Stumbling and Mumbling

New Labour: success and failure

Did New Labour really ignore inequality? Responding to Corbyn’s claims that successive governments have neglected it for decades, Blair replies that New Labour “made the UK more equal, more fair and more socially mobile.”

Both men, I think, are partially right.

Blair is correct to say that New Labour massively increased spending on public services and reduced child and pensioner poverty.

However, overall inequality did not change much under New Labour despite that fall in poverty. One reason for this is that as Robert Joyce and Luke Sibieta at the IFS have pointed out (pdf), their tax and benefit reforms “had relatively little net impact on the top half of the income distribution”. Another is that pre-tax inequality rose in one important respect at least: the share of pre-tax incomes going to the top 1% rose from 10% to 12% between 1997 and 2007, before falling back as a result of the banking crisis.

It is in this last fact, I think, that New Labour’s failure lies, and where Corbyn has a point. Blair and Brown were far too managerialist, and too deferential to bosses: this much was evident not just in Brown’s lauding of them as wealth creators and courageous leaders but in his inviting the likes of Derek Wanless, David Freud and James Crosby to conduct policy reviews. Bosses, New Labour thought, were trusted experts.

In this respect, New Labour was indeed neoliberal. And this had at least three big costs.

One is that the importing of crude managerialism into the public sector failed to raise productivity: the ONS says this flat-lined (pdf) under New Labour. Yes, the public services improved. But this was simply because the government threw money at them. This made the health of the public sector dangerously dependent upon that of the private sector.

The second is that it meant that New Labour under-appreciated the many pathways through which the excessive wealth and power of the top 1% can worsen economic performance.

 Thirdly, it fostered the belief that private sector companies could run themselves tolerably well if left alone. The banking crisis, however, revealed this to be a fiction.

That said, it is a little harsh of Blair’s critiques to blame a lack of banking regulation for the economic crisis. For one thing, the crisis was not due mainly to rising domestic debt. The banks that failed in 2007-08 did not, for the most part, do so because their loans turned bad. Instead, the main failures were due to terrible take-over decisions, such as RBS’s buying of ABN Amro, or because they relied upon wholesale funding which dried up in 2007: this was Northern Rock’s problem. Credit controls would probably not have prevented these failures.

And for another, the crisis was global. It would have hit the UK even if we’d had tighter regulation. In fact, in 2009 UK GDP fell only slightly more than the OECD average (4.2% against 3.4%) and it fell less than it did in Germany and Sweden, whose economies are often held up as models of what the UK should be. No reasonable policies could have insulated us from the global financial crisis.

From this perspective, it is absurd to blame New Labour for the subsequent austerity (except to the extent that we should blame it for losing the 2010 general election). We’d have had a deep recession in 2009 whatever the government would have done, and this would have greatly increased government borrowing thereby giving the Tories and the media the chance to complain about Labour profligacy. Austerity is the fault of the Tories and Lib Dems, nobody else.

New Labour had its faults, many of which are more obvious with hindsight than they were at the time, and the left is wholly correct to want to move on from its economic policies which are now out-of-date. But these facts should not detract from another fact – that Labour did indeed do much to reduce poverty.

The Johnson puzzle

One of the puzzles of our time is why Boris Johnson is considered – not just by Tory members but by much of the media - to be a credible contender for Prime Minister when many of us regard him as a oafish buffoon, serial liar and associate of criminals. One answer to this paradox, I suspect, lies in the concept of ambiguity aversion.

This is the notion that people much prefer the familiar to the unknown, and known risks to unknown ones: they strongly prefer (pdf) 50-50 bets to ones on unknown proportions. Such ambiguity aversion explains a lot of behaviour in financial markets, ranging from the home bias in equity portfolios to the US’s “exorbitant privilege.”

It also, though, explains political attitudes.

The thing is, the Tory party is for many people the familiar option; it is after all the natural party of government. When Cameron threatened “chaos with Ed Miliband” and May promised “strong and stable government” they were appealing to the presumption, that the Tories offered familiarity and comfort whilst Labour offered uncertainty – something people hate. For this reason, turmoil in the Tory party is "drama" whereas that in the Labour party is "chaos".

It’s not just Tory supporters for whom the Tories are the known safe prospect. The same’s true for much of the media.

One reason for this is class. Most top journalists went to private schools. They therefore regard Johnson as “one of us”. For the same reason, they regard a public school-educated commodities broker with suspected links to Russian oligarchs and who doesn’t listen to music or watch TV as a “man of the people.”

It’s not just personal homophily that makes the Tories the familiar option, though. Being privately educated inculcates people into shared presumptions such as about what counts as “educated” (classical references do but numeracy doesn't); what matters (economics doesn’t) and who is or is not part of “the country”.

Much of the media and the Tory party have other things in common, though. One is a shared conception of what politics is – an Oxford Union-style game iof jockeying for position. The BBC, like much of the media, is obviously happier covering the Tory leadership race than it is covering substantial policy which ends up, in Humphrys’ words. “all getting a wee bit technical and I’m sure people are fed up to the back teeth of all this talk of stuff most of us don’t clearly understand.” It thus sees Johnson as a player of a game it understands, whilst it ruthlessly othered technocrats such as Ed Balls or Ed Miliband*. In the same way, the failure to see that politics can be a project of building mass movements has lent the BBC a bias against Corbynites and other activists.

Also, the media prefers human interest stories to theories of emergence, in which social outcomes for good or bad are the product of human behaviour but not design**. This too lends a bias towards seeing politics as a clash of characters rather than as a more complex process.

The Tory party, therefore, is seen – not just by its own members but by most of the media, including the BBC – as a cosy familiar option. From this perspective, Johnson offers it the same thing that Lisa Simpson gets from non-threatening boys – a frisson of excitement in what is actually a safe environment. Tories and the media know that whatever else Johnson does he will not do anything really dangerous such as put an extra penny on the top rate of tax. Johnson’s (and Farage’s) many media appearances reinforce this impression. As Alan Bennett wrote, they make them seem “human and harmless and that their opinions are not really as pernicious as their opponents pretend.”

It is only those of us from other backgrounds and perspectives who see them otherwise. It is surely no accident that the only times Johnson has been seriously challenged by the BBC has been in interviews with Eddie Mair. He might seem a harmless joker to media insiders, but to the son of a lorry driver he appears altogether more sinister.

In this sense, the mirror image of Johnson is Tony Blair. Whereas Johnson is a slightly thrilling personality from a familiar organization, Blair in the 90s offered a safe and comforting front for what was an unfamiliar and thus unsettling party.

Now, I’m not making a partisan point here. I could say much the same for many metropolitan and academic leftists: for, them, Che Guevara, Hugo Chavez or even various terrorists have served the same function Johnson serves for Tories and the much of the MSM.

