capital over others. The problem is not so much that it is obeying the diktats of capital, but that it is obeying the diktats of the most reactionary segments of capital.

Which brings us to a commonality between the UK and US. In both countries the right has stopped thinking about economics, and relies for its support on: incels, racists, xenophobes, Brexiters, and those who are not only uneducated but actively hostile to knowledge and learning. In the US, these client bases have tempted the government to act (for now?) against capitalist interests. In the UK, they've led Starmer to side with backward and sclerotic segments of capital. Which is itself an artefact of capitalist stagnation: as Ben Friedman showed, slower growth promotes reactionary politics.  

People on Bluesky have been laughing at the banker quoted a few days ago in the FT as saying that Trump's election "liberated" him to say "pussy" and "retard" "without the fear of getting cancelled". But those words revealed a trend on the right. Much of it has been taken over by narcissistic obsessions with language (often pronouns), to the detriment of thinking about how to repair or defend capitalism.

Yes, some people do have intelligent ideas to try to make capitalism work better. But these voices of relatively enlightened capitalists have nugatory political influence. Which should worry anyone who wants capitalism to survive.

Constraints

Econ101 says that individuals maximize utility subject to constraints. There are many problems with this - like, have you ever actually met a human being? - but there's one that is under-appreciated. It's simply that we often just don't know what the constraints actually are.

This is true of the most basic problems in personal finance. I don't know how long I'm going to live and so I don't know how much I can spend from month to month. If I shuffle off this mortal coil next week, I can live lavishly. If I'm going to see my 90s, however, not so much. I half-solve this problem by following a rule of thumb, to keep my spending within a particular limit on average. Yes, some economists advocate annuitizing (pdf) my wealth, but I fear this merely replaces a rule of thumb with a harder constraint.

Every man d'un certain age knows that constraints are not givens but instead need to be disovered - often the hard way. Every time you back gives you agony after gardening, or your shoulder after a session in the gym or your knee after a run, you've learned that the constraint upon your physical activity is more binding than you thought.

The fact that constraints are not known but rather must be discovered is especially important in entrepreneurship. Entrepreneurs do not maximize profits subject to constraints as Econ101 claims. Instead, as Hayek (pdf) and Kirzner (pdf) emphasized, their role is to discover what these constraints are.

This is true of the most quotidian of businesses: is the fact that a town has seven coffee shops a constraint on a ninth being profitable or not? It's also the case on a grander scale. ICI's chemicals business had been struggling for years, a fact which several potential buyers saw as evidence of constraints upon it ever making money. Jim Ratcliffe, however, did not see it as such. And he was right, with the result that Ineos expanded into the giant it is today. As Laura Huang writes, "constraints don’t have to be constraining."

Except that they often are. More than 10% of companies close every year, and around half of new firms shut within three years. That's a lot of people learning that constraints upon profitability are more binding than they thought. A good argument for liberal bankruptcy laws is that, in giving a chance for failed entrepreneurs to try again, they can learn from their earlier errors. But of course, the learning works both ways. Jim Ratcliffe has not (yet?) replicated his Ineos success at Man United, which reminds us of what Boris Groysberg pointed out - that successful management is often not portable, because an ability to overcome constraints in one business doesn't guarantee an ability to do so in others.

All of which brings me to a curious division in politics today: centrists and some leftists seem to believe that constraints are tightly binding, whereas the right do not.

So, for example, Rachel Reeves treats her "iron-clad" fiscal rules as if they were a tight constraint rather than what they are: arbitrary self-imposed commitments intended to appeal to low-information voters and (to repeat myself) political reporters. Similarly, Labour feels so tightly constrained by the press that it makes self-evidently absurd decisions such as to raise employers' NICs (a tax on jobs) whilst at the same time complaining about “discouraging people from working.” We Marxists have long thought that capitalism tightly constrains what a left-leaning government can do for the working class: the Starmer government seems to agree with us.

US Democrats have a similar attitude. Danielle Webber complains that they regard "the distribution of voter preferences as a fixed point rather than recognizing that those preferences can be informed by the actions and words of politicians and media elites." That is, they see public opinion as a constraint rather than as something it can change.

This perception of tight constraints isn't a new thing for centre-left governments. We saw it too in Clinton and Brown's fear that "bond market vigilantes" would prevent even modest fiscal easing. It was, however, under the first majority Labour government of 1929-31 that it manifested itself most pathetically. It collapsed when ministers refused to make big spending cuts in an effort to keep sterling on the gold standard. When its successor, the National government, abondoned the standard however there was no disaster: far from it; the economy grew nicely. And former Labour minister Sidney Webb bewailed: “nobody told us we could do that." He and his colleagues thought there was a constraint forcing them into austerity - but there wasn't.

It's not just the centre-left that sees constraints as tightly binding, however. So too, sometimes, do those further left. When they claim that Israel is breaking international law they are implicitly regarding this as a constraint upon Netanyahu. As a brute empirical matter, however, this seems to not be the case.

All of which contrasts sharply with Trump. He's learned that being a semi-literate convicted felon isn't a constraint upon being elected, and he is acting as if there are no other constraints upon him - perhaps not even Supreme Court rulings. As Timothy Garton Ash writes:

I still find it hard to believe how weak the checks and balances, both constitutional and habitual, of what was once the world’s greatest democracy are so far proving to be.

Now, we don't know who's right here: you only know what is a constraint when you hit it. What is notable, though, is that this perception of a lack of constraints is alien to what used to be conventional mainstream conservatism. This - expressed by men such as Burke, Chesterton and Oakeshott - thought that reforms should be undertaken cautiously because we all have limited knowledge of complex, emergent systems. As Burke said, "men little think how immorally they act in rashly meddling with what they do not understand." For him, politicians should be constrained by respect for the wisdom of ages and for the existing social order. And the function of voters was not so much to exercise power via MPs doing what they were told, but rather to constrain that power, so that the MP "sacrifice[s] his repose, his pleasures, his satisfactions, to theirs; and above all, ever, and in all cases, to prefer their interest to his own."

Exactly what changed to make the right completely reverse its attitude is a story that needs telling, and not by me. The point is that we all need to think more about what are and (a different question) what should be the constraints upon political action.

On intensive vs extensive growth

There might be more to be said for the government's approach to raising economic growth than we think.

To see what I mean, let's first see the criticism of its approach. This rests upon the distinction between extensive and intensive growth. Extensive growth comes from simply adding more inputs: capital and labour. Intensive growth, by contrast, comes from using inputs more efficiently. To express this in terms of the most general production function, Q = f(K, L, A) where K is capital, L is labour and A is technology, the government's focus is mainly on K and L rather than A. In her recent speech on kickstarting growth the Chancellor spoke much more about investment than productivity; planning laws are being reformed to speed up infrastructure projects; and there's talk of getting the disabled into work*. By contrast - aside from talk about reforming the NHS - the government says little about improving productivity, especially in the private sector.

All this betokens a concern for extensive growth more than for intensive growth; more K and L rather than more A, in the production function framework.

And there are obvious problems with this. One is the environmental cost, most obviously in Reeves' desire to expand Heathrow.

Another is that there are diminishing returns to extra inputs. Maybe the government could get more of the unwell into work. But a lot of these can only do part-time or low-productivity work: people with long Covid aren't going to work on building sites or in the armed forces. And there's plenty of research which shows that additional investment has only a moderate impact in raising output. Of course, it has a bigger impact when we're in a depression thanks to multiplier effects. When we are close to full employment, however, it crowds out other investments: if people are building houses they cannot build runways or railways.

Intensive growth by contrast - if we could achieve it - doesn't have these drawbacks. If we are more productive we can have more of everything - including more leisure and a greener economy. And if you are worried by an ageing population and increasing dependency ratio, intensive growth is a solution; the more that workers produce, the easier it is to support non-workers.

It seems, then, that the government is looking in the wrong direction: we need intensive growth - more A, not (just) more K and L.

But, but, but. There might be more to be said for Labour's approach. In our dumbed-down political culture, they aren't saying what it is. So I'll try.

Our story starts in the early Industrial Revolution. Many of its founders - such as George Stephenson, James Hargreaves, Richard Arkwright and others - were not greatly educated. As Joel Mokyr put it:

With some exceptions, Britain's early inventors tended to be "tinkerers" without much formal schooling, whose genius lay primarily in their mechanical ingenuity. (The Lever of Riches, p244)

But they had to have something to tinker with - that is, with primitive versions of equipment which they improved upon. Investment, therefore, caused innovation. A lot of innovation isn't the creation of something from nothing, but rather a novel combination (pdf) of existing technologies. This was the point of Jacob Schmookler's 1966 book, Invention and Economic Growth.

It's not just in the early days of the industrial revolution that this was the case. It's still true today. Igal Hendel and Yossi Spiegel have shown that in a small steel mill output doubled (pdf) in the space of 12 years without great new investment or generic technical discoveries outside the firm because managers kept tweaking machinery to eke out more output from the same inputs. The same thing happens every day: whenever you discover an Excel shortcut, you are making a productivity improvement on the back of a pre-existing investment. It also happens in more high-tech industries: it was investment in broadband and 4G that permitted the emergence of streaming services and phone apps, and investment in better semiconductors that facilitated the growth of AI.

All this means that we cannot distinguish clearly between A (technical improvement) and K (the capital stock) as conventional production functions do. Not only does investment embody new technology, but it also is a pre-condition for discovering more productivity improvements - not just big new innovations, but small tweaks and marginal gains. What's more, an environment in which there's a lot of capital spending will generally be one in which there is plenty of demand and therefore opportunities and incentives to discover (pdf) ways to produce more from the same inputs. And competition from new investments can spur the owners of older technologies to up their game: sailing ships, for example, continued to improve for decades after the introduction of steamships. 

