Stumbling and Mumbling

Tax credits vs basic income

Here's a nice example of the agenda manipulation and limited vision that pollutes British politics. In trying to defend tax credits, Stephen Timms says:

The tax credit system has delivered three vital improvements: it has increased incentives to work; reduced the tax burden on low to middle income families; and helped to sharply reduce child poverty. Tax credits are benefiting six million families and around 10 million children and reaching far more low and moderate-income families than any previous system of income-related family support.

But the important question is not: are tax credits better than previous systems? It's: are tax credits the most effective possible way of helping the poor? In particular, are they better than a basic income?
It's certain that a basic income would be cheaper and more efficient to administer. And there's no reason in principle why it shouldn't be at least as good at reducing child benefit and the tax burden on poorer families.
So, the only issue is the impact on work incentives. Here, the argument's ambiguous. On the one hand, tax credits are better. This is because a basic income would be paid whether you work or not, so it wouldn't raise the gap between in-work income and out-of-work income. But tax credits do just this.
However, the withdrawal of tax credits as income rises means that millions of families face enormous marginal tax rates - of over 80%. This reduces incentives to work harder or better. A basic income could easily improve on this.
You know my opinion. But that's not the point. The point is that the question of the relative merits of basic income versus tax credits should be raised.
But the MSM, like our politicians, lacks the imagination to do so.

England, not Britain

We should celebrate Englishness, not Britishness. That's my reaction to difficulty raised by the proposal that we use the anniversary of the signing of Magna Carta to celebrate Britishness:

"The problem with a Magna Carta day is that this was originally very much an English, not a British significant event," said Linda Colley, Professor of history at Princeton University.

Good for England.
Yes, I know all nations are "imagined communities." The question is: which imagined community do you prefer? For me, it's England over Britain.
It's revealing that the other popular days chosen in the BBC poll to celebrate Britishness - D-Day, VE Day, Trafalgar Day - celebrate military victories. Great victories over tyranny, granted. But military events nonethless. 
The contrast shows that Britain is more militaristic than England. It was, remember, always the British Empire, never the English Empire.
And we sing "Rule, Britannia", but of building Jerusalem in England's green and pleasant land.
Whereas Britain pursues overseas expansion, England stays at home. The great statements asserting the rights and the dignity of the ordinary man - and it was the Englishman G.K. Chesterton who said there's nothing ordinary about the ordinary man - are all English: Magna Carta, the Putney debates, Gray's Elegy in a Country Churchyard.
England is about cultivation, improvement and the assertion of liberty. Britain is about conquest, albeit often in a good cause.
There's another contrast. "Britain" is a manufactured term, used by the ruling class for political ends:

After the old English period, Britain was used only as a historical term, until about the time of Henry VIII and Edward VI, when it came again into practical politics in connexion with the efforts made to unite England and Scotland.

Says the OED.
So, England stands for freedom, Britain for conquest. England stands for quiet dignity, Britain for glory. England is grown and natural, Britain is imposed by  the ruling class.
Is it any surprise, therefore, than New Labour prefers to celebrate Britishness?

The current account puzzle

Brad Setser reminds us of something that seems deeply dysfunctional about the global economy -  developed economies are running current account deficits, and emerging ones surpluses.
The IMF estimates that the major advanced economies will borrow $706.9bn this year - 2.5% of their GDP - from poorer nations.
Not all this will come from the big oil exporting countries. Even non-oil emerging economies are expected to have a current account surplus.
I say this seems dysfunctional for a simple reason. Capital is more abundant in rich countries than poor ones - that's why rich countries are rich and poor ones poor. Where capital is abundant, returns on it should be lower - that's diminishing returns. So capital should flow from rich countries to poor ones, as investors seek higher returns. But the opposite is happening. Why?
There are two possible answers. They disagree upon the degree of imperfection in capital markets.
The "imperfect capital markets" view says that poor countries have to run a surplus - that is, to acquire western countries' assets - to increase their security. In Michael Dooley's view, they need to post collateral against the risk of a future currency crisis. In Ricardo Cabellero's account (pdf), wealthier investors in developing economies prefer to invest in the west, because their domestic assets are untrustworthy: government bond markets are undeveloped and equities at risk of expropriation by managers, majority shareowners or government.
The "perfect capital markets" view says that today's current account balances reflect differences in expected growth.  Maybe investors are betting that neoclassical economics is wrong, and that there aren't seriously diminishing returns to capital. Instead, they're betting on endogenous growth - that success breeds success. As a result, they are happy to invest in the US, because that's where growth will be fast.
Charles Engel and John Rogers defend this view here (pdf):