Instead, I’m complaining about a tendency for everybody to inhabit bubbles in which they are unaware of the partiality of their own perspective. I suspect this is an increasing problem, caused by decline of two otherwise different characters: the aristocratic Tory who crouched in foxholes with working class men; and the upwardly mobile working class man who enters posher circles. For me personally, the most attractive of the Tory candidates is the (yes, Etonian) Rory Stewart whose career suggests a willingness to step out of a comfort zone of his own background and presumptions.

Such a failure to see that one is in a bubble is perhaps forgivable for those on both the left and right. Whether it is quite so forgivable for the BBC, which pretends to be impartial, is another question.

* Some Tories are victims of this othering: when David Willetts was called “two brains” it wasn’t an unalloyed compliment.

** For example, the media took Osborne at his word when he claimed to be trying to control the public finances, oblivious to the most basic concept of emergence, the paradox of thrift.

The Tories' structural weakness

As a lefty, the disarray in the Tory party provides a lovely schadenfreudic coincidence – that the same intellectual failing that causes the party’s bad government also causes it to elect unsuitable leaders.

This failing is an inability to see failures of collective action – to see that what is rational for each individual is often bad for everybody.

An obvious example of this came in 2012 when Cameron advised people to top up their petrol tanks in advance of a strike by lorry drivers. He failed to see that whilst this might have been sensible for any individual, its aggregate result was to trigger panic buying and fuel shortages.

There are, though, other examples. Collective action problems mean that public goods such as infrastructure are under-supplied and public bads such as pollution are over-supplied: each individual thinks it won’t make any difference to the climate if he gets on a plane, with the result that too many do so. If everybody – especially the government - tries to cut their borrowing the result is not lower debt but lower incomes for us all. Similarly, whilst you might be able to incentivize any one person to find work by cutting benefits, you cannot incentivize everybody this way: the result is just misery for those out of work. And we cannot rely upon shareholders to control company managers because the hard work of doing so is borne by the individual shareholder whilst the benefits are spread widely over all, with the result that we have inadequate corporate governance. And so on.

The point of politics is to solve collective action problems such as these. The Tory party has, however, under-rated the importance of such problems and so have given us austerity, economic stagnation and an inadequate response to the climate emergency,

Here, though, is the nice irony. The same blindness to collective action problems that caused the Tory party to wreck the economy is now causing it to destroy itself.

What I mean is that its choice of leader suffers the same problem. Each individual considering who should be leader thinks of his personal perspective: who personally do I find simpatico? Whose ideology is closest to mine? And, for MPs, who will give me a job?

These considerations of private gain, however, neglect the collective good (from Tories point of view) of the health of the party. What matters for the party is not that it has the leader closest to your own ideology, but that it has the right leader – that a round hole be filled by a round peg.

This is true in business. As Boris Groysberg and colleagues have shown (pdf) If a company needs a marketing man as CEO but hires an engineer, things go wrong. But if it needs a marketer and gets one, it does well.

And it’s true in politics too. For example, Churchill was a man of massive flaws. But in 1940 many of these faults, such as bombast and belligerence, became virtues. And other failings – such as his racism and ignorance of domestic economic and social matters – weren’t important. In 1940-45, Churchill was a round peg in a round hole. Before and after then, he was not.

Or consider Cameron. He was the right man to detoxify the Tory party in 2005. But the same overconfidence that led him to stand for leadership despite a lack of experience also caused him to call the Brexit referendum. What was a strength in 2005 was a catastrophic weakness in 2016. He stayed the same shape, but the hole changed.

Or consider May. One can imagine circumstances in which her stubbornness would be a strength – if the party had a good strategy which needed sticking to. But these are not the circumstances we’ve had recently. We’ve needed a negotiator – someone with intellectual flexibility and interpersonal skills. And May is wholly lacking such skills.

What matters, then, is the match between the requirements of the job of party leader, which vary from time to time, and the qualities of individual. Sometimes, as in Churchill’s case, the match is good: the man’s vices can either become strengths or be easily overlooked. What we have now, though, is a terrible match: May’s weaknesses are horribly exposed.

If Tory members and MPS consider only their private gain – “who most agrees with me?” – they’ll not ask who is the best match. It is only by accident then that they’ll elect the most suitable leader. And it’s a long time since this accident happened: the party’s last five leaders – Hague, Duncan-Smith, Howard, Cameron and May – have all left something to be desired.

But it was not always thus. Before 1965 Tory leaders were not elected but rather chosen by grandees. Because they were often old enough to have sloughed off ambition, such men put a higher weight upon the good of the party and less upon their private gain. They solved the collective action problem, and the Tory party was much stronger for it. The party has, however, now lost this solution. And the delightful irony is that the same blind spot that has caused it to wreck the country is now causing it to wreck itself.

How inequality makes us poorer

I welcome the Deaton report into inequality. I especially like its emphasis (pdf) upon the causes of inequality:

To understand whether inequality is a problem, we need to understand the sources of inequality, views of what is fair and the implications of inequality as well as the levels of inequality. Are present levels of inequalities due to well-deserved rewards or to unfair bargaining power, regulatory failure or political capture?

I fear, however, that there might be something missing here – the impact that inequality has upon economic performance.

My chart shows the point. It shows the 20-year annualized rate of growth in GDP per worker-hour. It’s clear that this was much stronger during the relatively egalitarian period from 1945 to the mid-70s than it was before or since, when inequality was higher. 

This might, of course, be coincidence: maybe WWII caused both a backlog of investment and innovation which allowed a subsequent growth spurt and a desire for greater equality.

Or it might not. This is not the only evidence for the possibility that inequality is bad for growth. Roland Benabou gave the example (pdf) of how egalitarian South Korea has done much better than the unequal Philippines. And IMF researchers have found (pdf) a “strong negative relation” between inequality and the rate and duration of subsequent growth spells across 153 countries between 1960 and 2010.

Correlations, of course, are only suggestive. They pose the question: what is the mechanism whereby inequality might reduce growth? Here are eight possibilities:

1. Inequality encourages the rich to invest not innovation but in what Sam Bowles calls “guard labour” (pdf) – means of entrenching their privilege and power. This might involve restrictive copyright laws, ways of overseeing and controlling workers, or the corporate rent-seeking and lobbying that has led to what Brink Lindsey and Steven Teles call the “captured economy.” An especially costly form of this rent-seeking was banks’ lobbying for a “too big to fail” subsidy. This encouraged over-expansion of the banking system and the subsequent crisis, which has had a massively adverse effect upon economic growth.

2. Unequal corporate hierarchies – what Jeffrey Nielsen calls rank-based organizations - can demotivate junior employees. One study of Italian football teams, for example, has found that “high pay dispersion has a detrimental impact on team performance.” That’s consistent with a study of Bundesliga and NBA teams by Benno Torgler and colleagues which found that “positional concerns and envy reduce individual performance.”

3. “Economic inequality leads to less trust” say (pdf) Eric Uslaner and Mitchell Brown. And we’ve good evidence that less trust means less growth. One reason for this is simply that if people don’t trust each other they’ll not enter into transactions where there’s a risk of them being ripped off.