In an unjustly neglected book in 1989 Maurice Fitzgerald Scott urged economists to ditch standard production functions and think instead of investment as driving innovation:

Scientific discovery and invention are best regarded as forms of investment, and...at least to begin with, a theory of growth can be constructed without distinguishing between them...Fresh [investment opportunities] are created by undertaking existing opportunities, since one learns from the changes made thereby. Consequently, instead of scientific discovery and invention being the creators of investment opportunities, investment itself creates them. To understand economic growth, therefore, we need, in the first place, to examine the rate, quality and determinants of investment. (A New View of Economic Growth, p 131)

If this is right, conventional economists are wrong to criticise the government for focusing on K rather than A, because K will beget A.

Now, there's an obvious objection here. Jon Elster famously warned that there are no general laws in the social sciences but only a collection of mechanisms which work in some times and places but not in others. And there is one place in which Scott's mechanism seems not to work - infrastructure investment. If this begat discovery and learning, we'd expect to see the cost of such projects decline over time as builders discovered new techniques. But this hasn't happened. Instead, as Sam Dumitriu has shown, the UK's projects cost vastly more than those in comparable countries. There's no evidence of learning there.

Or is there. We have learned something from such investments - that a lot of the extra cost is because of a hideous planning system, which the government is simplifying. The question is: is this learning - and the technical progress that will follow - sufficient to ensure that Scott's theory will apply here? Personally, I doubt it, simply because even with the most perfect planning system, infrastructure investment will be constrained by a lack of labour and machinery; we need techical progress to relax these constraints too.

This would not be so much of an issue if the government also had policies to boost private sector business investment generally. It did have one good idea - that this would be stimulated by reducing policy uncertainty. But this has been undermined by Trump; the prospect of a tariff war and higher taxes and labour reallocation to boost Europe's military have created new uncertainties, giving firms good reason to delay capital spending.

So, yes, perhaps the conventional criticism of the government's growth policies is correct: it does need to focus not just upon investment but also upon raising productivity.

Nevertheless, there are still two defences it has - not that it will say them in public!

One is simply that even the crudest forms of extensive growth generates tax revenue. Given that fixing the public services is a high priority, this is a benefit to weigh against such growth being only short-lived or having environmental costs.

Another thing to be said for extensive growth is that the alternative, raising productivity, creates enemies.

This is partly because, as Schumpeter said, intensive growth is a process of creative destruction; a lot of productivity growth occurs because new entrants displace older less efficient firms. That creates insecurity as people fear for their jobs. This is exacerbated by the fact that the government needs to destroy jobs simply to reallocate labour towards the housebuilding, social care and military sectors.

Also, even the most conventional policies to raise productivity create losers. Tougher competition policy would weaken incumbent firms; shifting taxes from income to land would hurt landlords; tax simplification would put lawyers and accountants out of work; and a return to the single market would anger Brexiters. All of which matters because, as Mancur Olson famously pointed out, losers make noise whilst winners keep quiet which means that even good policies cost political capital.

And this matters. Politics is not a seminar in which the best ideas win, but is instead about the clash of interests. For now, it is the interests of what Joel Mokyr called the forces of conservatism that are prevailing. Perhaps the government will eventually find the strength (or necessity) to challenge these. And there is a precedent for it doing so: Thatcher avoided a lot of such conflicts early in her government, only taking on the miners and doing large-scale privatizations in her second parliament. Until then, however, extensive growth might be the only option.

* Albeit belied by the government raising the cost of employing them.

Using & misusing markets

The marriage between free market thinking and the right has ended in divorce, on the grounds of adultery by the latter with a mercantilist buffoon. It was only ever a marriage of convenience; the right liked markets when they forced wages down, but aren't so keen when tight labour markets force them up. They were always fonder of wage "flexibility" than rent flexibility.

This clears the path for a more intelligent approach to thinking about the use and misuse of markets.

Textbooks tell us that the virtue of competitive markets is that they achieve allocate resources efficiently. If a company is making big profits others will move into its market, bidding prices down and so giving customers a better deal. Conversely, if companies are losing money they'll exit the market, and their capital and labour will be hired by companies who can use them better.

Sadly, however, this isn't as true as we'd like it to be. Abhijit Banerjee and Esther Duflo show in Good Economics for Hard Times that resources are slower to move than market fundamentalists believe. In the 1980s the latter wanted to close coal mines because they thought unemployed miners would find jobs producing goods and services in higher demand. But this didn't happen to the extent they expected; miners stayed on the dole and pit villages turned into ghettoes. This doesn't mean economies must be preserved in aspic. But it does mean that markets need state intervention to work well - for example by maintaining full employment so that jobs are easier to find, and by offering genuine help with finding jobs, retraining and relocation.

Allocative efficiency, however, is by no means the only case for free competitive markets.

Another case lies in the experience of J.K. Rowling. She, like Agatha Christie, C.S.Lewis and many others, had her work rejected by numerous publishers until it was finally taken up. Similarly, George Lucas's initial proposal for Star Wars was rejected by both Universal Studios and United Artists. And record companies turned down the chance to sign Elvis and the Beatles. All of which vindicates William Goldman: nobody knows anything. Had there been only one or two publishers, film studios or record companies, we'd probably not have heard of these. But in a healthy market economy there are many, and so readers, viewers and listeners get what they want. Markets, as Hayek noted, help to overcome the fact that any individual has only very limited knowledge.

One of their great benefits is that they give us product variety. The USSR put a man into space but struggled to give people nice shoes. That's the merit and demerit of central planning.

Competitive markets do something else. They increase productivity (pdf) not just by forcing incumbents to up their game but also by driving inefficient firms out and having more efficient ones enter. Jonathan Haskell and colleagues have found that around half (pdf) of manufacturing productivity growth comes from the latter. As the CMA put it (pdf) in 2015:

There is a strong body of empirical evidence showing that competition can drive greater productivity. Within-country studies demonstrate a positive relationship between strength of competition and productivity growth across sectors. Similarly, cross-country studies suggest that countries with lower levels of product market regulation, enabling stronger competition, tend to have higher levels of productivity growth.

Markets, however, also have their downsides, and not just in the textbook cases of them sometimes leading to monopoly and often producing negative externalities such as environmental degradation and not enough positive externalities such as research and development.

Many of these downsides are in financial markets. Markets are selection devices, and sometimes they select wrongly, in part because of an inability to distinguish luck from skill. As Armen Alchian wrote in 1950 (pdf):

The greater the uncertainties of the world, the greater is the possibility that profits would go to venturesome and lucky rather than to logical, careful, fact-gathering individuals.

In this spirit Bjorn-Christopher Witte has shown that fund managers who take risks and get lucky win market share at the expense of more skillful but cautious ones. That's consistent with a finding by Nick Motson and Andrew Clare, that retail investors buy into good performing funds, only to see them subsequently under-perform. And Pascal Seppecher and colleagues at the University of Paris show that markets select in favour of highly-geared companies in good times but in favour of cautious ones in bad times, with the result that booms and slumps are more violent than they otherwise would be.

Markets also have costs because, as Ronald Coase pointed out (pdf), it is sometimes difficult to write contracts or to check whether they have been fulfilled. This true of private pensions, and workplace pensions. We can't know in advance what returns a provider will offer, and their management charges compound horribly over time. It's cheaper and less risky for the state to provide pensions than the market.

Yet another example is government subcontracting. Sam Freedman's Failed State is especially brilliant on this. He shows how contracting out probation services led to subcontractors not caring about re-offending, and how privatized childrens' homes move children miles away from friends and family, making them vulnerable to grooming gangs and other criminals. He says:

Much government business with private providers no longer conforms to anything resembling a functional market with properly aligned incentives. (Failed State, p96).

This problem is exacerbated by another: motivation crowding out. Who is likely to be the better probation officer: the one drawn to the profession by a desire to rehabilitate offenders; or one who will earn a little more for hitting a contractual target? Who is likely to better look after vulnerable children: someone attracted to work in childrens' homes by a love of children; or one working for a profit-maximizing private equity firm? If the cash nexus comes to dominate, other motives such as professional pride recede not just because people change but because those with strong professional ethics simply leave the job.

Which brings us to a problem. Markets are not merely a value-free technology, to be used or not depending upon the precise job in hand. They also have an ethical dimension. In Spheres of Justice Michael Walzer argues that there are some things which money should not be able to buy, because to do so would violate the very meaning of them: criminal justice; divine grace; political rights such as to vote and free speech; and so on. The Beatles were right: "money can't buy me love", even if it can get you some of its correlates. In this spirit, the buying of political influence via lobbyists and party donors is simply wrong; it denies what democracy is. Allocative efficiency is not the only value.

Another argument for limiting markets comes from those with environmental or aesthetic motives, or those wanting to restrict the domain in which capitalism operates. Patrick Grant urges us to buy less disposable clothing from companies like Shein and fewer but better items. Jason Hickel proposes measures to reduce advertising and planned obsolescence. And in everyday activities such as allotments, repair cafes or early retirement people are reducing the realm of market activity. Colin Leys, echoing Marx, has shown how capitalism tries to expand markets in order to raise profits - but there is a backlash to this.

Saying all this raises a problem. The government's attitude to markets seems at odds with what I've said. Genuinely useful pro-market policies would impose fierce competition, not just through strong anti-monopoly measures but through looser intellectual property protections and ensuring start-up companies have access to credit. If anything, however, the government is doing the opposite to this. Its demand that the CMA take "pro-business decisions" betokens a bias to incumbent companies. And in her recent speech on "kickstarting" growth Reeves praised businesses without noting that market forces cause growth through creative destruction, which is (or should be) a threat to such businesses.

On the other hand, though, the government seems keen on markets where it shouldn't be. It's showing little enthusiasm for ending the subcontracting of public services, or for stopping the sale of political influence. It is permitting a sham market in water, which is merely a front for theft. It is sympathetic to financial deregulation and cryptocurrencies, whilst doing nothing to promote useful financial innovations such as in GDP-linked securities. And in permitting lobbyists and rich donors to buy political influence it is enabling a market which undermines the value and meaning of democracy.