Under some reasonable  assumptions about future US GDP growth relative to the rest of the advanced countries - more modest than the growth over the poast 20 years - the current account deficit is near optimal levels.

Now, their analysis is confined to developed economies. But mightn't it apply to less developed ones too? If you believe investors are rational and that capital markets are moderately efficient, shouldn't you infer that the pattern of current account balances tells us that the US is likely to grow well, relative to poorer countries?
This has both a market implication and a political one. The market implication is that the recent big sell-off in emerging market stocks might be a realization that growth prospects in these nations aren't as rosy as thought.
The political implication is that the task of enriching poorer nations can't be left to market forces.

Against progressive nationalism

I find David Goodhart's call for a "progressive nationalism" troubling. He says:

The interests of British citizens, of all colours and creeds, must come first. This may seem obvious...We may have obligations to all humanity but we have a much more special relationship with fellow citizens.

This is not at all obvious to me. What is the origin of this special relationship that generates greater obligations? Goodhart doesn't say. I'd guess there are two possibilities:
1. British citizens are victims of primitive accumulation - say through enclosures - which deprived them and their descendants of the land necessary to earn a subsistence living. Welfare benefits can be seen as compensation for this expropriation. Because we don't still expropriate all land from Africans, and so don't deprive them of a subsistence living, we owe them no such obligation.
2. British people naturally compare themselves to other Britons. So poor Britons feel bad by comparing themselves to rich ones. Africans never compare themselves with Britons, and so their poverty doesn't make them as unhappy.
These arguments, though, aren't overwhelmingly persuasive. Indeed, you could equally argue that we have stronger obligations to Africans than to other Britons.
1. A few pounds given to an African can save a life. The same sum given to a Briton just buys a can of Special Brew. 
2. The mere fact of being born British gives you opportunities an African can hardly dream of: access to education, culture, science, medicine and job opportunities. Why should someone so lucky get even more, through welfare payments?
"Progressive nationalism" then, doesn't seem morally appealing, whatever its practicality or potential popularity.
Another thing:  One thing Goodhart says is surely plain wrong:

Existing citizens' interests count too, especially poorer ones who are most likely to lose out from immigration.

Poor people lose out in numerous ways. The efficient way of protecting them is not ad hoc interventions against every threat, but - assuming we have obligations to the British poor - greater redistribution to relieve their poverty in the first place.