4. Inequality can prevent productivity-enhancing changes, as Sam Bowles has described. We have good evidence that coops can be more efficient than hierarchical ones, but the spread of them is prevented by credit constraints. Poverty reduces education levels by making it impossible to afford books, or encouraging bright but poor students to leave earlier than they should, and women and BAME people might avoid careers for which they are otherwise well-suited because of a lack of role models.

5. Inequality can cause the rich to be fearful of future redistribution or nationalization, which will make them loath to invest. National Grid is belly-aching, maybe rightly, that Labour’s plan to nationalize it will delay investment. But it should instead ask: why is Labour proposing such a thing, and why is it popular?

6. Inequalities of power – in the sense of workers’ voices being less heard than they were in the post-war period and trades unions becoming less powerful – have allowed governments to abandon the aim of truly full employment and given firms more ability to boost profits by suppressing wages and conditions. That has disincentivized investments in labour-saving technologies.

7. The high-powered incentives that generate inequality within companies can backfire. As Benabou and Tirole have shown (pdf), they encourage bosses to hit measured targets and neglect less measurable things that are nevertheless important for a firm’s success such as a healthy corporate culture. Or they might crowd out intrinsic motivations such as professional ethics. Big bank bonuses, for example, encouraged mis-selling and rigging markets rather than productive activities.

8. High management pay can entrench what Joel Mokyr calls the “forces of conservatism” which are antagonistic to technical progress. Reaping the full benefits of new technologies often requires organizational change. But why bother investing in this if you are doing very nicely thanks to the increased (pdf) market power of your firm? And if you have, or hope to have, a big salary from a corporate bureaucracy why should you set up a new company?

My point here is that what matters is not so much the level of inequality as the effect it has. And it might well be a pernicious one. If inequality has contributed to weaker growth, then it is very likely to have contributed to the rise of populism and to Brexit and the divisions with which both are associated. In this way, inequality does political damage too.

From this perspective, pointing out that the Gini coefficient has been flat for years (which is true if we ignore housing costs) is like saying that because the bus has stopped moving we need not care about the man who has been run over by it. It misses the main point.

Debating the far right

The far right has been defeated. Andrew Neil’s interview with Ben Shapiro and Andrew Marr’s with Nigel Farage have exposed both men as shifty, vacuous and evasive. Their support will therefore disappear. What took the might of the Red Army in 1941-45 has today been achieved by two ageing Scotchmen.

Or not. For one thing these episodes won’t weaken the far right’s resolve. Farage is playing the victim card. “We are not just fighting the political class, but the BBC too” he says. Sure, his opponents think his interview was a disaster but his sympathizers don’t: Andrew Lilico called it his “best ever.” Such reactions demonstrate the pervasiveness of asymmetric Bayesianism – that we interpret evidence to corroborate our priors.

If we’re being honest with ourselves, many of our political views – by no means just those on the right – were formed sub-rationally. And as Jonathan Swift said, “reasoning will never make a Man correct an ill Opinion, which by Reasoning he never acquired." This is especially the case if the protagonists are debating in bad faith.

Now, many of you will object to this that whilst such interviews and debates might not persuade rightists themselves, they might help turn neutrals away from the movement. I’m not convinced, and not just because Marr and Neil are only watched by a handful of politics nerds.

One issue here is that defeating rightists in debate is like playing whack-a-mole; even if you knock one down, another pops up. It’s generally agreed that Nick Griffin made a fool of himself on Question Time back in 2009, and sure enough he has since fallen into deserved obscurity (although the BNP did increase its vote in the following year’s general election). But other far-right figures have replaced him, such as Stephen Yaxley-Lennon.

There’s an analogy here with snake-oil sellers. Even when reason and evidence did show that a particular product was inadequate, customers did not shun snake-oil generally. They simply switched to other sellers instead. As Werner Troesken showed in a fantastic paper (pdf), demand was unaffected by failure.

A second problem is that we’ve no good reason to believe that people are swayed by fact and reason alone. We know that huge numbers of voters are ignorant of basic facts, which makes them credulous about all sorts of daft ideas. We know too that they are swayed by things other than rational argument, such as looks (though in fairness these are unlikely to win Mr Farage much support). Rationality doesn’t just require intelligence. It needs immense self-discipline, which many of (not least me) just do not have – and in the case of politics, have neither the means nor incentive to acquire it.

Which means neutral observers – even assuming there to be such things – are prone to countless cognitive biases. A particularly dangerous one in this context is the mere exposure effect; the more we see or hear something, the more we like it. It’s possible (pdf) then that Andy Dawson is right: “the blanket coverage [Farage and UKIP] have been afforded has directly led to the shifting of the political landscape in Britain.”

What matters here is not just Farage’s personal appearances on TV. It’s also what gets discussed. The more time the BBC devotes to the concerns of the right – ethno-nationalism, anti-“elitism”, Brexit and so on – the more normal people think such debates should be. And conversely, in crowding out other matters, such as the decade-long stagnation in productivity and real wages, these become fringe issues. The agenda matters. And merely debating with the right shifts the agenda onto their terms.

I fear, then, that the right will not be defeated by debate. We must instead pull out the roots of its support. It is surely no accident that right-wing populism has increased around the world at a time of economic stagnation. Reducing its support therefore requires an end to that stagnation. It won’t be done by talk alone.

On media influence

Not everything that stinks causes disease. Yes, there is plenty wrong with the press and BBC, but how much influence does it actually have?

I ask because of Simon’s recent post blaming the media for the sheer incompetence of this government. I’m not so sure about this. The press has always had a right-wing bias, but we haven’t always had a government as lousy as this one. This alone tells us that other factors are at work: mechanisms that select for fanatics and against competence have strengthened in recent years.

Equally, it would be stretching things to blame the media for the rise of coarse right-wing populism. The press has been fomenting this for decades: the Sun ran the headline “Up Yours, Delors” way back in 1990. But it is only in recent years that it has become so widespread. This tells us to look elsewhere for explanations – for example in increased (perceived) threats to old white male supremacy or to the psychological impact of economic stagnation. As Martin Wolf says, “sharing out losses generated by a financial crisis, followed by the inevitably weak recovery, always creates public rage.”

What’s more, the cognitive biases research inspired by Kahneman and Tversky shows us that people are perfectly able to be idiots without reading the papers. Pro-capitalist ideology can emerge without their help.

And personally, I find blaming the press to be aesthetically displeasing: I fear it can sometimes come close to conspiracy theory, and under-rates the importance of emergence.

We also have empirical evidence from the US that the press doesn’t much matter. Matthew Gentzkow and colleagues used the opening and closing of daily newspapers to estimate effects on voting behaviour and found (pdf) “no evidence that partisan newspapers affect party vote shares.” One reason for this is that papers respond to readers’ ideologies (pdf), not vice versa.