What's more, it is doing nothing to promote decommodification. It has dropped the Corbynite interest in universal basic services (pdf), for example, and its desire to expand Heathrow and cajole the unwell into work is a sign of a desire to simply expand economic activity at all costs. This, however, is one of the drawbacks of social democracy: the need for tax revenue and to retain the cooperation of capitalists conflicts with the need to reverse commodification, be it on grounds of environmentalism, efficiency or ethics.

John Stuart Mill famously said that liberty is often granted when it should be withheld and withheld when it should be granted. The same is true of market activity. We no longer need trouble ourselves with sloppy thinking about markets on the right, but we need to confront it in the government.

Capitalism vs democracy

People are falling out of love with democracy. In one recent poll, over half of 13-27 year-olds said they would prefer a "strong leader" to our curent democracy. A survey last year by Pew Research found only 31% of UK people saying that representative democracy is a very good system of government, a decline since 2017. And only 30% of voters now say it was right to leave the EU, suggesting that they believe our biggest exercise in direct democracy was a failure.

This scepticism about democracy is shared by some thinking people, embodied in Jason Brennan's Against Democracy and Bryan Caplan's The Myth of the Rational Voter.

None of this should be surprising in a historical context. Benjamin Franklin didn't actually say that democracy was "two wolves and a sheep voting on what to have for dinner" but the line was plausibly attributed to him because there was for decades antipathy towards democracy among a ruling class who feared it would lead to the tyranny of an ill-educated mob. That's why Victorians were so loath to extend the franchise.

Unquestioned enthusiasm for democracy was only a 20th century phenomenon - and one that seems to be on the wane in the 21st.

We should therefore ask: what's so good about democracy?

One standard answer is that it give power to the "will of the people". This, however, runs into obvious problems. Why, then, does the government have a massive majority despite winning less than 34% of the votes? Why does public opinion shape policy in some areas (such as migration) more than in others, such as public ownership or wealth taxes? Are people's preferences a datum or a product of social pressures and of what is on offer from the capitalist media? Are they a good guide to their interests?

This answer, then, has rarely been used as a serious defence of democracy.

Which wouldn't be a problem, were it not for the fact that other defences don't seem terribly strong in our actually-existing capitalist democracy.

One is that democracy embeds a form of equality, that of citizenship rights (pdf). As the 1789 French Declaration of the Rights of Man (sic) put it:

Men are born and remain free and equal in rights...
Law is the expression of the general will. Every citizen has a right to participate personally, or through his representative, in its foundation. It must be the same for all, whether it protects or punishes. All citizens, being equal in the eyes of the law, are equally eligible to all dignities and to all public positions and occupations, according to their abilities, and without distinction except that of their virtues and talents.

The problem is, however, that whilst we all have equal rights to vote and to participate in the making of law, we don't have equal influence, and not merely because the votes of those living in marginal constituencies matter more than those of people living in safe seats. It's also because the rich have much greater say, and not just because they've bought politicians and the media. It's because they control businesses and so governments (wrongly) believe they must win their favour if they are to achieve economic growth. It's also because, as Adam Smith said "we frequently see the respectful attentions of the world more strongly directed towards the rich and the great, than towards the wise and the virtuous" and so we defer to them - a tendency corroborated by research into the just world illusion (pdf) and related cognitive biases.

In these ways the rich have more power than those with more relevant "virtues and talents". This conflicts with the notion of democracy being valuable because it is a form of equality.

A second argument for democracy is perhaps more plausible. It's that, as Adam Swift put it in a popular textbook:

People living under laws that they have made for themselves enjoy a kind of freedom (the kind of freedom called autonomy - self-rule) not enjoyed by people whose laws were made by others. (Political Philosophy, 2nd ed, p204).

It's this that Brexiters celebrated when we left the EU. But the mere fact that many younger people don't value democracy suggests they don't feel the benefits of self-rule, perhaps because they don't feel they have much chance of influencing policy.

Another argument for democracy is more consequentialist. It was put by Tocqueville:

Democracy does not provide people with the most skilful of governments, but it does that which the most skilful government often cannot do; it spreads throughout the body social a restless activity, a superabundant force, and energy never found elsewhere, which, however little favoured by circumstance, can do wonders.

And echoed by Mill:

Wherever the sphere of action of human beings is artificially circumscribed, their sentiments are narrowed and dwarfed in the same proportion.

Whether this is actually true is doubtful; there's plenty of energy and self-improvement in China or Singapore, for example. Even if it is, though, it's not clear that recent UK governments welcome it. Harsh penalties against protesting; Labour's lack of support for counter-protests to the far right last summer; and the indifference (or worse) of both main parties to the shrinking of universities all suggest that the political class doesn't value the energy or "intellectual exercise" which Mill and Tocqueville thought were the results of democracy.

There's a further alleged benefit of democracy which is even more absurd, though. It's that democracy uses the wisdom of crowds.

The problem with this is simply that the conditions required for this wisdom to yield good results simply don't hold, because voters's beliefs aren't merely wrong but correlated and so are systemically wrong - a problem which, as Bobby Duffy has shown, is worldwide. Saying this is not the arrogance of a metropolitan elitist; voters themselves now think the result of the 2016 Brexit referendum was wrong.

This is why we have representative democracy. Voters' systematic errors about basic social facts needn't be a problem if their elected representatives can deliberate rationally on the basis of good evidence.

But they don't. The problem here isn't merely that the whipping system restricts diversity of opinion, or that some MPs have bought into the idea that they are mere delegates of the people to do their bidding. It's also that even the best MPs, like all of us, have biases by virtue of their profession. They are likely to be overconfident about what top-down policies can achieve; to be biased towards managerialism and against empowering people; and to underweight of the problems of bounded knowledge and rationality.

Nor are MPs less beholden to the rich than are voters generally. If anything, the opposite. The fact that the government isn't nationalizing utilities, imposing a wealth tax or rejoining the EU - despite these having popular support - shows they are swayed more by the opinions of a few billionaire crank newspaper owners than by the public.

None of this is an argument against democracy. Churchill was right: it is "the worst form of government, except for all the others." Instead, it's an argument for rethinking how democratic ideals should be implemented. Henry Farrell is dead right: "what we need are better collective means of thinking." We need more institutional brains, as we might acquire - for example - from forms of deliberative democracy.

Almost no mainstream politician or pundit is even asking how to do this. Why not?

Part of the answer lies in the fact that ideas are shaped in our formative years: as Napoleon said, “to understand the man you have to know what was happening in the world when he was twenty.” And in the formation of those of us over 50, western politicians saw democracy as a self-evidently good thing; it was contrasted to the "evil Empire" of the Soviet bloc. And so capitalism and democracy were conflated in the public mind.

But this was an unhappy alliance because, as Jean Batou says, there has always been a tension between the two. Yes, capitalism needs democracy because popular consent, even if partial and ill-informed, helps legitimate inequality. But on the other hand, the power of the rich - even when they are not drug-addled neo-nazis - undermines the virtues of democracy. And this is becoming obvious to voters: a survey by the Fairness Foundation found that 63% of Britons think that the very rich have too much influence.

For now, this opinion is latent and largely unarticulated except on the margins of political discourse. But it poses questions: can we build a better democracy without challenging actually-existing capitalism? And if we cannot, which should give way?

What the left can learn from Richard II

I've a feeling we're not in The West Wing any more. Educated technocrats have been in retreat against the likes of Trump and Meloni. And even where the anti-technocrat right are out of power, they have disproportionate influence over the agenda: culture war issues and immigration are more widely discussed than economic democracy, rentierism or the poor quality of management.

Farage's talk of "PPE bollocks" was the philistinism typical of the weirdo. But in one regard he had a point: PPE does not equip one to win and retain power today. A lot of what we learn in PPE is, to paraphrase Marx, how to write recipes before you have a kitchen.

So, we need a different education. One, I suggest, is Shakespeare and in particular Richard II, the story of how he lost his kingship to Henry Bolingbroke, as this tells us much politics today.

One thing it tells us is that morality doesn't much matter. Richard thought he ruled by divine right:

The breath of worldly men cannot depose
The deputy elected by the Lord. (Act 3 scene 2).

Those who challenged this right, he said, "break their faith to God" and "profane, steal, or usurp". He thought a criminal could not become ruler. Just like the Democrats, however, he got a nasty surprise. You don't get a clear view from the moral high ground.

Nor does truth very much. Two of the few factual claims Bolingbroke makes are quite likely wrong: that Mowbray has killed Gloucester; and that the king has separated from his wife. That didn't stop him winning power. There's nothing new about weaponizing fake news.

Something else doesn't much matter - narrative. Richard has one - that God made him king - and he has the pomp and theatricality of a divinely-appointed monarch. By contrast, Bolingbroke is down-to-earth and transactional and - on stage at least - gives no good reason why he should be king; in fact he speaks quite little, with 413 lines, many in short speeches, compared to Richard's 758.

If morality, truth and narrative are of little use, what then does matter?

Simple - power. Bolingbroke has the Machiavellian* skills - again manifested mostly off-stage - to win the support of both the common people and fellow nobles. What matters is the building of groups of supporters, and the weakening of potential rivals. And once one has a growing band of supporters, there'll be a bandwagon effect as others jump onto the winning side: Shakespeare's Duke of York joining Bolingbroke's cause prefigured American newspaper bosses aligning with Trump.

Richard's failure in this regard is described not by himself, nor even by a noble, but by a gardener:

O, what pity is it
That he had not so trimmed and dressed his land
As we this garden! We at time of year
Do wound the bark, the skin of our fruit trees,
Lest, being overproud in sap and blood,
With too much riches it confound itself.
Had he done so to great** and growing men,
They might have lived to bear and he to taste
Their fruits of duty. Superfluous branches
We lop away, that bearing boughs may live.
Had he done so, himself had borne the crown. (Act 3 scene 4)

Marx - a great reader of Shakespeare - thought that emergent trends within capitalism would, from a socialist point of view, do the gardener's job. A decline in the numbers of petit bourgeois, he thought, would "wound the bark" by weakening a class hostile to socialism, whilst a growing working class would strengthen the "bearing boughs" that support socialism.