A class autobiography

Bryan Caplan is soliciting class autobiographies. Here's his. Here's mine.
I spent most of my first 18 years in the same terraced house in Leicester; it wasn't quite a 2-up, 2-down as it had a garden. Our neighbours were mostly working class - carpenters, mechanics - but increasingly Ugandan Asians displaced by Idi Amin.
Mum was a secretary; her dad was treasurer of a working man's club. Dad, and his dad, was a lorry driver. However, dad went to prison when I was five - after the contents of his lorry went missing - and mum and dad never lived together after then. I only saw him once a week. After his release, he set up a building firm, and did well. When I was 18, he bought a huge house in the country, though he later went back to prison for VAT fraud.
We weren't poor - though I don't know how much money mum got from dad. We (mum, me and my sister) had a two-week holiday every year, to the Isle of Wight. We never went abroad. The first time I got on a plane was when I worked in the City, and had to fly to Scotland to give presentations to fund managers.
I went to the local junior school, passed the 11+ (the only boy in my school to do so) and got a place at a grammar school. I never wanted to go; it was two bus rides to the other side of town, and I thought it was posh; my mates (quite gently) took the piss out of me.
School wasn't too bad, except that it forced us to play rugby rather than football.
I was quite a lazy schoolboy, but I got a bunch of O levels and, with Leicester's economy suffering in the 1980 recession, choose to stay on to do A levels; mum seemed to welcome the extra child benefit.
By this time, our grammar school had been converted into a 6th form college, as part of comprehensivization. This had the effect of generating greater class divisions than existed in the grammar school. Our 6th form was split between working class kids who liked Kraftwerk and the Human League, and posh ones who still liked prog rock. I have retained a visceral hatred of Emerson, Lake and Palmer.
I gave no thought at all to life after school until my history teacher, in front of a whole class, disturbed my reverie by telling me: "Oxford would have you like a shot"
He was right. And I became the first member of my family for 500 generations to go to university. Luckily, I did well in the entrance exam, so had none of the (ill-founded) insecurity that afflicts many working class students.
So, what effect did this class background have on me? It didn't stop me doing well financially after university. But there's a big element of luck here. I was lucky enough to benefit from selective education, lucky to meet great teachers, lucky to go to university when few did and so had a strong signal of ability. And I was lucky that, as I left university, there was big demand for technical-ish skills as the City was expanding.
Had I been a few years younger, I'd not have had this fortune. In this sense, I disagree with Bryan when he says "differences in ability and character are the cause of class differences". I'd stress the role of luck.
My background has held me back in some respects. I've always earnt more money than my mum. And my upbringing did not give me expensive tastes. As a result, I've never felt the need to earn more than I have.
Also, I've never had the imagination to see that I could do jobs that posher people do; I was 21 before I met a graduate who wasn't a teacher. When I was interviewed for my current job, I was asked: "why didn't you become a journalist straight after university?" My instinctive reply was: "the thought never occurred to me." Even now, some jobs - the more mainstream media or politics - are mostly closed to people like me.
Probably the biggest effect, though, of my background is social. I've never felt that l fitted in, always feeling that I owe my place, wherever I've worked, only to my above-average intellect. People only want me for my brain.
Does this make me resentful, as Bryan alleges of the notion of class autobiography?
No. Everyone is scarred by their upbringing. The only question is: how?

A new political map

I'm a subjectivist liberal democrat individualist Hayekian Burkean universalist altruistic cosmopolitan.
That's according to Richard Chappell's scheme of political classification.
One of the great merits of his scheme is that it recognizes that a key issue in political discourse concerns the role of rationality. I reckon five of his nine axes (they should be spectrums) bear on this question.
For example, I'm a subjectivist because - contra rationalists - I don't think political disputes are soluble by reason. This is partly because reason is itself a contested concept. It's also because (especially) in politics, the evidence is weak relative to our priors, so even good Bayesians won't often reach agreement.
And I'm a democrat and Hayekian, as distinct from a managerialist and statist, because I think there's more wisdom (or less folly) in crowds than in central hierarchy.
Richard's emphasis on the role of rationality is well-placed, because a number of important political issues are in fact about the limits (or not) of rationality.
For example, how much market reform should there be in public services? This question hinges on whether a central state has the wisdom to manage large organizations, and whether individuals have the rationality to choose suppliers of healthcare or education.
Or: was the war in Iraq justified? We Burkeans are sceptical not because we have any toleration for tyranny, but because we're just not sure whether the US and UK have the power to build democracy in apparently unfavourable conditions.

Blair's consistency

One striking thing about Blair's Georgetown speech yesterday is that it's very similar in structure to the thinking about economics that gave us New Labour 10 years ago. Let's compare yesterday's speech to one Blair gave 10 years ago in Tokyo*. 
First, there's the view that globalization revolutionizes international affairs, just as it revolutionizes the economy. 2006:

The rule book of international politics has been torn up.  Interdependence - the fact of a crisis somewhere becoming a crisis everywhere - makes a mockery of traditional views of national interest.