But, but, but. There’s also evidence on the other side. Jonathan McDonald Ladd and Gabriel Lenz show that Sun readers were more likely (pdf) to vote Labour in 1997 than otherwise similar people who didn’t read the rag, implying that the Sun’s shift to supporting Labour in the 1997 election did shift votes. US evidence shows that the roll-out of Fox News boosted the Republican vote. One study has found (pdf) "quantitative and qualitative evidence that media coverage may have played a unique causal role in increasing support for UKIP," And the fact that young people are far more left-wing than oldsters – something which was not the case in the 80s – might be due in part to the fact that they don’t read the papers.

What’s more important for me, though, is perhaps the role of the press in shaping the agenda, in deciding what gets talked about: in this context is the constant drip, drip of stories that matters more than any individual one. Simon is right to say that media stories of Labour’s over-spending created a climate receptive to Tory claims that government borrowing was a big problem. The MPs’ expenses “scandal” helped to foster a distrust of parliamentarians*.  And anti-immigrant stories in the papers might well help explain the otherwise curious fact that anti-migrant sentiment tends to be strongest in areas which have low immigration. When people can compare the evidence of their own eyes to newspaper stories, they disbelieve the latter, but when they can’t…

Of course, if the press puts some things onto the agenda it follows that others things are kept off it. Not least of these is the truth. The fact that people were ignorant of basic facts about the EU in 2016 and that Tory MPs needed a training session this year on what a customs union is both tell us that the media does a lousy job of informing people.

The facts, though, aren’t the only things avoided. In talking about Brexit, immigration, identity politics and so on, important questions get ignored – such as the causes of stagnant real wages or of inequality. Even well-meaning journalists, in their search for heroes and villains, tend to under-rate the importance of emergent social phenomena.  One of the BBC’s greatest failings is perhaps a tendency to take its agenda from the press, thereby exacerbating the bias against understanding.

Net, then, I suspect our media is indeed a problem, though not the only one. Which means that one task of the left - a task it has for years failed at - is to change what we talk about. 

* The fact that some of the most imaginative writing in English literature has sometimes been in journalists’ own expenses claims was curiously overlooked in that affair.

Yes, ownership matters

I welcome the creation of the Common Wealth think tank, which aims to promote “deep shifts in property relations and ownership.”  There’s one possible preconception about this project which must be debunked, however. This is that it is hippy-dippy yogurt-weaving idealism. It’s not. The question of who should own and control companies is bog-standard mainstream economics: at least three Nobel prizes – to Hart, Williamson and Coase – have gone to economists working on this and related issues.

And in fact, stock markets themselves are calling into question the feasibility of existing ownership structures. In the UK the number of companies listed on the main market has dropped from 1747 to 1156 since the start of the century, a trend which matches those in the US and Europe. And as Kathleen Kahle and Rene Stulz show, those that are listed are bigger and older than they were then and are less profitable and hold more cash.

One big reason for this is that dispersed share ownership does not adequately control management. This is partly because of a free-rider problem. With hundreds of outside shareholders each one has an incentive to piggy-back off of others’ efforts to oversee management. Everybody therefore hopes that somebody else will be the active investor, with the result that nobody is.

As Michael Jensen pointed out in a famous paper in 1989 this is fine for companies with lots of potentially profitable projects who need to raise money to finance them: it’s no disaster if poor oversight of managers causes them to select projects with a 20 rather than 30% return on capital. But, he said, it is a problem for companies facing slow growth or which have lots of cash and few good investment opportunities. And in a world of secular stagnation there are more of these. For them, dispersed ownership is inappropriate – which is why we see fewer companies listed on western stock markets.

This problem can often be solved by more concentrated ownership. But there’s another issue here. To see it, ask: who should control an asset? In theory, it should be the one who stands to lose most if the asset falls in value and gain most if it increases. This person is the one who has the strongest incentive to maximize the asset’s value. Traditionally, this person has been the owner – be it the shareholder or direct owner. This, it has been thought, is because other stakeholders such as workers, bond-holders, banks or suppliers are protected by contract, leaving the owner as the residual claimant.

This thinking, though, is wrong. As Colin Mayer says (pdf):

Contracts are very restricted…Shareholders are not therefore by any means the only party exposed to the misfortunes of corporations and the more that we strengthen the rights and powers of shareholders, the more we threaten the interests of others.

There are at least four other actors who are residual claimants:

 - As we saw with the collapse of City Link or Carillion, subcontractors often get shafted when a firm fails whilst owners and directors can extract large “consultancy fees”.

 - Workers who have invested job-specific human capital in a company cannot get so good a job if the company fails. As Oliver Hart has written, “a party with an important investment or important human capital should have ownership rights.” (Firms, Contracts and Financial Structure, p48)

 - The failure of large firms, or those that are key hubs in a network, can cause deep recessions, as we saw in 2008. Pretty much all of us suffered from the collapse of the banks. And as Edward I – a man not noted for socialist sympathies – said "common dangers should be met by measures agreed upon in common.*"

 -  For companies that are contributing to climate change, future generations are in effect a residual claimant: they are at risk from the firms’ actions.

All this raises some questions.

First, could these parties exposed to corporate risks be protected by changes in regulation, contracts or carbon taxes? We know that they have not been so far. And I fear that the power of capital to block such changes means they won’t be.

Secondly, shouldn’t market forces select against bad companies? In part, they don’t simply because the forces of competition don’t grind so finely. The fact that there is a long tail (pdf) of inefficient companies in all countries shows that bad management isn’t strongly selected against. And even when it is, the process is disruptive of people’s lives so the residual claimancy problem remains.

Thirdly, can the market alone achieve efficient changes in ownership? The fact of de-equitization suggests that sometimes it does. There are, though, at least two issues here. One is simply that there are credit constraints: the best owner of a firm might not be able to raise finance the buy it. A second is that new forms of ownership might require legal change. The limited company was we know it was created by two acts of parliament in 1844 and 1855. (The notion that free market capitalism is somehow natural and emerged without state intervention is a fiction.) Other new forms might require such change, or at least government encouragement, perhaps through use of its procurement activities as is happening in Preston. 

Fourthly, who should own companies? The answer, as in most economic questions, is: it depends. In some cases, it should be workers. Where these have serious investments in the firm, in the form of job-specific human capital or a lack of outside options, they have sufficient skin in the game to warrant ownership or control. They also often have dispersed fragmentary knowledge about corporate performance and how to improve it that managers cocooned in the C-suite lack: worker control can be a solution to Hayek’s knowledge problem. This is especially the case if such firms don’t need to raise lots of equity finance. For other firms, Mayer has suggested ownership by a public benefit company, which ensures that firms fulfill a stated public purpose beyond mere maximization of profits: as John Kay has shown, the latter is better done as a by-product of other aims, such as producing great goods.