He was too optimistic. Coalitions of interests don't just emerge. They must be created. It's in this context that policy matters. It is not merely a matter of technocratic fixes or hawking product like market traders, but a way of creating or weakening alliances.

In this, Richard was a failure. In confiscating Bolingbroke's inheritance, he not only motivated the latter to want to topple him but also alienated other barons who feared a similar fate.

Thatcher, by contrast, was - for a while - a success in this respect. She did not use sweet reason alone to persuade people of the merits of free markets: we know now that public opinion doesn't much favour these. Instead, she "wounded the bark" by weakening trades unions thus enfeebling a threat to her power. And she fostered the growth of "bearing boughs" who would support her by creating a new class of house-owners who identified with the interests of property owners.

Blair also helped bearing boughs to thrive, albeit perhaps inadvertently. In expanding higher education he created a cohort of liberal-minded people who are frustrated with working conditions and inability to afford decent housing. That's a potential source of support for the left for years to come. The right's antipathy to universities isn't founded upon clever estimates of Mincer equations, but upon the sense that graduates are, like "great and growing men", a threat to their power.

Here, we see another failure of the Democrats, pointed out by Dani Rodrik. Bidenomics, he says "paid too little attention to the changing structure of the economy and the nature of the new working class". In not doing enough to offer service sector workers good jobs, it did not sufficiently cultivate the "bearing boughs" that could be a wide working class base.

Which brings us to the question: what is Starmer doing to weaken "great and growing men" who threaten his power, and to cultivate "bearing boughs" that might keep him in office? He needs to do so because, as Russell Jones says, his "mandate is a mile wide and an inch deep."

Here, he's missed a chance. He could have used Huw Edwards' conviction as a pretext to remove the BBC's Tory-leaning senior management, and he could use newspapers' admission of criminal behaviour as a reason to launch "Leveson 2" which if nothing else would bring the press into disgrace by publicizing its crimes against some of the people's favourite celebrities. In not doing this, he's not weakening opponents.

We must also ask: what coalition of interests is he fostering that will continue to support him? So far, the strategy seems to be to cultivate business interests. Supporting Lloyds against claims for compensation for mis-selling car finance; sacking the chair of the CMA for not offering enough "pro-business decisions"; and offering big tech help with developing AI all signal that Labour is on the side of incumbent big business.

Which is not enough. As Machiavelli said:

He who obtains sovereignty by the assistance of the nobles maintains himself with more difficulty than he who comes to it by the aid of the people.

So, what sections of the people are going to be "bearing boughs" for Starmer? Unless he can offer better public services, more affordable housing and better jobs, the answer might well be: not enough. Labour needs to achieve these not merely out of intellectual considerations of morality or economic efficiency, but because of the brute power politics of needing a client base beyond the media and a few rich donors. There'll come a time when revulsion against the Tories is not enough.

Here, though Richard II contains another lesson for Westminster politicians. Not only does the gardener know better than Richard the skills needed to maintain power, but he also knows, before the Queen does, that Richard has been deposed. A "little better thing than earth" (as the Queen calls him) posesses more wisdom and knowledge than she or her husband.

Which tells us that ground truth and the wisdom of crowds matter. Shakespeare was anticipating Kenneth Boulding's words (pdf):

All organizational structures tend to produce false images in the decision-maker, and that the larger and more authoritarian the organization, the better the chance that its top decision-makers will be operating in purely imaginary worlds.

Starmer's fate, ultimately, will be determined not by the advice of his courtiers or by Westminster bubblethink or by his own self-image but by the brute facts upon the ground: what bases of interests favour him? which ones oppose him? and what are their relative powers? If he loses grip on this, he faces a similar if less grisly fate than Richard II.

* It's not clear how much Shakespeare knew of Machiavelli. The Prince was banned in England during his lifetime, but - in an early example of the Streisand effect - seems to have been popular, and Shakespeare does make passing reference to "Machiavel" in Henry VI part 3.

** "Great" here means "powerful" rather than being a term of approval; Adam Smith used the word in Shakespeare's sense.

Another thing: in saying all this I am of course making a case for education in the humanities. Literature isn't just entertainment (though what's wrong with that?); it sheds light upon some neglected truths about the world.

A defence of the triple lock

Ben Ramanauskas wants to abolish the pensions triple lock. As a longstanding advocate of it, you'd expect me to disagree. And I do, but not violently.

Ben proposes replacing the lock with simply raising the state pension in line with average earnings. This has two great merits.

One, as Ben says, is that it aligns the interests of pensioners and workers. It tells today's pensioners: "you're in the same boat as workers: if they become better off so will you; and if they don't you won't." I'm not as sure as Ben that this will encourage pensioners to support pro-growth policies. But it might weaken their support for the parties of reaction and widen the coalition of pro-worker interests, which is good.

The second merit is that Ben's proposal isn't very much different from the triple lock simply because in normal times wages should rise faster than prices or 2.5%. This preserves the key feature of the triple lock, that it sees the state pension rise in real terms.

Over time, this amounts to creeping nationalization of the pensions industry, because the higher is the state pension the less need there is for us to provide for a private one.

This is a good thing because the state is better able to provide pensions than the private sector as it can better manage risk. It can pool longevity risk better; tax receipts are less volatile than investment returns; and distribution risk (the risk of incomes shifting from profits to wages) is less of a danger for the state than for private pensions.

Here, we must guard against a particularly silly and nasty notion - that real-terms rises in the state pension are unaffordable.

The OBR estimates that if the triple lock remains in place public spending on the state pension will rise from 4.9% of GDP now to 7.9% in 2073-74 - but this is less than many European countries such as Denmark France or Germany spend today. If a decent pension is affordable for them today, it'll be affordable for us tomorrow.

What's more, we must remember that there is no magic money tree. If we as a society cannot afford to pay taxes to provide state pensions then we cannot afford to pay into private ones either, if only because administrative costs on the latter are so eye-watering. On a £100,000 pension pot invested over 20 years a management fee of 0.5% a year compounds to over £20,000. The cost of administering the state pension is much smaller: fund managers are richer than civil servants, which is a clue.

I therefore strongly disagree with new pensions minister Torsten Bell that the triple lock is "silly".

My argument with Ben, however, centres upon what happens on the occasions when prices do rise faster than wages, such as when oil and gas prices soared in 2022*. Younger people have insurance against this risk by virtue of having more years in front of them in which to enjoy normal times in which real wages rise or in which they might enjoy a steep drop in commodity prices. Older people, by contrast, are closer to the exit and so don't have so much of this insurance. Worse still given successive governments unforgiveable failure to sort out social care insurance, some will face the risk of a drop in real incomes coinciding with a big bill for social care.

There is therefore a case for pensioners getting insurance against prices rising faster than wages. The triple lock does just this whereas Ben's proposal does not.

It does so, however, at a cost. In this situation there's a bigger fiscal giveaway than there would be under Ben's proposal. That would mean higher inflation, relative to what it would be in his plan. That, in turn, would require either a fiscal tightening elsewhere; or higher interest rates; or tolerating of a higher path for inflation which itself is nasty. Whichever we choose, there's a cost.

For me, this cost is mitigated by the advantage of accelerating the creeping nationalization of pensions. And, remember, the triple lock is not so much a transfer from younger people to old ones as from younger people to their older selves; the power of compound growth means that it is youngsters more than oldsters who benefit most from the triple lock, a fact they are smart enough to see.

I can appreciate, though, that others might find the cost too high.

Let's be clear, though, that it is here that we see the merit or not of Ben's proposal. The issue is not one of fiscal sustainability or intergenerational justice, but simply of how or whether we insure people against a particular type of economic risk.

* You might think that the danger of long-term falls in real wages are another issue here. I'm not so sure. Insofar as these occur because of a shrinking economy (rather than shifts from wages to profits) they mean we as a society can't afford so much of anything - be it decent pensions, public services or private consumption. It's not clear that future pensioners should be immune from this collective risk.

** I'm not going to bother engaging with Kemi Badenoch's proposal to means-test the triple lock, for the same reason that I don't bother cleaning the pants of toddlers who have wet themselves.

The two agendas

Why are UK infrastructure projects so expensive, and what can be done about this?

To what extent is the rise of the far-right the result of economic stagnation?

How can we raise economic growth given that we're close to full employment and so ordinary deficit financing would be inflationary?

How do we divert labour towards construction, social care and public services without accelerating pub closures and high street decline, both of which could strengthen the far-right?

Are tax rises sufficient to do this, or do we need microeconomic interventions as well? 

What can be done to cut the UK's high energy costs?

How can we reform utilities given that regulation is ineffective?

How can we reform income tax to reduce any disincentive effects of 60%+ tax rates?

How can we alter the tax system to boost growth, either by simplifying it or by shifting taxes from incomes to property or wealth?

Do we have the management skill in this country to reform public services or deliver infrastructure projects on time and on budget, and if not what can be done about this?

What can be done to curb rentierism and stimulate productive entrepreneurship?

Which inequalities matter most - of income, power or wealth and if so between exactly which groups?

Is inequality itself a barrier to faster growth?

Would more economic democracy be a good idea, and if so of what particular form?

Is there a case for a sovereign wealth fund, either for purposes of economic stabilization or as a means of funding public spending?

Has the public sphere really deteriorated in recent years (or is thinking so mere nostalgia?) and if so what can be done about it?

How can we change politicians' incentives so they better favour the public good rather than the interests of plutocrats?

All these questions here - and you can no doubt add many more - bear upon the same general issue: how, if at all, might we improve the material standard of living for millions of people? Questions about the public sphere do this at one remove: a healthier democracy would perhaps lead to better policy-making.

And yet issues such as these rarely dominate mainstream discourse, being confined to a few marginalized economists on Bluesky. What has dominated the mainstream recently, however, are the ketamine-fuelled racist lies of a billionaire: nobody intelligent enough to be reading this thinks for a moment that Musk, Farage or Badenoch give a shit about working class northern girls.