1996:

The driving force of economic change today is globalization. Technology and capital are mobile. Industry is becoming fiercely competitive across national boundaries. Consumers are exercising ever greater power to hasten the pace of this revolution.

Then there's the view that globalization is breeding insecurity. In 2006, this takes the form of the threat of terrorism. But in 1996, Blair said:

The mirror image of the economic security is a profound sense of social, even moral, insecurity.

Then there's the view that events are speeding up. 2006:

Nations, even ones as large and powerful as the USA, are affected profoundly by world events;  and not affected, in time or at the margins but at breakneck speed and fundamentally.

1996:

Today when sentiment turns it turns with a vicious alacrity, because at the flick of a switch or push of a button capital can be transferred anywhere in the world.

It follows from this that governments must pre-empt events, not respond to them. 2006:

In the old days - I mean a few decades back - countries could wait, assess over time, even opt out - at least until everything was clear.  We could act when we knew.  Now we have to act on the basis of precaution.

In 1996, said Blair, governments had to pre-empt the risk of capital flight by ensuring that macroeconomic policy stayed credible.
Then there's the effort to unify two policies which many believe to conflict. 2006:

Ever since I saw 9/11 change the world, I have believed that the greatest danger is that global politics divides into "hard" and "soft".  The "hard" get after the terrorists.  The "soft" campaign against poverty.  The divide is dangerous because interdependence makes all these issues just that:  interdependent....Without progress - in democracy and in prosperity - security is at risk.  Without security, progress falters.

In 1996, Blair said that efficiency and fairness were mutually compatible:

I believe...that social cohesion and fairness to all are essential conditions of both a decent and efficient country.

Then there's the belief in the need for new infrastructure, new institutions. 2006:

After the Second World War, people realised that there needed to be a new international institutional architecture. In this new era, in the early 21st century, we need to renew it.

In 1996, Blair spoke of the need to "revitalize our infrastructure, our transport system, our inner cities."
I mention these homologies not to question the validity of the Georgetown but to show that there is a long-running consistency in Blair's view of the world. He believes the world is new, that the challenges are greater than ever, and that only a government that has grasped the new reality of the  "new times" can protect us from unprecedented dangers. David Marquand put it well:

'New, new, new' Tony Blair told a meeting of European socialist leaders in a characteristic outburst shortly after entering office, 'everything is new.' This is the myth in a nutshell. 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 new what it was. The Blairites do know. It is on that knowledge that their project is based, and by it that their claim to power is validated. 

This, I suspect, answers Shuggy's question: why don't managerialists learn from history? It's because, if the world is new, history can teach us nothing. As Blair said in 1996: "I have no time for living in the past."
* It's p118-129 in this.

Managerialism vs technocracy

The ongoing shambles at the Home Office raises a a question: why do I call New Labour a managerialist party, if it's so terrible at managing?
Simple. Managerialism is distinct from management. The latter is a practice, the former an ideology. What's more, this ideology is distinct from technocracy, in several ways:
1. Managerialism is a faith. It says that a centralized organization, however complex or inept, can be well run with the right leadership. Hence the belief that Reid is the man to turn around the Home Office. Technocrats, however, ask: how, exactly, is it possible to run an organization?
2. Managerialists manipulate  symbols and image - hence the importance of spin. Technocrats believe they can and should manipulate reality. Robert Protherough and John Pick, in their superb Managing Britannia say (p32-33):

The achievement of modern managerial goals generally involves a high degree of mental abstraction, but little direct contact with the organization's workers, with the production of its goods or services, or with its customers...when managers are 'creating a range' they are pursuing a conceptual notion rather than producing useful things.

Contrast this with the scientific management of Frederick Winslow Taylor. He believed in the minute management of reality, not imagery. He was a technocrat.
This aspect of managerialism explains the tendency deplored by Paulie:

When a headline keeps [ministers] awake, they arrive at work the next morning ready to add yet another ropey patch to bad legislation. Instead of fewer, better, bills, before Parliament, we get more and more worthless legislation.