Fifthly, if all this is the case, why has ownership been off the political agenda for so long? One reason is that since about the 1930s Labour thought that it could achieve social democratic objectives without challenging existing ownership structures – by using macro policy, taxation, regulation or strong unions. The collapse of post-war Keynesianism in the 70s, and weak growth in our neoliberal order since, however, suggests that this belief was wrong. Maybe, therefore, ownership does matter – and in some cases at least, it might be in the wrong hands. And this is to consider the question without even raising the matter of justice and equality.

* I suppose the mood of the times requires that I note that he was a vicious anti-Semite.

Against solipsistic politics

Everybody knows the country is divided. What’s not so well appreciated is that there is also an implicit unspoken division about how we conceive the very nature of politics.

The dominant popular conception is that politics is much like ordering something from Amazon. You say what you want, expect it to be delivered, and get the hump when it isn’t. That leads to demands that politicians “just get on with it”, to talk of a betrayal of democracy, or even to demands for a “strong man” to sort things out.

There is, though, another conception. It’s that politics is not just another retail experience. It is about the conflict of interest between people: Robinson Crusoe had no politics until Man Friday pitched up. Such conflicts arise simply because we want different things. The essence of politics is to understand how to cope with this. Sometimes, others’ wants are an immutable obstacle to our own desires, so we cannot get what we want even if there is a democratic mandate for it.

At other times, though, their wants might be malleable. This might be done by persuasion, rational or not. But it can be done in other ways. Thatcher, for example, created a constituency of people with an interest in house price inflation and hostility to property taxes by selling off council houses. Blair’s expansion of universities created a more cosmopolitan, liberal cohort. And Cameron’s great achievement was to take an issue which few (pdf) people cared much about and push it so far up the agenda that it now dominates politics and has changed our political identities.

Radio 4’s Today programme gave us (inadvertently) a nice example of this difference on Friday (2’13” in). Martha Kearney claimed there was “no appetite” in Scotland for an immediate new referendum on independence. Nicola Sturgeon replied that “part of the job of leadership is to set out to people why you think change is needed.” Kearney was using the politics-as-Amazon conception, in which politicians fulfil orders; Sturgeon was using my second conception, of politics as using persuasion to manage conflict.

Such persuasion, however, cannot always be done by politicians alone. It’s a job for all of us. A good example of this is the Northern Ireland peace process. The Good Friday Agreement is perhaps the greatest example in modern times of successful delivery by politicians. And yet the architects of that success have always spoken of the peace process. And for good reason. They know that peace isn’t something that can be delivered from on high by politicians even if the vast majority of people want it. It needs constant work on the ground to persuade potential terrorists to abjure violence. The murder of Lyra McKee was a failure of this process. But the failure wasn’t one of politicians or police. And it didn’t happen when the shot was fired. It happened when someone went looking for a gun and was met with the words “I can sort you out” rather than “don’t be a twat sonny.”

Now, it’s easy for us Remainers to sneer at Brexiters for wanting something that is ruled out by others’ preferences. But the silliness is not theirs alone. Many Remainers are demanding a third referendum but giving us little clue that they’ll do a less piss-poor job of campaigning than they did in 2016. They care too much for their own desires and pay too little heed to how to influence others.

In fact, this point broadens. There are other policies we might like but which might be prevented by others’ behaviour. For example:

 - Higher taxes on the rich or on companies. Whether these can actually raise much more revenue or not depends in large part upon whether the rich regard taxes as a price to pay for living in a civilized country or just a burdensome impost which they seek to avoid. This tax morale varies from time to time and place to place.

 - Wage-led growth. Whether this succeeds depends upon how companies respond to higher wages. Do they betoken increased aggregate demand and hence a reason to invest? Or are they instead a threat to profit margins and hence a reason to cut investment? Again, the answer will vary from time to time and place to place.

These two policies are much like Brexit, in the sense that whether they can be delivered or not is not merely a matter of a democratic mandate. Their feasibility depends upon others’ beliefs and actions. Sensible politics considers what these beliefs might be, and how to shape or change them. Stupid politics, by contrast, acts like a five-year-old solipsistically screaming “I want, I want”.

The converse is also true. There’s a strong case for some policies even though the voters don’t seem to want them. For me, the case for encouraging worker coops falls into this category: they are necessary to increase equality and productivity, whether voters want them or not.

If we lived in an intelligent polity, my point here would be obvious. It’s that politics is not and cannot be another Amazon fulfilment centre. It’s not just about what you want, but about what others want too. The very essence of politics is about how we manage conflicts between different attitudes, and how we might change those attitudes – the latter being a job not just for politicians but for everybody.

Who'll defend freedom?

In the last few days we’ve seen rightists attempt to bully Greta Thunberg out of the public sphere rather than engage with her arguments; Tony Blair’s demand for ID cards and that immigrants have a duty to integrate; and rightists (backfiring) efforts to shame Diane Abbott for drinking on a train. These all have something in common. They show that the right and centre are enemies of freedom*.

These are not the only examples, nor the worst. New Labour created thousands of new criminal offences, a trend continued by the Tory government such as in its ban on legal highs, its counterproductive porn block and its "hostile environment" policy. Very many Tories and Cuks voted last year against legalizing cannabis. Chuka Umunna, following the centrist Emmanuel Macron, wants to reintroduce forced labour. And of course demands to end freedom of movement and restrict immigration are by definition demands to curb freedom.

The only reference the Cuks made to freedom in their launch statement (pdf) was that: “our free media, the rule of law, and our open, tolerant and respectful democratic society should be cherished and renewed.” This looks a little like valuing the freedom of corporations more than that of individuals.

To people of my vintage, this illiberalism looks odd. In my formative years anti-leftists claimed to cherish freedom, and attacked the Soviet Union for denying it to their people.

Which poses the question: why, then, are they so opposed to liberty today?

Partly, it’s because they always have been. Many cold warriors were not sincere libertarians, but only appealed to freedom as a stick with which to beat the USSR. Many of them supported Pinochet and apartheid, and the criminalization of homosexuality. The freedom they valued was the freedom to exploit others.

Another reason is that the enemy of freedom is fanaticism. Friedrich Hayek wrote:

Since the value of freedom rests on the opportunities it provides for unforeseeable and unpredictable actions, we will rarely know what we lose through a particular restriction of freedom. Any such restriction, any coercion other than the enforcement of general rules, will aim at the achievement of some foreseeable particular result, but what is prevented by it will usually not be known....And so, when we decide each issue solely on what appear to be its individual merits, we always over-estimate the advantages of central direction. (Law Legislation and Liberty Vol I, p56-57.)

The more confident you are about your own beliefs, the more weight you’ll attach to the individual merits of any infraction of freedom and the less weight to unforeseeable actions. So you’ll be more inclined to curtail freedom. Although centrists think of themselves of moderates, this is often mere self-love: you can be a fanatical centrist just as much as you can be a fanatical leftist or rightist. Fanaticism and extremism are different things.