What we have here are two agendas - one on how to improve the real world, and another dealing in fantasies and crank issues. Which is a contrast to what happened in my now-distant youth. Back then left and right were bitterly divided - maybe more so than now - but they agreed on what were the issues. And the right at least made some effort to engage with facts and thought; Thatcher regularly cited leading intellectuals such as Popper, Hayek and Friedman in a way that her epigones have not. Yes, we claimed that Thatcher was mistaken about economics, but we didn't think she was a liar or fantasist as we do her recent successors.

So, why are we in this mess?

Part of the blame lies with the media. There has been a rise in the number of speakyourbranes shows, Jeremy Vine's programmes being the worst of many. There aren't enough knowledgeable people to fill all this airtime: they have better things to do than wag their jaws in a London studio. The space is therefore fill by know-nothings, often from Tufton Street, happier to spout off about irrelevancies. It takes knowledge to talk about tax reform, but any fool can gibber about immigrants.

GBNews blurted out the truth here recently when it told Liam Halligan that it “doesn’t need an economics and business editor”. It doesn't, for the same reason that Mrs Brown's Boys doesn't need one: it's mindless entertainment, not an attempt to reveal the truth.

Also, as Sam Freedman pointed out in Failed State, journalism has seen a drop in the number of specialist reporters but increase in lobby correspondents which distorts how politics is discussed. Rather than ask "will this measure actually improve the real world?" the focus is on "how will this play out"? That encourages a short-termism that crowds out serious thinking about policy, as well as the chasing of headlines and soundbites about anything that will "cut through."

Some political scientists, I fear, play into this distortion with their focus upon opinion polls. Not only are these pretty much irrelevant when we're four years away from a general election, but they also beg the questions: how is public opinion formed? Why does it influence policy in some areas (immigration?) but not others (nationalisation?) What's the connection between public opinion and effective or ethical policy?

"Politics" as it is discussed by journalists and (ugh) "commentators" - and even many politicians - has become a melange of gossip, fantasy and lies divorced from material scientific questions of how to improve living standards. One nice but unremarked indicator of this is that Patrick Grant's Less is not regarded by the mainstream as a book on politics. That's because the things it discusses are not seen as "political": decommodification, the decline of craftsmanship and nature of capitalism.

Yes, it's the C-word again. One reason why the right is frantically grabbing for any culture war issue is that they have no even half-credible answers to economic stagnation.

What they do have, though, is the power to set the agenda. As Elmer Schattschneider wrote in 1960, "some issues are organized into politics while others are organized out." The right wants to organize into politics conflicts about immigration, race, trans rights and "wokeness" whilst the serious left wants to organize in questions about capitalism. And guess who's winning?

This raises a problem for us. In challenging the right's falsehoods, we are acquiescing in its choice of agenda and thus accepting its power. Worse still, we risk treating its bad faith as a legitimate concern, or treating as sane what is in fact a psychiatric disorder. And of course, we risk a backfire effect, whereby merely discussing their concerns lends them credence.

Every good general knows that it is important to choose the right terrain on which to fight. The problem for the left - and also for those centrists who are reality-based - is that it is the right that chooses the battleground.

The centre right: killed by economics

Why has the Tory party abandoned the centre-right*? This is the question posed by what Lewis Goodall has called the "Powellization" of the party. When Robert Jenrick echoed Enoch Powell by speaking of us "importing hundreds of thousands of people from alien cultures" Badenoch's response was to defend him, in contrast to Ted Heath immediately sacking Powell in 1968.

But we needn't go back so far to see how Badenoch differs from previous Tories. In 1974 Keith Joseph spoke of "the balance of our human stock" being "threatened". That killed his bid to be leader of the party. And in 2001 MP John Townend made similar remarks to Jenrick's, but was denounced by leader William Hague. There has always been at least an undertow of racism in the Tories (Theresa May called them the "nasty party" for a reason) but its leaders have tried to keep a lid on it. In the 80s and 90s they were helped in this by the fact that immigration was low - mass unemployment being the most effective immigration control the Tories have found.

Now, however, the mask is off. As Goodall writes:

The thinking of the Conservative Party has moved away from any form of liberalism, to a deep and overwhelming nativism and cultural conservatism.

But why has the centre-right vanished as a significant force?

It's not sufficient to claim that the Tories have been radicalized by social media. Those of us who remember the vicious homophobia, sexism and class hatred of the Sun in the 1980s know that the media was never an oasis of liberal civility. It's just that there were elements in the Tory party who were uncomfortable with that.

Nor is it enough to point to Johnson's withdrawal of the whip in 2019 from 21 centre-right MPs such as Kenneth Clarke and Dominic Grieve. That episode was a symptom of the weakness of liberal Toryism, not the cause of it: if it were, liberal Tories would have returned with the disappearance of Johnson.

Instead, I suspect that the centre-right has declined for economic reasons.

One of these is that the class base of its support has diminished.

It's well-known that Tory support is now concentrated among the old and uneducated. According to Yougov, 46% of the over-70s voted Tory in the 2024 general election compared to only 20% voting Labour, with the Tories also having a lead among 60-somethings. And the Tories lagged Labour by 18-42 per cent among graduates whilst leading 31-28% along those with GCSEs or less.

But it was not always thus. In 1983 and 1987 the Tories actually had big leads among 25-34 year-olds, and graduates were more likely (pdf) to vote Tory than Labour simply because having a degree was the path to a higher income, and wealthier people historically have tended to vote right.

So what changed? Quite simply, graduate jobs are not what they used to be. For many, they are not just less well paid but also require longer working hours whilst offering less autonomy; that's one effect of the triumph of managerialists over professionals. And of course, even in a reasonably well-paid graduate job one has little chance of buying a house without the bank of mum and dad. It's no surprise that people who don't own property and have no hope of doing so are disinclined to vote for the party of the propertied.

The class base of liberal Toryism used to be professionals who were prosperous or at least had the prospect of becoming so: think of yuppies in the 1980s. That base has disappeared. Sir Lancelot Spratt was no doubt a Tory but his successors are less likely to be.

This, however, is not the only way in which capitalism has weakened the base on which liberal Toryism rested. The economic stagnation we've seen since (or perhaps before) the financial crisis has given us exactly what Ben Friedman predicted it would - a growth in illiberalism, intolerance and reaction. That's strengthened the far right at the expense of the centre right; there's now abundant evidence that a weak economy fosters the far right.

Stagnation was of course exacerbated by austerity. And Thiemo Fetzer has shown that areas of the country more exposed to this were more likely to support Brexit. "The tight 2016 EU referendum could have well resulted in a victory for Remain had it not been for austerity" he says.

The pursuit of a hard Brexit, however, required the Tories to "fuck business" by miring companies in red tape. This in turn has further weakened the class base of liberal Toryism, because the party can no longer credibly claim to be on the side of business and free markets as it once was**. Small businessmen lapped up Thatcher's anti-union policies, but not so Brexit.

In the mind of Tories such as Cameron and Osborne, however, austerity was not supposed to do as much economic damage as it did. They hoped that the negative real interest rates - what Osborne called "fiscal conservatism, monetary activism" - would fuel a boom in capital spending which in turn would boost productivity and hence economic growth.

But this didn't happen. Business investment fell short of OBR projections in the early 2010s and, partly because of this, so too did productivity: in March 2011 the OBR forecast that this would rise 1.9% a year between 2011 and 2016, but in fact it grew only 0.6%. This shortfall was partly compensated for by increased employment growth, but even so the result was that by early 2016 the economy was 4% smaller than the OBR had projected five years earlier. That's equivalent to around half of annual NHS spending.

Had the economy panned out as expected, we'd have had less bad public services and, quite possibly, therefore, no Brexit and a weaker far-right. The more centrist Tories might still be in charge of the party.

That this didn't happen is not mere bad luck but rather an ideological failure. For decades, the centre-right has presumed (for many it has been an unspoken assumption) that the economy would grow healthily if only the right policies were in place: fiscal conservatism, low taxes, "sound money", freeish markets, the rule of law and so on. For years, this was the case. For the last 20 years, though, it has been wrong. Kickstarting a stagnant economy requires something more than the centre-right has traditionally offered.

Herein perhaps lies a reason why Cameron and his allies failed to make a positive case for remaining in the EU, preferring to rely on "Project Fear": they just had no credible vision for a healthy economy or society within the EU.

Whereas Badenoch can talk (unconvincingly IMO) of the damage done by the "bureaucratic class" (pdf) and Labour of the need to relax planning restrictions, the centre-right is offering nothing. It has become maladapted to the realities of latter-day British capitalism - and like any maladapted species is threatened with extinction.

Which doesn't mean it is condemned to such a fate. The centre-right has down the decades shown itself capable of responding to different times. To do so now, however, requires it to rethink capitalism in an environment that is materially and ideologically hostile.

* Many leftists might think there's nothing especially centrist or liberal about the likes of Cameron, Grieve or Clarke. They'd have a point. I use such terms for want of better.

** As David Edgerton has pointed out, Brexit was the pet obsession of a few billionaires with weak ties to the UK rather than something demanded by wider capitalist interests.

Against "if I were king" politics

The government should stop billionaires making big donations to political parties; should move towards rejoining the EU; should fine polluting water companies more heavily; should make a positive case for immigration; and revive local economies and redistribute income more in order to fight off the far-right.

All these suggestions, taken from a quick browse of Bluesky, seem like good, reasonable politics. Advocating sensible policies, however, is only half of what politics should be.

Of course, we need to do so if only to show that a better world is indeed possible. But we need more than this.

Such advocacy begs the question: if these are good ideas, why isn't the government pursuing them already?

It's not because it is stupid - although a party that talks of fiscal black holes and running out of money does invite the charge of mental incapacity. Instead, it's because powerful sectional interests have created incentives for the government not to do sensible things. To take just the issue leading recent headlines, the reason why governments have not yet tackled the problem of social care is that, as Nick Pearce says, the issue "does not generate institutional interests that are capable of powerful political expression" and that "older people using social care are not politically mobilised."

