Stumbling and Mumbling

Cameron's managerialism

“Modernizing” the Conservative party is like shaving a monkey - you don't create a human being, merely an uglier monkey. That’s the message I got from David Cameron’s speech to Policy Exchange yesterday. It had much in common with New Labour. There’s this:

So these are our goals.

A dynamic economy. A decent society. A strong self-confident nation.

In both style (no sentences) and substance, such as it is, this is pure New Labour.

Then there’s the use of the p-word:

The Conservative party is and will always be passionately concerned….

(You don’t need to know what it’s passionately concerned with – it’ll be something else next week).

And this could have come straight from Tony Blair circa 1996:

We've fallen down the international competitiveness league.

It is also the purest drivel. Countries don’t compete in international markets. Companies do. Cameron is just fostering an ancient mercantilist illusion that trade, like sport, is a zero-sum game.

There are more unpleasant comparisons with New Labour. There’s a sinister pseudo totalitarianism in the idea that we have a “shared responsibility” for common goals: 

We have a shared responsibility for creating a dynamic economy. We are all in this together…

And so we have a shared responsibility to do something about [family breakdown]. We're all in this together…

We have a shared responsibility for our shared future…

Include me out, chummy. Whatever happened to the Oakeshottian idea that government should merely allow people to pursue different activities?

Another New Labour trope is Cameron’s use of the word “modernizing:”

Real modernisation is about your approach to politics. And I think it means it means three things. The first is to stick to your beliefs and principles…The second thing I mean by real modernisation is thinking for the long term…And third, real modernisation means evaluating ideas and policies on the basis of how they would actually work in practice.

Taken literally, this is nonsense. Did any past Conservative party really boast about not sticking to principles, thinking for the short-term or not “evaluating ideas and policies on the basis of how they would actually work in practice”?

Of course not. What Cameron is doing here is what Blair did in the mid-90s. He’s claiming that his vision, and his alone, is “modern” and is traducing is predcessors to exaggerate his break with them. He’s presuming that “modernity” is self-evidently good; ideas are good because they are modern, not vice versa. And he’s trying to replace a debate among competing ideas with a single vision of a future. As David Marquand said of New Labour (The Progressive Dilemma p226), the myth is that:

The world is new, the past has no echoes, modernity is unproblematic, the path to the future is linear. There is one modern condition, which all rational people would embrace if they knew what it was.

There’s yet another New Labour trick Cameron is borrowing. It’s using evidence-based policy-making - “evaluating ideas and policies on the basis of how they would actually work in practice” – as a thin justification for policies they would favour anyway.

Cameron says:

We should use the law, the tax and benefits system and other mechanisms to encourage families to get together and stay together.

Now, a true evidence-based policy maker would ask questions here. How many families would stick together (who would otherwise break up) under my proposed tax and benefit system? What is the financial benefit of this greater stability? Does it outweigh the deadweight costs of redistributing towards families who would have stayed together anyway?

Cameron doesn’t raise these questions, still less answer them. It seems he wants to redistribute income to his favoured clients, and the evidence for doing so will have to come later.

All this, I think, is quintessential managerialism. You might object that I would say that, as I’m just a one-note player. But could it be that I see managerialism everywhere because it is everywhere?

For me, the clinching evidence of Cameron’s managerialism is this:

We must never be limited in our aspirations for government.

This is just asinine. Has he learnt the Hayekian lesson that government agencies (even devolved ones) just lack the knowledge to achieve ambitious goals? Has he learnt the lessons of public choice economics, which shows that bureaucrats and lobbyists capture government for its own ends? Has he learnt from millennia of history, that the state is the most evil institution ever devised? Can he point to a single thing the British state does better than the private sector, where comparisons are possible?

Conservatives, traditionally have had only one good idea – a scepticism about the state. And Cameron wants to get rid of it.

Incentives

Increasing productivity, the Austrian way:

A lazy civil servant has been given a suspended prison sentence in Austria because he never did any work.
Walter Hendelsgruber, 43, took his employers to a tribunal for unfair dismissal but had the tables turned on him.
The tribunal ruled his laziness was so extreme it bordered on the criminal - and ordered the case sent to the public prosecutor.
Hendelsgruber was given a 15 month jail sentence suspended for fraud and abuse of office because he took money for work over a three year period that he never did.