There’s something else. Centrists and rights have long been naïve about power. Many have been over-optimistic about the extent to which it will be used benignly, no doubt in part because it has traditionally been exercised by jolly good chaps like themselves. It is for this reason that they have long been too relaxed about the coercion that occurs within corporate hierarchies. But the same thinking – or lack thereof – extends to political power. If it is people like you who will exercise power, and minorities or working class people who’ll be on the dirty end of it, you’ll be relaxed about arrogating power to the state.

Which brings me to a forgotten fact. Before the 20^th century, freedom was a leftist ideal: think of Tom Paine, John Stuart Mill, the young Marx, Adam Smith’s jaundiced view of the “rich and great”, or the first word of the motto of the French revolutionaries.  There was a simple reason for this: they all knew that restrictions of freedom helped the rich and powerful and hurt the poor and powerless. It is time for the left to reclaim the value of freedom – because, let’s face it, nobody else will.

* Of course, rightists are quick to claim to value free speech. But Dawn Foster has a point: the infringements of freedom of which they complain are often no such thing but are instead the hitherto voiceless merely answering back.

When failure succeeds

In politics, failure sometimes works better than success. This is the message of this piece by Janan Ganesh, wherein he argues that it is in Trump’s interest to fail on his promise to control immigration, because if he does so it will remain a big issue which will attract voters to him. Janan says:

It is perverse, I know, that a president could make so little progress on his number-one priority during four years in office, only to be rewarded for it. 

Maybe not so perverse. There are other examples.

One, as he says, is Brexit. If Brexiters get their way, voters will see that it is in fact no solution to our problems. And Farage would then lose his schtick of being able to claim that the political class is out of touch with the people. If you are practicing the politics of grievance, the last thing you want is for the grievance to disappear.

But there are other examples. Authoritarian governments use crime, unrest or terrorism as excuses for removing freedoms. For them, failing to suppress crime works better than succeeding. Technocrats and managerialists need to maintain the prospect of further incremental improvements, which requires them to maintain a gap between the actual and the feasible best.

And rightists have sometimes accused leftist parties of wanting to create a “dependency culture” and to maintain inequality and poverty, because doing so ensures the continuation of a constituency that will vote for them. As Gilles Saint-Paul and colleagues write:

Policies that reduce the income of the poor relative to the average income, such as failing to upgrade the skills of the workers and preventing their erosion by new, skill-biased, technologies, paradoxically consolidates the political power of the Left. This is because these policies make the natural constituency of a left-wing party endogenously more dependent on it.

The converse is also true. Success can be failure. Post-war social democracy worked well in raising real wages; it was one of the greatest peacetime policy successes in history. But this helped to foster individualist consumerism which supplanted class consciousness and reduced support for collectivist institutions.  As Nye Bevan wrote in 1952, in anticipation of J.K.Galbraith’s theory of “private affluence, public squalor”:

As modern industry produces new and attractive forms of private consumption, the individual citizen is made all the more reluctant to see his income taken away from him for remote purposes. (In Place of Fear, p134 in my copy)

As Avner Offer has written more recently:

Towards the end of the 1960s, attitudes began a slow shift away from the common welfare and public services as sources of well-being, and towards private benefits…The choice to “go private”, which is widely perceived as a driver of affluence, is perhaps one of the consequences of affluence. (The Challenge of Affluence, p7-8)

In the same vein, the creation of high-quality council houses created a constituency with a strong interest in buying them cheaply from Thatcher.

In these ways, social democrats’ success was also their failure. Corbynomics might suffer the same fate. If it succeeds in the medium-term, it will enable young people to buy houses – but this will create a client base of older property-owners in future who’ll have an incentive to support the status quo.

My point here is a simple one. We flatter ourselves that we live in a meritocracy in which success is rewarded and failure punished. But in many cases, this is a myth. Sometimes we live instead in the world of snake-oil salesmen as brilliantly described (pdf) by Werner Troesken, in which it is failure that is rewarded. Our economic and political institutions are all selection mechanisms, and sometimes they select not for success but for failure.

Note: my target audience is discerning enough to understand the picture reference. 

Broad-spectrum policies

Is there a case for the Bank of England to target house prices? The debate, I suspect, highlights a difference in how we think about economic policy – between what might be called a single-issue technocratic approach versus a broad-spectrum approach.

Many of us, I suspect, agree that high and rising house prices are a cultural and economic menace. They encourage high debt which is potentially destabilizing (pdf). They divert spending towards rent and mortgage payments (and sometimes housebuilding) and away from new goods and services, thereby reducing dynamism and innovation. They encourage people to commute long distances, which increases stress and cuts productivity. And they encourage “property development” at the expense of more productive forms of entrepreneurship.

There’s therefore a case for limiting them. Equally, though, there are reasons to question whether this can be done merely by giving the Bank of England a target for house price inflation alongside its CPI target.

Granted, such a target might work simply by reducing house price expectations, thereby deflating speculative buying – especially if the target is set as low as Grace Blakeley has suggested (pdf).

There are, however, legitimate doubts about its effectiveness. The Bank’s only policy for curbing house prices would be to limit mortgage availability. But how effective would this be if overseas or shadow banks fill any gaps caused by conventional lenders withdrawing? Also, housing booms are often localized, so how would limiting mortgages in Leicester curb London’s high prices? Such restrictions would also be inegalitarian: they’d deny mortgages to young people without deposits but grant them to those who have access to the Bank of Mum and Dad. And, of course, one policy might not be sufficient to cut prices. We might need others such as taxing land, encouraging renting, changing planning laws or simply building more houses. Such policies are outside the Bank’s competence.

Ms Blakeley replied to criticisms such as these by saying, reasonably, that a house price target should be part of a radical reform of the banking system.

Which brings me to the issue. Sometimes – often – there is no single magic bullet policy. Instead, we need a whole range of them. This isn’t true only of curbing high house prices. Here are two other examples:

 - How should we improve the bargaining power of workers? I’d advocate a range of policies: a high basic income; job guarantee (arguably); support for trades unions; and macro policies aimed at sustained (over-)full employment.

 - How to raise productivity? There are countless possibilities: better infrastructure; more vocational training; stronger competition policy; more open international trade; encouraging finance for R&D, capex and intangibles investment; shifting tax from incomes to land; better migration policy; encouraging coops; and so on.

Such a range of policies is a sensible reaction to ignorance and uncertainty. If we don’t know what’ll work we should throw lots of possible solutions at the problem in the hope that something will stick – in the way that doctors, when faced with a patient with a strange condition, might put them on broad-spectrum antibiotics in the hope that something will work.  

Of course, this is only sensible if the policies in question have little or no downside – if they are free hits (which is not true of prescribing antibiotics!). But in the examples I’m considering here, this is largely the case. Even if land taxes don’t reduce house prices much, there’s still a case for them. Similarly, most policies to raise productivity wouldn’t do much harm even if they fail. A few Harberger triangles are not a big problem: as Adam Smith said, there is a great deal of ruin in a nation.