The point generalizes. The power of the media (by which I mean a handful of billionaire cranks) inhibits the positive case for migration or for rejoining the EU. Utilities and media companies have bought Ofwat, Ofgem and Ofcom, thus preventing proper regulation. Politicians hoping for a few crumbs from the tables of the mega-rich don't want strict limits on political funding. Lawyers and accountants don't want a simpler, more transparent tax system. And there's a network of interests - nimbys, incumbent monopolists, financiers and landlords - who don't want economic policies that derail their gravy trains even if these would raise growth.

Not that such people need always to actually do anything to exercise power. Adam Smith famously wrote that people have a "disposition to admire, and almost to worship, the rich and the powerful". This alone might explain why Wes Streeting is "willing to work with Elon Musk" and is handing over millions to Palantir.

Politics is not about intellect but about power. And this is disproportionately possessed by the mega-rich.

The question is therefore not merely: what are good policies? It is: how can we achieve sufficient influence to get these policies implemented? Without this question, politics is a mere fantasy ("if I were king..."). Worse still, it can be moral posturing which leads to a fragmentation of the left as we fall out over competing but equally unachievable utopias.

Even the very cleverest of us are prone to this mistake: my bookshelves have a goodly number of volumes by Nobel prize-winners such as Angus Deaton, Joe Stiglitz, Esther Duflo and Abhijit Banerjee which commit it.

But mistake it is. A sensible politics needs to ask: how can we create constituencies of countervailing power to the regressive rich?

Marx was of course alive to this question. He was wary of what he called writing recipes for the cookshops of the future because he thought the first priority was to ensure the emergence of a working class consciousness, as it was this, he thought, more than the nice ideas of intellectuals, that would be a force for change.

Which it was, if not as much so as his followers hoped. The emergence of strong trades unions in the mid-20th century created a powerful voice for equality (pdf) and social democracy - a voice which capitalists heeded because they feared the alternative was communism. It's no accident that the triumph of neoliberalism, fall of the Soviet Union and weakening of unions all coincided.

If what I'm saying sounds Marxian, it shouldn't. Basic Econ101 says that people respond to incentives. Our problem today is that politicians have incentives not to pursue policies which promote general well-being, but those that serve the interests of the mega-rich (and, worse still, sometimes not their interests but their pet obsessions.) The challenge therefore is to change these incentives. Every parent knows that the way to get a child to do the right thing is to not merely ask it to, but to give it the right incentives. What's true of children is also true of politicians.

Thatcher knew this. In weakening unions and in selling-off council houses she greatly enlarged the number of voters whose interests were those of property owners and diminished the power of labour. That shifted incentives.

Of course, this government doesn't seem interested in creating constituencies for change. Nevertheless, there are reasons for optimism. Socio-economic change very often isn't the product of conscious top-down government policy but instead is emergent. And some social forces are building more powerful groups disposed towards change, whether we like it or not.

One, described by Phil Burton-Cartledge, is the growth of immaterial labour, that producing intangible items ranging from research to social care. Such work, he says, is "socially cooperative, drawing on the competencies, knowledges and innovation of the social commons." This generates a bias towards pro-social attitudes rather than atomized individualism and hence an antipathy towards neoliberalism's predation upon the commons.

A second reason for optimism lies in the increased number of university graduates. These don't just have liberal, anti-reactionary values - seen, for example, in their support for rejoining the EU. Many are also disenchanted with the fact that graduate jobs, even for those who get them, are not as good as they were in their parents' generation. Doctors and lawyers work gruelling hours often for little pay - and certainly only rarely enough to afford a decent house. That's a radicalizing force.

Thirdly, there's the fact that people no longer read newspapers: circulation has fallen by around two-thirds since 2000, though it's difficult to say by exactly how much because the Sun and Telegraph no longer report their figures. Younger people especially are no longer so directly exposed to billionaires' propaganda.

There are, therefore, forces creating a constituency potentially hostile to actually-existing capitalism. Indeed, a recent Yougov survey found that 45% of voters had an unfavourable opinion of capitalism and only 30% a favourable one. Of course, this group is barely politically mobilized: Corbyn did so, but his effort was quickly suppressed. But it could potentially be so again in a different form.

What form? I don't know; our ability to foresee political trends is puny. But this is the issue. The big political question is not: "what should the government do?" Any child can think of ways to improve policy. It is rather: "how can we create pressures that force governments into positive change?"

The late Charlie Munger once said, "show me the incentive and I'll show you the outcome." What's true of business is also true of politics.

Repairing the public sphere

In 1968 Garrett Hardin wrote an essay (pdf), The tragedy of the commons, in which he argued that common ownership of assets such as land or fishing waters was incompatible with people being the selfish rational maximizers of economic theory. This is because if every herdsman can graze his cattle for free on commonly-owned pasture land each will want to put as many cattle on it as he can - until the land becomes over-grazed and barren. In this way wrote Hardin, "freedom in a commons brings ruin to all."

The same problem, warned Hardin, applies to pollution:

The rational man finds that his share of the cost of the wastes he discharges into the commons is less than the cost of purifying his wastes before releasing them. Since this is true for everyone, we are locked into a system of "fouling our own nest," so long as we behave only as independent, rational, free-enterprisers.

In saying this, Hardin was expressing in economic terms what many philosophers have pointed out - that there's a potential tension between the assertion of individual freedom and a thriving public realm. In 1935 John Macmurray wrote:

If the forces making for individual independence and initiative - for individualism in fact - become overmastering, they disrupt social unity and produce a catastrophe. (Reason and Emotion, p69)

Or as Charles Taylor put it:

A society of self-fulfillers...cannot sustain the strong identification with the political community which public freedom needs. (Sources of the Self, p508)

Many on the right used to be alert to this. They criticized alternative lifestyles such as "free love" and homosexuality on the grounds that they eroded traditional communities.

Today, though, we face the conflict in another context - that of the public sphere, the area in which questions get (or don't get!) debated.

This, like common land, a public good. A culture which values free scientific inquiry and the pursuit of truth, for example - and which embeds these in institutions such as universities - is likely to produce technologies and medicines which benefit us all. Likewise, most people believe that it's in all our interests that political debate facilitate good policies and good governance. One reason why John Stuart Mill and his followers valued freedom of speech and thought was that they believed these fostered better ideas from which we all might benefit.

Which brings us to the problem. Our public sphere as it now exists does not do this. Under Musk's ownership Twitter has degraded from a common forum into what Christina Pagel has called a means of weaponizing anger and disinformation. And Hardeep Matharu writes:

Social media platforms rife with conspiracy, disinformation, and hate are what people are seeing daily – and where they develop their sense of the world they live in. Social media is now the media. In this ecosystem, what matters is what resonates, regardless of how outrageous.

Which vindicates Hardin. Musk's pursuit of self-advantage has ruined a (once-) important part of the commons. But the problem is not just Twitter. Anyone who remembers the Sun in the 80s knows that the legacy media has always pumped out lies and hate. What's more recent, though, is that in an attempt to staunch losses caused by falling circulation, newspapers have slashed the number of specialist reporters. That, writes Sam Freedman in Failed State, "has degraded the quality of coverage and made it easier for politicians to pursue bad policy and avoid scrutiny." And our political ecosystem too often selects for snake-oil sellers, charlatans, liars and the incompetent.

We have therefore a tragedy of the commons.

So what are the alternatives?

To see some, remember that there's nothing inevitable or universal about the tragedy of the commons. Far from it. As Elinor Ostrom pointed out (pdf), common ownership of resources can very often be successful, under particular conditions.

What's needed here is that users of the commons do not "behave only as independent, rational, free-enterprisers". Instead, they must limit the extent to which they exploit the commons - a practice known as stinting (pdf). In our context, stinting would consist of something like what Habermas called discourse ethics: norms of honesty, openness, diversity and rationality. That's why there was traditionally a strong convention in parliament against lying to the House.

In principle, such rules could be voluntary, with users of the public sphere having the necessary virtues. Many, however, do not. In discharging hate and lies into the public sphere, they are fouling the nest for the rest of us. "Political entrepreneur" should be an oxymoron.

Virtues, then, must be complemented by sanctions. Historically, those who despoiled the commons were sometimes subjected (pdf) to "rough music", a form of public shaming. The latter-day equivalent of this is the mocking or correcting quote-tweeting of hateful or wrong claims. The problem with this, however, that it (sometimes) backfires. As Tim Harford has written:

Repeating a false claim, even in the context of debunking that claim, can make it stick. The myth-busting seems to work but then our memories fade and we remember only the myth.

This leaves another possibility: common ownership. Hardin's tragedy of the commons could be retitled the tragedy of private ownership, because if cattle or fishing boats were commonly owned the community could agree to restrain their exploitation of the commons. In our context, this argues for common democratic ownership of the media or at least for a media ecosystem more diverse than one controlled by a few billionaires.

But, but, but. We do have an organization which was founded in part precisely to resist the tragedy of the commons and to foster a flourishing public realm: the BBC. Its first boss, Lord Reith, saw its role as shoring up the public sphere:

As we conceive it, our responsibility is to carry into the greatest possible number of homes everything that is best in every department of human knowledge, endeavour and achievement.

In an anticipation of Hardin, he thought that private ownership could not do this. "No company constituted on trade lines for the profit of those composing it can be regarded as adequate" he said.

You only have to watch Laura Kuenssberg or (worse still) listen to Jeremy Vine to appreciate that the BBC is no longer fulfilling Reith's objectives*, preferring instead to give a platform to billionaires' gimps or even to outright racists. Which tells us that common ownership on its own is not sufficient. But what is? How can we democratize the media without it falling under the influence of cranks and fanatics pushing their own agendas?

The problem is that the degradation of the public sphere means that not only is there no adequate forum for answering this question, there isn't even interest in asking it; a big fault with our political system is that some important issues are off the agenda whilst trivial ones are on it. And this is one of the tragedies of the commons.

* Of course, there's far more to the BBC than current affairs. Ironically, the BBC meets Reithian principles better when making commercial programmes than when fulfilling its public service remit.

On legibility

There's an under-appreciated connection between two of this week's big political stories - Starmer's promise to "crack down hard" on benefit fraud; and the assisted dying bill.