(via Ananova)

The trouble with market reporting

Barry Ritholtz hits upon a bugbear of mine - the atrocious reporting of daily swings in stock markets. He says: "Pat explanations for the markets’ daily gyrations rarely ring true."
He's right of course. But I'd go further. They are often nonsense - merely a search for a pattern in what is really random data.
For example, today the FT tells us that "strong gains on Wall Street overnight were fuelled by easing oil prices." The Times says" "Wall Street was boosted overnight after the oil price eased and after an upbeat report on consumer confidence."
It sounds plausible. But it runs into a problem. So far this year, the correlation between daily moves in the S&P and oil prices, though negative, has been insignificantly different from zero. The correlation between weekly moves has also been statistically insignificant, but positive. That's what you'd expect in noisy data.
Explaining market moves are just easy after-the-fact rationalizations. In weak macroeconomic  conditions, a market fall will trigger the line: "market falls on economic fears."  And a  rise will invite: "market rises on interest rate hopes." It's the same macroeconomic story.
There are several clues to this pin-the-tail-on-donkey approach. One of the best is "after". It hints at causality without stating it. Why not say: "market rose today after I missed my bus"?
Paradoxically, of all the explanations the dead trees give for market moves, they never offer two of the most likely ones. You never see the stories: "market rises but it's just random noise." Or "market rises because risk aversion declines and, hey, de gustibus non est disputandum."
Market reporting isn't just stupid, though. It is potentially downright pernicious. In offering a spurious reason for every blip in the index, such reports invite us to believe there's a mechanical link between economic conditions and share prices. They therefore encourage naive investors to believe the market is safer than it really is. Worse still, they encourage them to trust the "experts" who seem to understand such links.
The fact is, though, if you want to understand financial markets, you must ignore (almost) everything you read in the dead trees.

Evidence-based policy making?

Do you remember a government paper, "Modernising Government" published in 1999?
No? You're not alone. Tony Blair and Charles Clarke seem to have forgotten it too.
Modernising Government said:

Government must be willing constantly to re-evaluate what it is doing so as to produce policies that...are forward-looking and shaped by the evidence rather than a response to short-term pressures.

"Shaped by the evidence"? Tony Blair said yesterday that "there is now the technology to move to a biometric passport." But evidence shows the technology has a high failure rate.
Not a response to short-term pressures? He said yesterday: "There is now an unstoppable political momentum across the developed world for countries to use the opportunity of the new technology to make their borders more secure."
Modernising Government continued:

We will base our decisions on a careful appraisal of the benefits any measure seeks to achieve, the costs it entails and the cumulative burden of regulation.

Which is why new UK passports will cost much more than those in other countries. And where is the cost-benefit appraisal of ID cards?
MG went on:

Rather than defending policies, government should lead a debate on improving them. This means...consulting outside experts.

Those outside experts would be the LSE, which reckons ID cards could cost up to £19bn, or the Information Commissioner (pdf), who says they "risk an unnecessary and disproportionate intrusion into individuals' privacy."
MG said:

policy making must also be a process of continuous learning and improvement.

That would be learning from the long list of failures of government IT projects, including those in the police service.
And MG says better policy making means "learning lessons from other countries."
Like Australia and New Zealand where the proposals were dropped, France where the cards are used as a pretext or harrassing racial minorities, or Spain where they failed to stop the Madrid train bombings.
I'm tempted to say the government is making it up as it goes along. But I couldn't do that. After all, MG promised us that government would be "ensuring that policy making is more joined up and strategic."