Herein, however, lies an oddity. What I’m advocating seems inconsistent with the empirical turn in academic economics. The use of randomized control trials or other clever identification strategies give us (at best) precise answers to narrowly defined questions. In some cases, however, what we need are rough answers to big questions.

Marxism for Tories

The Tories have discovered a new boo-word. In the last few days, Iain Duncan Smith, Esther McVey and Suella Braverman have all used “Marxism” to mean a self-evidently Bad Thing. From one perspective, this is odd because in fact Tories should find some aspects of Marxism quite sympathetic.

Not least of these is an admiration for capitalism’s dynamism. Marx wrote that capitalism “has given an immense development to commerce…has accomplished wonders far surpassing Egyptian pyramids, Roman aqueducts, and Gothic cathedrals…draws all, even the most barbarian, nations into civilisation…[and has] rescued a considerable part of the population from the idiocy of rural life.” We don’t deny that capitalism has been a progressive force. We just wonder at what price this has been achieved, and whether the progress can continue.

And let’s get one obvious thing clear. Just as Conservatives no longer believe in locking up homosexuals or hounding them to death, so Marxist don’t want to send their opponents to gulags. Quite the opposite. There has always been a big libertarian strand within Marxist thought. Marx thought that the ideal society was one in which "the free development of each is the condition for the free development of all" and looked forward to the abolition of the state. The nanny state of which libertarians like Christopher Snowdon complain is emphatically not a Marxian notion.

In fact, Marxists share with Tories a scepticism about what state intervention can achieve. Whereas social democrats think that the right macroeconomic and redistribution policies can alleviate the worst features of capitalism, Marxists are not so sure. One reason why we want to supersede capitalism is precisely that we share with Tories doubts about the efficacy of piecemeal reform.

I’ve used that word “supersede” advisedly. Most Marxists no longer believe in violent revolution, or even revolution at all. If you want to find ideologues who’ll wreck the economy by imposing a  utopian fantasy upon it, you should look at Brexiteers rather than Marxists. Instead, we favour accelerationism or interstitial transformation (pdf) – finding non-capitalist forms of organization such as coops or community self-help groups (what Burke called “little platoons”) and encouraging their development.

In this sense, Marxism is empirical and anti-ideological. One reason for this is that we have no dog in lots of conventional political fights. For example: would a much higher minimum wage destroy lots of jobs? If no, then fine; we have a way of helping the low-paid. If yes, then it just shows that capitalism is incompatible with decent living standards for all. Or: can some monetary and fiscal policies prevent recessions and promote longer-term growth? If yes, we’ve got something useful. If no, then we’ve evidence that capitalism is destined for crisis and stagnation. Because we’ve no preconceived ideological answers to such questions, we can let ourselves be guided by the evidence.

What’s more, Marxists are not moralists. We don’t think social ills are the result of bad people doing bad things. They are instead, systemic problems which emerge independently of the intentions of individuals. As Marx said, “external coercive laws [have] power over every individual capitalist.” Marx, like Adam Smith, was an early theorist of emergence.

Some Tories might also be surprised that some apparently Marxian positions are not uniquely Marxist. The labour theory of value and tendency for the rate of profit to fall were both Marx’s elaborations of the ideas of Smith and Ricardo: when Paul Samuelson called Marx a minor post-Ricardian he was saying that there’s less originality in Marx than you might think. And if you’re looking for a belief in the sort of historical determinism attacked by Popper, you should look not to Marxists but to Blair: as Will Bott has shown, his talk of globalization as an “unstoppable force” is more crudely deterministic than most of us Marxists would accept.

It should be clear from this that Duncan Smith is wrong to say Corbyn is a Marxist: that pays him too great a compliment. Labour’s 2017 manifesto was mostly mainstream European-style social democracy.

All this, though, leaves me ambivalent. On the one hand, I think the Tories are right to be scared of Marxism: it poses an intellectually coherent challenge to their class privilege in a way that centrism and much of social democracy does not. On the other hand, though, using Marxism as a merely derogatory term is to misrepresent the history of thought. It is crude philistinism. But then, perhaps that is all the Tories have nowadays.

Why rent matters

Philip Green doesn’t get much public sympathy, but he deserves our thanks for doing one thing: he is reminding us that economists have wrongly neglected David Ricardo’s theories of rent.

Mr G is fighting landlords to cut rents – as indeed are several other high street names. Which evokes Ricardo. He showed that profits can be squeezed not by worker militancy but by rising rents.

The basic idea here is straightforward. Imagine, said Ricardo, there were an abundance of fertile land. A landlord could not then charge farmers rent: the farmers would just move onto other land. As the economy and population grows, however, the best land becomes fully occupied so farmers must use less fertile land. As they do so, the owners of the best land can demand rent from their farmers. And as worse and worse land gets brought into cultivation so the difference in the output of the best and worst land increases, giving owners of the best land even higher rent. As Ricardo wrote:

By bringing successively land of a worse quality, or less favourably situated into cultivation, rent would rise on the land previously cultivated, and precisely in the same degree would profits fall; and if the smallness of profits do not check accumulation, there are hardly any limits to the rise of rent, and the fall of profit….In a progressive country…the landlord not only obtains a greater produce, but a larger share.

This isn’t just true of farmland. It also applies in retailing. Owners of the best sites – those with the highest footfall and greatest accessibility – can charge shop-owners a rent up to the difference in revenues they get between the best and worst sites. As Tim says:

Even in busy London stations coffee sellers don’t make much money because the landowner simply increases the rent. In other words, it’s the landowners via rents who make money in prime locations, not the operators of businesses. 

Retailers such as Mr Green have got the hump with this.

But it’s not just retail space of which this is true. It’s also true of housing. As Josh Ryan-Collins writes in his superb book, Why Can’t You Afford a Home?, “desirable location (typically in large cities) is inherently limited.” And Econ 101 tells us that if demand increases when supply is inelastic, we see big price rises. As Londoners get richer, everybody wants to live in Hampstead, with the result that only Russian oligarchs can afford to do so.

Historically, there has been a mitigation of this. In a lovely paper (pdf), Katharina Knoll, Moritz Schularick and Thomas Steger show that house prices were actually flat in many countries for years in the first half of the 20^th century. A big reason for this was the development of commuter train lines. The opening of the Metropolitan line, for example, allowed workers to travel easily from Neasden to central London. That reduced the monopoly which landlords in the city centre had, thereby squeezing their rents – just as cheap fertilisers would have squeezed farmland owners’ rents in Ricardo’s model.

This effect, however, was only one-off – at least it will be until we invent teleportation. And it has been replaced by another more powerful effect – financialization. Credit liberalization in the 1980s removed the constraint upon house prices imposed by current incomes by allowing people to borrow more. The upshot is that there has been a strong correlation between house prices and interest rates: as the latter have fallen, house prices have risen relative to earnings.

For this reason, as Ryan-Collins explains, high house prices are due in large part to financialization. This, he believes, means that there is a case for banking reform and a land value tax.