New Labour uses laws not to change reality, as a technocrat would, but as symbols, to show who's in charge.
3. Managerialists don't learn from history. Technocrats do. To a managerialist, a failure is not something to learn from, but something to move on from, to draw a line under.
4. Managerialists are generalists. They believe that, if you can manage one organization well, you can manage any. Hence John Reid's shuffle from department to department. Technocrats, though, believe  in mastering one aera of expertise. Clive Woodward is a managerialist, Arsene Wenger is a technocrat.
5. Managerialists believe in judgment, technocrats believe in following rules, inferred from empirical analysis. When I sold shares three weeks ago, it was a technocratic decision, not a managerialist one.
6. Managerialists have limitless faith in their ability; technocrats can have doubts. Here are Protherough and Pick again:

In the modern world, there are no bounds to what governments think they can shape and manage. Modern governments now affect to be able to manage everything, from how ambitious we are, to how fat women should be.

7. Managerialists don't acknowledge trade-offs; technocrats do. For me, the defining feature of New Labour is, in Blair's words, the effort to "marry together a well-run economy and a just and fair society." 
For me, the fundamental political question is: just how wrong (if at all) is managerialism? (I have problems with technocracy too, but that's a separate issue.) Before asking: who should govern us? we should ask: what can government do?
In this respect, Paulie and I agree on what the question should be, even though I guess we differ on the answers. The problem is, the managerialist class lacks the self-awareness to even ask the question.

Tankies for Toryism

Dave rightly mocks Aaronovitch for saying that he could vote for Cameron. But of course, Aaro is only one of many ex-Tankies to have switched to managerialist ideology; there's also, among others, John Reid and Peter Mandelson.
There's no surprise here. Such a shift is entirely consistent with their youthful beliefs. Stalinism-Leninism and managerialism are really very similar.
Tankies only really supported the working class because they thought the laws of historical development favoured this class; Aaro's belief that "progessive" is a clear and obvious good thing suggests the legacy of historical determinism runs deep.  And to old Tankies, morality consisted in being on the right side of history. As Lenin said:

We do not believe in an eternal morality, and we expose the falseness of all the fables about morality. Morality serves the purpose of helping human society rise to a higher level. (The tasks of the youth leagues, speech on October 2, 1920).

Today, it seems the forces of history helping human society to rise to a higher level consist not in the growing strength of the working class, but in the rise of globalization. Morality requires Tankies to support this.
It's entirely natural that, therefore, that they should switch their allegiance from the centralist hierarchies that claimed to support the interests of the working class to the centralist hierarchies that claim to want "modernization." Tankies always supported hierarchy.
As for freedom and equality, well - the Tankies never supported those.

Ugly and stupid

Good-looking people do better in exams than ugly ones. That's the message of this paper (pdf):

We examine the effects of students' physical appearance upon examination results. We fund evidence that beauty has a significant impact on academic performance, a result which is consistent with and comparable to the impact found in labour market literature.

The effect is big. Students with looks that are one standard deviation above average perform 38% better than those with looks one standard deviation below average.
The effect differs between men and women. Among men, the beauty premium exists because ugly men do really badly. Among women, there's no penalty for munters, but a small premium for lookers, which suggests Carol's an outlier.
Fascinatingly, the beauty premium is greater in written exams than oral ones. This suggests the pay-off to good looks (or a lack of ugliness) comes from higher ability rather than discrimination.
This might be because of the Kathy syndrome: beauty and intelligence are correlated (pdf). Or it might be that beauty leads to greater self-confidence, which encourages people to study more in the belief that hard work will pay. Or it might be that mingers are more likely to be bullied at school, which retards their intellectual development.
There is a puzzle here. Because the study is confined to economics students, it suggests that being an ugly man is a drawback to becoming a good economist. But there is abundant evidence to the contrary.