PartyGaming: some economics

To a simple economist, PartyGaming, the online poker company which floated today, looks like a bad investment.
Fund managers reckon the company is worth £4.6bn - as much as William Hill and Whitbread put together. There are three reasons why one might disagree with this opinion.
1. History shows that the long-run performance of newly-floated companies is poor, both in terms of share price and operating (pdf) performance. This is not just the case in the UK; Jay Ritter's research shows it's true around the world.
I suspect investors persistently overlook this because of a combination of the salience heuristic and overconfidence. They overweight prominent information - a new idea, apparently bright prospects - and underweight background data, such as the tendency for IPO firms to disappoint over the long-run. Also, they have too much confidence in their own ability to value companies, and so under-weight the importance  of the fact that insiders - those who know the company best - are selling.
2. Innovations don't make big profits. Online gambling is a good idea. But no good idea goes unpunished. This important paper by William Nordhaus has found that:

Only a miniscule fraction of the social returns from technological advances over the 1948-2001 period was captured by producers, indicating that most of the benefits of technological change are passed on to consumers.

Why is this?
3. Good investments require barriers to entry. The key to sustained profits - and hence to a good stock market investment - is not good management or a good business model. It's a barrier to entry. Only this can fend off competition and so maintain profits.
Put it this way. Over 60 per cent of the All-share index consists of businesses that would look familiar to an investor of 100 years ago: oil, mining, brewing, retailing, banking, insurance and utilities. These industries have thrived down the years not so much because of innovation and technical progress, but because they have the power - through high capital requirements or (less so) brand loyalty - to fend off new entrants.
Does PartyGaming really have such a barrier to entry? The best hope, paradoxically, is that its activities are illegal in the "land of the free." Whilst this absurdity remains, at least there'll not be competition from one source. 

In praise of Marx

I fear I might have given a mistaken impression in this post deploring the possibility of Marx being voted the greatest philosopher of all time. I think there’s a lot to admire in Marx, for example:

1. The theory of history. Technical change leads to changes in the distribution of property and hence the nature of society. This is a valuable insight. As Douglass North – who won a Nobel prize for recasting the idea into terms more acceptable to conventional economists – has said (Structure and Change in Economic History p61):

The Marxian framework is the most powerful of the existing statements of secular change precisely because it includes all of the elements left out of the neoclassical framework: institutions, property rights, the state and ideology.

2. Primitive accumulation. Marx’s description of the origins of capitalism – in state-sponsored theft – draws attention to a point forgotten by both left and right, that capitalism is the effect of injustice, not (just?) the cause of it.

3. A theory of exploitation. Only a buffoon believes the labour theory of value. But only a buffoon thinks it essential to Marxism; why does believing the labour theory of value discredit Marx but not Adam Smith? As John Roemer and Michio Morishima have shown, it is possible to establish that profits are the result of exploitation without the labour theory of value. Whether this is morally interesting is another question entirely.

4. The determination of profits. Standard Keynesian/neoclassical economics doesn’t say much about the macroeconomics of profits – something I found annoying when I worked as a City economist. Marx’s analysis, at least as interpreted by Kalecki, filled the gap. Thinking of the profit rate as a function of output-capital ratios and the share of profits in GDP – and thinking about the determinants of these ratios – is still relevant.

5. The idea that social science is the study of the unintended consequences of individual action. Sure, Smith’s invisible hand was an illustration of a benign instance of this. But Marx placed much more emphasis upon the gulf between intentions and outcomes.

6. Ideology. Why do people believe the things they do? To Marx, it wasn’t (just?) because they were stupid. He tried to show how social conditions could lead to systematically distorted beliefs. Of course, this led to lots of nonsense about “false consciousness,” but as Jon Elster has shown, there are more interesting ways of building on his analysis.

7. Scepticism about reformism. As G.A. Cohen has said (Self-ownership, Freedom and Equality p11):

[Marx] thought that anything short of an abundance so complete that it removes all major conflicts of interest would guarantee continued social strife.

Surely, the 120 years of social democracy since Marx’s death shows that he had a point there?

In these ways, Marx was a genuinely inspirational thinker – in the sense that he inspired great work by the likes of John Roemer and Jon Elster; it would be stretching a point to cite Douglass North or Daniel Kahneman as his intellectual heirs.

Why then, don’t I like the idea of him being voted the greatest philosopher of all time?

First, it’s a simple demarcation issue. These are not ideas in philosophy but in social science.

Second, his insights were buried under a lot of mumbo-jumbo functional explanation and Hegelianism. Put it this way. No-one has put the case for liberty better than John Stuart Mill. But plenty of people have expressed Marx’s ideas better than Marx.