The point here, though, isn’t just about policy. It’s also about how economists approach their discipline. As Ryan-Collins writes:

Land and money are two of the most neglected concepts in economic theory. Land is immobile, irreproducible and appreciates in value over time due to collective investment – none of these features apply to capital goods. Yet modern economics and national accounts treat them as one and the same.

Herein lies one reason (of several!) why economists should study the history of economic thought. Doing so can show that classic economists knew things which modern ones have forgotten.

The rise of moral simplicity

One of my best friends here in Rutland is a keen Brexiter. I fear, though, that our hysterical political times are jeopardizing such cross-divide friendships. Instead, as Dorian Lynskey has said, many people have fallen into a “childlike moral binary: only people who hold the all correct positions merit empathy or respect.”

Dorian is speaking of Momentum telling us not to feel sorry for Nick Boles. But I think the point generalizes. Not only do Remainers and Leavers have little mutual understanding, but much of the left persists in the “evil Tories” meme whilst some on the Right seem to think that anyone to the left of Tom Watson wants to reopen gulags. We see a similar thing in the debate about whether Michael Jackson’s music should still be played: the urge for simplistic moral binaries stops some people seeing (despite many historical examples) that a man can be both a criminal and a great musician.

What interests me is: why do so many people fall into such childlike binaries?

One reason, I suspect, is a simple cognitive bias – a version of the halo effect. We tend to believe that people who have one quality have others, so that if they agree with us on an important matter they must also be intelligent and kind-hearted. The converse of this is that if they disagree with us then they are stupid or evil.

A second reason is that – for psycho-political reasons I don’t fully understand – we have lost what Richard Rorty called liberal irony (pdf). Many people are no longer “always aware of the contingency and fragility of their final vocabularies, and thus of their selves”. Instead, our political beliefs have become important part of who we are. The debate about Brexit is not a dry technical matter about our relationship with the EU. It has become just another form of identity politics. This might be a symptom of what Ben Friedman pointed out back in 2006: hard economic times, he showed, produce intolerance and fanaticism. I’m not sure, though, that this is the only explanation.

Related to this is something Richard Sennett described in 1970. People, he said, want to create “purified identities” for themselves, “making oneself a fixed object rather than an open person liable to be touched by a social situation.” One way they do this, he said, was by denying the reality or legitimacy of dissonant experiences or opinions.

I suspect that there are also sociological factors at play. It’s easy for many of us to stay in intellectual ghettos and only meet those with like-minded opinions: how many Brexiters does the typical academic meet? This is reinforced if you are a political activist who spends his/her leisure time with fellow partisans.

Perhaps, though, the media is also to blame. If my only exposure to Brexiters came from the BBC I would believe that Brexiters are arseholes because this is what the likes of Rees-Mogg, Johnson and Francois seem to be.

In fairness to them, this might be because we see all political interviewees out of context, separate from any evidence of any wit, self-doubt or decency they might have. Just as footballers often wrongly come across as stupid because we only see them answer simple questions when they are tired, so perhaps politicians are also systematically misrepresented by the very nature of interviews.

Or maybe there’s something else. The media select for gobshites, egomaniacs and fanatics. It’s these that push themselves forward. And the interviewee who says “I dunno, it’s complicated” makes for lousy  TV or radio.

I concede that this list of reasons is vague and incomplete. But in a sense, this is the point. Some people are calling for a gentler, more understanding politics. What this misses, though, is that there are powerful sociological and psychological mechanisms driving us towards a morally simplistic mutually hostile politics.  

 

Decadent Tories

The Tory right’s obsession with Brexit might be a symptom of a deeper malaise – the fact that they have nothing else to offer.

To see what I mean, contrast today’s Tories with Thatcher. She could credibly offer material improvement for millions of people. She offered them the chance to own their homes –by selling off council houses and by credit liberalization that made it easier to get mortgages – and to make big profits on them. She offered tax cuts for mid-to-high earners. Professions such as finance and law were opened up to people from previously-excluded backgrounds. The reduction in trade union power was a relief not only to company owners but to thousands of junior managers. And the resumption of growth after the 1981 recession delivered good income growth for those workers who had kept their jobs and for those who could afford to save. And her Conservatives could – especially after the 1981 recession – credibly claim to be the party of business, to represent a serious reality-based people.

Thatcherism, then, put money onto the table of a big constituency. Not everybody of course – as miners as industrial workers knew too well. But enough to be a serious (if in my view mistaken) economic project.

Contrast that with her epigones today. What material offer are they making?

None. All we have are a handful of trade deals of minimal effect with small countries, and Johnson’s message, “fuck business.” The Tories are silent on questions such as how to kickstart productivity and real wages. In place of Thatcher’s offer of material betterment, we have nationalist fantasies. As Phil Burton-Cartledge has been saying for months, the Tories are a decadent party.

How did this happen? The answer is of course a long and complicated one. I’ll just sketch a few reasons.

One is that Thatcherism was a time-limited offer. Insofar as her reforms did raise output, they gave only a one-off boost to the level of GDP rather than an ongoing stimulus to growth. Also, tax cuts were financed in part by high oil revenues which have long since fallen and by privatizations. If, as Thatcher said, the problem with socialism is that you eventually run out of other people’s money, the problem with Thatcherism is that you eventually run out of other people’s assets to sell. And of course the capital gains on housing were only one-off: we’ll not see them again.

Secondly, Thatcherism sowed some seeds of its own destruction, such as:

 - The financialization she began has pushed house prices out of the reach of young people: Josh Ryan-Collins’ Why You Can’t Afford a Home is good on this. Whereas young urban professionals were Thatcherites in the 80s, their children, cheesed off by high rents, are definitely not.

 - Thatcher hoped to create a society of people like her father – diligent, benevolent entrepreneurs. But instead we got one of people like her son – amoral chancers. Social norms of trustworthiness, sympathy and moderation have broken down, unleashing not beneficial entrepreneurship but exploitation, socially useless financial innovation and sky-high bosses’ pay.

 - The assertion of “management’s right to manage” has led not to sustained increases in productivity but to rent-seeking, the demotivation of professionals and hostility to productive innovation.

A third reason for the demise of Thatcherism lies in some changes in world capitalism. Job polarization has worsened (pdf) the career prospects of non-graduates: there is no 2010s equivalent of Loadsamoney. And secular stagnation – whether due to a falling rate of profit, lower innovation or whatever – means we’re not getting the income growth many people had under Thatcher.

These changes mean that what is true of Blairism is also true of Thatcherism: the economic base that gave their ideas such power has disappeared and so new policies are needed. Just as centrists have failed to rise to this challenge, however, so too has the Tory right. Quite why this should be is another story: I suspect that both selection effects and incentives (some arising from our piss-poor media) militate against Tory MPs having the ability or willingness to meet the challenge.

Whatever the cause, though, the effect is the same. The Tory right’s inability to recognise changes in the economic base mean that they have become mindless obsessives living in a fantasy world.