The link is James C. Scott's concept (pdf) of legibility, which for my purposes we can understand to mean the degree to which the state can read, and thus control, society.

A big question with the assisted dying bill is: are there sufficient safeguards against people being influenced into taking their own lives? Formally, there seem to be: the bill provides prison sentences of up to 14 years for anyone who pressurises someone to have an assisted death.

But this raises the issue of legibility: can the state read the actions of a relative who puts such pressure onto someone? Of course, a court of law should be able to detect overt coercion. But the influence can be less than that. It can take the form of subtle displays of impatience: an eyeroll, a froideur, the occasional slightly harsh word. Even if there are witnesses to these (and there often won't be) they might not seem as strong to a jury in a decontextualized courtroom as they do to the individual thus pressured. And this is not to mention the extent to which the elderly and disabled might be influenced by the general culture in which they are considered a "burden on society".

What we might have here, therefore, is a lack of legibility: the state cannot fully read the pressures upon the vulnerable. To the extent that this is the case, the bill provides insufficient protections for such people.

A similar problem of legibility afflicts benefit reform*. Now, there is some fraud: the DWP estimates that it lost £5.7bn on Universal Credit fraud last year. But if the state were to try to prevent this by having tougher criteria for claiming, it would incur three costs: an administrative burden of having bureaucrats scrutinize each claim more thoroughly; a disincentive to the genuinely hard-up to make claims; and even more anxiety heaped upon claimants (who often have mental health problems to begin with) as they navigate the harsh bureaucracy.

Legibility - the ability to read "deserving" and "undeserving" cases and to distinguish between them - is difficult. Achieving it comes at a cost. Perhaps too high a cost.

Of course, these are not the only contexts in which the question arises of how legibile is society. It occurs in almost policy areas. Can central banks read the future of inflation and output and thus stabilize inflation? Can an organization as big as the NHS be read sufficiently well to be reformed for the better? Can governments read people's responses to tax changes and so design a tax system which provides incentives to work and invest rather than merely increase tax dodging? And so on.

In our context, however, we confront another problem. In a better world we'd not need the assisted dying bill. Instead, when people had helped loved ones to die out of despair at their suffering the police would simply turn a blind eye. Humanity and professional discretion can achieve what the law cannot. This world, however, does not exist - if it ever did. Like many professionals, the police do not have much discretion - and in their case, for good reason.

The issues here are genuinely tricky ones. And like many tricky issues, they don't get the attention they should. One reason for this is that our media (and in fairness much of the public) fails to apreciate the size of what Thomas Homer Dixon called the "ingenuity gap": the gulf between the complexity and unknowability of the world and our puny knowledge of it. Instead, they have an ideology of what I've called centrist utopianism - an unquestioned belief that society is perfectible if only we had wiser people in charge.

This error is magnified by the fact that politicians, like all professionals, have professional deformation; they see the world through a distorted lens. If they are well-motivated, people enter politics because they have an inflated idea of what policy can achieve. They are therefore selected to over-estimate the extent to which society can be read and controlled - an over-estimation compounded by the tendency for all of us to be over-confident about how much we can know.

The fact that politicians and the media cannot appreciate the problem here, however, does not mean that it doesn't exist. It does. If you think there are simple answers here, you are very likely wrong.

* In fairness to the government, much of its White Paper, Get Britain Working, talks about genuine support for the out-of-work and better opportunities for training and good jobs. Insofar as this is sincere, it is to be applauded.

On ideological blindspots

There's a big ideological blindspot in political debate. To see it, consider two quite different recent texts: Conservatism in Crisis (pdf) co-authored by Kemi Badenoch and many others; and Sam Freedman's Failed State.

Let's take Conservatism in Crisis first. The authors complain of the "rise of a new bureaucratic class" wherein "increasing numbers of middle-class jobs relate more to government rules than goods and services bought and sold in the market." The last two decades, they say, has seen a big rise in the numbers of HR managers, financial regulators, university staff, mental health professionals, and so on.

This is not a new observation or a uniquely rightist one; academics have been writing about the regulatory (pdf) state (pdf) for years. What is questionable is this:

The rise of safetyism, stifling of risk and a bureaucratic class to regulate and control us and protect the marginalised is rising steadily. The result of this has been a collapse in average per capita G7 large advanced economy growth rates...Across the Western world in general growth rates have come down while government has grown.

But, but, but. This is an example of what I've called Scooby Doo ideology - the notion that the economy would have succeeded if it weren't for those meddling kids. It overlooks an important possible direction of causality - that it is our economic problems that have fuelled the rise of bureaucracy, not just vice versa.

This is obviously true of the share of government spending in GDP. It has long been the case that this tends to rise when GDP growth is slow and fall when it is strong. The early years of the Thatcher government saw it rise whilst the early years of the Blair government saw it fall. This wasn't because Thatcher believed in a big state and Blair in a small one, but simply because economic conditions are stronger determinants of the share of public spending in GDP than is the ideology of the government. Given the UK's sclerotic economic performance in recent years, therefore, you'd expect the share of public spending to have increased.

What's true at the macro level is true of specific sectors too.

Financial regulation has increased because the 2008 financial crisis showed us that banks cannot regulate themselves. Other industry regulators such as Ofgem and Ofwat (which are in effect agents of the industries they purport to oversee) exist because there's no effective market to regulate the industries. The Food Standards Agency was created in response to fears about food safety: the salmonella and mad cow scares. Universities expanded in the 90s and 00s in part because the career prospects for less educated people looked grim - as indeed they have proved to be. And the growth of HR managers to deal with labour regulation has happened in part because workers are unable to defend themselves through trades unions and so demand protection through legislation: Philippe Aghion and colleagues have shown that weaker unions are associated with greater labour market regulation.

Now, I'm not saying this is the whole story. In some cases, bureaucracy has been created by ideologically-motivated governments as is the case with the Office for Students, which employs over 400 people. And bureaucracy feeds on itself: academic departments need lots of administrators merely to deal with bureaucrats in the rest of the university. And some of us have been decrying the growth of managerialist ideology for years. And it is indeed plausible that all this bureaucracy might stifle growth simply because there's an opportunity cost: if talented people are pushing paper they are not creating the goods and services that drive a dynamic economy.

The authors of Conservatism in Crisis, however, focus only upon the latter and do not consider even the possibility that the rise of the "bureaucratic class" is at least in part endogenous: it is the product of capitalist failure, not the exogenous cause of it. The inability to even ask this question is an ideological blindspot.

A similar blindspot exists in Sam Freedman's Failed State, wherein he shows how the UK has a " crisis of governance" because of excessive centralization; a weak civil service; inadequate parliamentary scrutiny and "a desire to keep the media beast fed." Worse still, as he is smart enough to say, governments have little incentive to change this: no Prime Minister wants to give away power to local or regional government; or to face tougher oversight from MPs; or to face a backlash from a media not getting what it wants.

Which poses the questions: why are we in this bad equilibrium? Why are there so little external pressures for change? Why has the right (which dominates the agenda) focussed on non-solutions such as Brexit rather than on policies that might improve the quality of governance?

It's because our bad government serves the rich quite well. As the FT has shown, the rich in the UK are doing as well as anywhere: it is the incomes of the median and poorer households that are so low by western standards. Insofar as there is a crisis of governance, it is a crisis for the working class. And it does not have sufficient power to force change.

Let's put this another way. Freedman's description of the failures of outsourcing is in many ways brilliant. But he doesn't ask: failures for whom? He's bang right that outsourcing probation services, care homes or children's homes is brainless if you want decent public services. What it does do, however, is generate profits for a capitalism that is unable to thrive on its own two feet. And that's what counts.

Similarly, Freedman is also right to partly blame the "media beast" for bad governance. Which only poses the question: whose interests does it serve?

Freedman and Badenoch are therefore making similar mistakes. They're not seeing that what they complain about - the "bureaucratic class", bad governance - are endogenous, the product of a capitalism that is failing millions and which grants political power to those opposed to useful change.
Now, I'm not accusing either of being stupid. We all have blindspots. Even Nobel prize-winners*. In Deaths of Despair, Angus Deaton makes much the same mistake as Freedman. Both fail to see that good policy isn't merely a matter of intellect and know-how. It requires the right material conditions, the right power bases. And it is these that are lacking in 21st century UK capitalism**.

Yes, capitalism. And there's the thing. Politicians and commentators do not call capitalism into question, any more than fish question why they are wet. The issue is so far outside the Overton window that even somebody as smart as Freedman doesn't raise it.

But we should, because so many of the problems of which we complain - not just excess bureaucracy and bad government but also things as otherwise different as the housing crisis and rise of right-wing extremism - are the result of a failing capitalism.

There used to be a crude version of Marxism which tried to claim that all social and political developments were caused only by the "economic base". Non-Marxists today have fallen into the exact opposite error, of believing that economic conditions have absolutely no impact upon politics. Such a view surely at least warrants examination. And that's what Marxism asks us to do. You don't all have to be Marxists, but an awareness of Marxian insights would greatly improve the quality of political discourse.

* Yes, including me.

** Those qualifiers "21st century UK" are important. I'm not claiming a universal tendency for capitalism to always produce bad government. Instead, as Edmund Burke wrote, "the circumstances are what render every civil and political scheme beneficial or noxious to mankind."

Against Scooby Doo ideology

There's an unspoken and apparently unquestioned presumption at the centre of this government's economic policy. We saw three examples of it this week.

The first came in Starmer's speech at an investment summit where he said:

We’ve also got to look at regulation – across the piece. And where it is needlessly holding back the investment we need to take our country forward…we will get rid of it.

However, the only example he gave of such regulation was how planning restrictions prevent the building of wind farms. That's a good example, but one he gave before the election. In his three months in power he has not, it seems, discovered any more.

The second and third examples are Wes Streeting's proposal to give the unemployed weight loss injections to help them get back into work, and Liz Kendall's idea for job coaches to visit the severely mentally ill in hospital to get them into work. Both echo the 1997-2010 Labour government which saw itself as capitalism's human resources department, ensuring a pliable supply of labour. As Stuart Hall said (pdf), that government "set about vigorously adapting society to the global economy's needs."