Third, I’m suspicious of the motives of those voting for Marx. Those who do so are, I suspect, not endorsing the thinking of Cohen, Elster, Marglin, Roemer or Kalecki. They’re just expressing a woolly-headed distaste for capitalism without understanding it or knowing what to replace it with. And therein lies a paradox. Marx was contemptuous of bourgeois or utopian pseudo-socialists. But it’s those, I fear, who are voting for him. 

Passionate Blair

Tony Blair told the European parliament yesterday that "I am a passionate pro-European. I always have been."
This word "passionate" crops up remarkably often in Blair's rhetoric; it's the Bad Wolf of New Labour. Here are a few other examples:
I believe passionately that a fair society and a more efficient one go hand in hand." (Mais Lecture 22 May 1995)
I...believe passionately that this new era of opportunity must not divide our societies (Speech in Tokyo, 5 January 1996)
I passionately believe that we must disarm Iraq of weapons of mass destruction (Press Conference 13 January 2003)
I passionately believe if we don't ensure Saddam disarms, if we don't stand up for the authority of the UN, the result will not be peace but more bloodshed and devastation (Independent on Sunday. 2 March 2003)
I feel so passionately that we are in mortal danger of mistaking the nature of the new world in which we live. (Guardian, 5 March 2004)
We are a government that has fought for equality, for the Muslim community - right to have your own schools, introducing the law against incitement to religious hatred...I passionately believe in that principle of equality." (Muslim News, 25 March 2005)
My call is a passionate one: let's together make irreversible the positive changes that are happening in our country (preface to 2005 manifesto)
Why does Mr Blair use the P word so much? It's not as if it's a common figure of speech. Our puzzle deepens if we come from a Hobbesian or Oakeshottian perspective, in which the function of government  is precisely to restrain passions.
Is this an attempt by Mr Blair to appear sincere? Is it just that the guy's emotionally incontinent? Is it a symptom of the Dianafication of Britain, in which public displays of emotion matter more than reasoned argument? Is it a sign of emotivism, the belief that moral judgements are only expressions of emotion?
If not, what? And should we approve of this locution?
And another thing: Re-reading Blair's New Britain: My vision of a young country (the source of the earlier quotes, I came across this (p68):

Instead of wasting hundreds of millions of pounds on compulsory ID cards as the Tory right demand, let that money provide thousands more police officers on the beat.

Voting for philosophers

The possibility that Karl Marx will be voted Britain’s favourite philosopher by middle class dickheads Radio 4 listeners is prompting much angst. For me, it merely shows the folly of first past the post voting.

The problem, I suspect, is that the anti-Marx vote is split among Hobbes, Hume, Mill and Popper. With a simple FPTP vote, this split allows Marx to win. But if we had (say) an alternative voting system, he might not.

Imagine people ranked (say) five preferences in order, and that when the votes were counted the candidate with the fewest first preferences got eliminated, with those second preferences being distributed to other candidates, and so on.

Then, I suspect that as, say, Hobbes, Popper and Mill (who's read A System of Logic?) got eliminated, enough second preferences would go to Hume that we’d get the right result.

The “nation’s favourite philosopher” under one voting system, therefore, would be very different from the “nation’s favourite” under another system.

The lesson is that we should not trust the notion of a single collective preference.

Of course, it’s possible that Marx gets over 50 per cent of the vote (even without the standard Marxist practice of ballot-stuffing) in which case this argument doesn’t apply.

Would that be a disaster? It wouldn't be, if it means that 50 per cent of the British people have read John Roemer’s General Theory of Exploitation and Class. But the contingency, sir, is a remote one.

On (not) being Conservative

Melanie Phillips’ claim that “conservatism is not so much a discrete ideology or philosophy as a state of mind” echoes Michael Oakeshott’s great essay, On Being Conservative. A re-reading of this highlights a tragedy - that a great strand of conservatism is now alien to the British people.

Conservatism, says Oakeshott, is “not a creed or a doctrine, but a disposition”:

To be conservative, then, is to prefer the familiar to the unknown, to prefer the tried to the untried, fact to mystery, the actual to the possible, the limited to the unbounded, the near to the distant, the sufficient to the superabundant, the convenient to the perfect, present laughter to utopian bliss. Familiar relationships and loyalties will be preferred to the allure of more profitable attachments; to acquire and to enlarge will be less important than to keep, to cultivate and to enjoy; the grief of loss will be more acute than the excitement of novelty or promise. It is to be equal to one's own fortune, to live at the level of one's own means, to be content with the want of greater perfection which belongs alike to oneself and one's circumstances.

This disposition means that the function of government should not be grandiose efforts at social improvement. Rather:

Governing is a specific and limited activity, namely the provision and custody of general rules of conduct, which are understood, not as plans for imposing substantive activities, but as instruments enabling people to pursue the activities of their own choice with the minimum frustration.

And these activities, says Oakeshott, are the free choices of adults:

We are not children in statu pupillari but adults who do not consider themselves under any obligation to justify their preferences for making their own choices; and that it is beyond human experience to suppose that those who rule are endowed with a superior wisdom which discloses to them a better range of beliefs and activities which gives them authority to impose upon their subjects a quite different manner of life.

What’s more, says Oakeshott, politics should not be “an encounter of dreams” or a “jump to glory”, or an endeavour to improve the people:

The office of government is not to impose other beliefs and activities upon its subjects, not to tutor or to educate them, not to make them better or happier in another way, not to direct them, to galvanize them into action, to lead them or to coordinate their activities so that no occasion of conflict shall occur; the office of government is merely to rule. This is a specific and limited activity, easily corrupted when it is combined with any other, and, in the circumstances, indispensible. The image of the ruler is the umpire whose business is to administer the rules of the game.

All of this is, of course, utterly opposed to New Labour.

For me, this raises a paradox. Given a choice between Oakeshott’s temperament and New Labour’s, I would choose Oakeshott’s every time. But I cannot ever imagine voting for the Conservative party, partly because it does not share Oakeshott’s temper. He, surely, would have flinched at these fatuous words from Theresa May:

Politics is more than ever about individual people and families and what government can do for them. It is about making a difference to their day-to-day lives.

But could it be that Conservatives are so far from Oakeshott because the British people are so far from him?

How many people share Oakeshott’s view that “it is “a blessed relief to gaze in a shop window and see nothing we want”? How many are, if not content with their lot, then at least aware that it’s not business of the government’s to improve it? How many behave like adults, prepared to accept the consequences of their actions?

Very few. Maybe the death of conservatism is also the death of a particular, admirable, type of character. As Oakeshott himself said:

If the present is arid, offering little or nothing to be used or enjoyed, then [the conservative] inclination will be weak or absent.

Dancing on the grave of monetarism

The Bank of England's monetary policy committee seems to be dancing on the grave of monetarism. Today's minutes (pdf) show that two members of the committee voted to cut interest rates earlier this month. This is despite the fact that figures at the time showed that the M4 money stock had grown by 10.8 per cent in the previous 12 months; subsequent figures show that growth has accelerated to 11.6 per cent, the fastest real increase  since 1996.
However, this warranted just a single line in the minutes; it "raised questions about the extent of the weakness in domestic demand." There's no reference to this in the discussion about the immediate policy decision.
But should the committee pay more attention to the boom in bank deposits? Eyeball econometrics suggests so; accelerations in real M4 in 1987, 1995 and 2000 all led to accelerations in consumer spending. This paper has even found that real  M4 "provides the best single leading indicator of recessions." And common sense says we should at least think about why money demand has risen. To argue that it has no implications for future demand and hence inflation, one must show that there has been a permanent increase in the demand to hold bank deposits. Why might this have happened at a time when real interest rates are relatively low and when stock markets are rising?
Perhaps, therefore, the MPC is tempting fate by dancing on the grave of monetarism. As one prominent economist has said (pdf):

The absence of money in the standard models which economists use will cause problems in future, and...there will be profitable developments from future research into the way in which money affects risk premia and economic behaviour more generally.

Who said that? Bank of England Governor Mervyn King, that's who.