What these examples have in common is a belief that British capitalism is fundamentally dynamic and efficient.

Which is doubtful. Growth has slowed markedly in recent years. My chart shows that in the last ten years GDP per hour worked has grown by less than 1% per year. That's only a fraction of what we saw in the post-war "golden age" of capitalism, and close to the lowest growth rate since the long depression of the 1870s. This is despite the fact that governments have spent the last 40 years giving capitalism's loudest voices mostly what they want, such as lower top tax rates and weaker trades unions.

This week's remarks suggest that Labour seems to think this slowdown is because capitalism has been restrained by stupid government or by a defective working class. Which is not much different from the Tories blaming the deep state or bureaucratic class.

Both parties seem to have the Scooby Doo theory of capitalism: "I'd have succeeded if it weren't for those meddling kids."

There is, however, an alternative possibility. It's that capitalism itself has developed forces which reduce growth. I'll list five, though they are interconnected.

First, profit rates have fallen thereby reducing incentives to invest, as documented by economists such as Michael Roberts, Tomas Rotta and Rishabh Kumar. Note that what matters here is not just current profit rates (which are hard to measure because the capital stock is hard to measure) but expected ones. It's reasonable for companies not to invest in new technologies if they fear that future progress in AI or robots will render those investments unprofitable. William Nordhaus famously showed that companies captured "only a miniscule fraction" of the social returns from technological advances between 1948 and 2001 because profits were indeed competed away. Any manager who has learned from this will be loath to invest.

Secondly, David Ricardo had a point: rising rents are crowding out other forms of economic activity. The problem here isn't mere farmland, as Ricardo thought. It's wider than that, as Brett Christophers has shown. We're handing so much money over to owners of prime residential or commercial land, to owners of oil and gas fields, intellectual property and infrastructure that there isn't enough left to create enough demand for dynamic sectors of the economy.

Thirdly, there's Baumol's law. As Dietrich Vollrath says:

Most service industries have relatively low productivity growth, and most goods-producing industries have relatively high productivity growth. As we shifted our spending from goods to services then, this pulled down overall productivity growth. (Fully Grown, p5)

Of course, this could change: in principle, AI and LLMs could make lawyers and accountants redundant. But this is not the world we live in today.

Fourthly, capitalist inequalities - not just of income but also of power - can themselves slow growth. It encourages the rich to invest not merely in increasing aggregate productivity but in methods to protect their privilege and power - be it in guard labour (pdf) such as supervisory staff, technologies such as CCTV or keylogging, or simply lobbying government. It can reduce trust (pdf) which depresses growth by making us loath to invest in risky projects, or by worsening the quality of government policy. A low-wage economy can discourage investment in labour-saving technologies. And big wage differences between CEOs and less senior managers encourage office-politicking and working towards measurable (pdf) targets (such as selling risky financial products) rather than strengthening corporate culture.

Finally, in creating winners capitalism creates powerful groups with a vested interest in maintaining stagnation: incumbent companies wanting to restrict competition; financiers wanting the low interest rates that economic stagnation brings; lawyers and accountants wanting a complex tax system that strangles growth; or landlords opposing new building or property taxes. Why bother investing in new projects if you have a monopoly position with a cushy job and big income? Why should you set up a new company if you have a big salary from a corporate bureaucracy? And why bother competing in a market economy when you can lobby government instead for protection, subsidies and tax breaks? As Joel Mokyr wrote:

Technological progress encounters resistance from various groups that believe they stand to lose from innovation. These pressure groups will try to manipulate the political system to suppress successful innovation….Under fairly general conditions, it can be shown that the single economy will move inexorably to an absorbing barrier of technological stagnation.

All this of course echoes Marx:

At a certain stage of development, the material productive forces of society come into conflict with the existing relations of production or – this merely expresses the same thing in legal terms – with the property relations within the framework of which they have operated hitherto. From forms of development of the productive forces these relations turn into their fetters.

We might have reached this stage of development. If so, raising economic growth requires more than deregulation and the harassment of fat people and the depressed. It requires instead an attack on rich and powerful vested interests.

The problem is, though, that there is no political debate about this. Questioning capitalism is off the agenda. Faith in it is based more in ideology and wishful thinking than in evidence. Refusing to engage with the left, however, now means refusing to engage with reality.

Beyond tax rises

Most people agree that we need to raise public spending to repair our damaged public services. Simon Wren-Lewis estimates that it needs to rise by around 4.5% of GDP eventually.

Such an increase, as Simon says, requires higher taxes. This isn't because the government needs the money. It's because it needs real resources - more doctors, nurses, carers, military equipment or prison officers and so on - and there isn't so much spare capacity in the economy that these can come from dole queues or by companies increasing their production with their existing workforces. We therefore need tax rises to divert labour from the private to the public sector. As MMTers say, the purpose of taxes is to reduce inflation - and right now big increases in public spending would be inflationary without higher taxes.

Of course, everybody knows these would be unpopular. What's not sufficiently appreciated, however, is that they cause more problems than just this.

The first is that, in cutting consumer spending, higher taxes would depress sectors where competition is strong such as retailing, pubs and restaurants. This matters because competition is a major cause of efficiency gains - which is perhaps why productivity growth in retailing has in recent years outstripped that in the economy generally. The decline in such sectors would thus tend to reduce our already lamentable aggregate productivity growth, especially when accompanied by a shift in resources towards the public sector where productivity has tended to stagnate for years.

It's not just the impact on productivity growth that should concern us, though. So too should the cultural implications. Success in retailing and hospitality require that companies be heedful of customers' wants - that they cultivate the Smithian virtue of sympathy, of putting oneself in others' shoes; this is why some are accused of being "woke". "Doux commerce" - the tendency for trade to soften manners - can work in domestic as well as international trade. In shrinking consumer sectors, this is weakened. Which is all the more regrettable because rentierism will not be. The tendency for economic success to accrue to those who merely own assets rather than to those who provide decent goods and services will thus be strengthened. That's regress - a move away from commercial society back towards feudalism.

A second problem is that declining consumer spending could foster doom loops. As fewer people go to pubs, the atmosphere worsens ("this place is dead") thereby discouraging others from going. And as shops close, high streets become more depressing and so fewer visit them, diminishing the footfall for the remaining businesses.

This is dangerous not just economically but politically. Thiemo Fetzer and colleagues have found "a significant positive association between high-street vacancy rates and UKIP support." And Diane Bolet has shown how pub closures also boost support (pdf) for the far right. This shouldn't be surprising. As Ben Friedman showed, and Markus Brueckner and Hans Peter Gruener confirmed, economic stagnation breeds intolerance and reaction. The most visible signs of that stagnation will therefore boost the far right.

The third drawback is simply that shopping, days away and nights out make us happy. That might be a price worth paying so we don't have to wait so long for a hip replacement. But is it one worth paying for military contractors' profit margins or Border Force agents?

This question might not trouble our joyless rulers but it should trouble the rest of us. In a supposedly advanced society, there must be more to the economy than drudge work and struggling to pay the rent and gas bill.

Higher taxes therefore are nasty.

This - rather than anything Reeves actually says - is a justification for Labour not having big, quick rises in public spending or large tax rises.

But there are other possible responses to this dilemma.

These do not include taxing the rich. Doing so might satisfy some conceptions of justice. But it does not solve our economic problem of how to release real resources for the public sector. If the rich respond to higher taxes by cutting their saving or by reducing the size of planned inheritances, no such resources are released. In such an event, increased public spending would be inflationary and the Bank of England would raise interest rates in response - and these too would curb consumer spending with the same adverse effects as tax rises.

There's a simple solution to this - to raise the inflation target. I'm surprised this isn't more widely discussed.

Another possibility is to raise public sector productivity. Doing so requires more than waffle about reform and privatization, however. It requires, as Dan Honig shows, giving frontline workers more autonomy and power.

But of course, it's not just higher productivity in the public sector we need. We need higher productivity growth all round simply because this would give us more of everything: private consumption, public services, leisure, whatever. Labour's talk of planning reform is a good start here. But it's just that - a start. Serious measures to raise productivity would require (among other things): stronger competition policy; shifting taxes from incomes to land; rejoining the single market; more support for universities (which are high-productivity export earners); and a liberal immigration policy. All these measures will be opposed by vested interests and the media. And this is only to mention mainstream thinking, let alone policies such as economic democracy or greater equality.

There's something else. The reallocation of labour towards public services need not be achieved by macro policy alone. There are tens of thousands of jobs which would not exist in a more efficient economy. There's excessive guard labour - including some security guards, supervisory staff and patent lawyers - which protect captalist property rights. There's the bloated financial sector sustained by tax (pdf) breaks and ignorance of fund managers' performance. There are the bullshit jobs described by David Graeber. There are too many government bureaucrats, tax lawyers and accountants who are maintained by an excessively complicated tax and benefit system. And there are too many workers in industries with negative externalities - those producing environmental, risk or intellectual pollution*.

In this context, Keynes is now irrelevant. "It is in determining the volume, not the direction, of actual employment that the existing system has broken down" he wrote. That might have been true in the 1930s but it is not now. Redirecting labour requires not macroeconomic policy but specific measures targetting these egregious jobs.

And here's the problem. The government is showing insufficient interest in how to achieve this reallocation of labour through microeconomic and tax policy, and (except for planning policy) little interest in attacking the vested interests opposed to policies that might raise productivity. That leaves higher taxes as its only option, even though these are dangerous.

The fact is, however, that if Labour is to succeed in improving public services and defeating the far right, it needs to get out of the straitjacket of centrist macroeconomic policies. An attack on the more predatory and reactionary elements of capitalism is not leftist idealism but a brute necessity.

* These aren't especially leftist points. They're the product of policy failures and of what Milton Friedman called spending "somebody else's money on somebody else." Free marketeers - assuming there are any left - should be concerned with these.