Stumbling and Mumbling

The MPC's staffing problem

Mervyn King has criticized the Chancellor for not appointing new members of the monetary policy committee quickly enough. What he hasn't said is that there's a reason for the delay. The pool of talent from which the Chancellor can appoint MPC members is small - it's less a pool, more a fetid puddle. There are several reasons for this.
1. Macroeconomics has not been a very interesting field of study for the last 15 years or so. Many good economists, therefore, have gone into (say) financial or micro rather than macro.
2. Since the 1980s, many of those economists who have been interested in macro have gone not into academia but rather into the Bank itself (and so aren't eligible for the external members' position), or into the City, where they've become deskilled.
3. Many good British academic economists prefer not to work in UK universities. Like David Blanchflower, they've emigrated.
These problems are exacerbated by others. Brown, possibly for good reasons, possibly for bad, doesn't want many City economists on the committee. And he seems not to want a full diversity of opinion on it: why do you think Tim Congdon or Patrick Minford have never been appointed?
A further difficulty is that the MPC's job is partly to provide the illusion of sagacity. Let's face it, it's not that hard to work out whether rates should rise or fall a quarter-point, simply because it makes little difference. What the MPC must do is give the impression that decisions are taken by wise men of good judgment - to comfort the public. Given the choice between a 50-year-old dullard with a good reputation among the chuntering classes, and a 30-year-old genius with no reputation, Brown would go for the dullard every time.
These factors mean there are few economists suitable for the MPC - which is why Brown has already had to resort to employing a mere journalist and the head of an organization which one of Brown's senior colleagues deems "not fit for purpose."
This problem will only get worse.
Herein, I think, lies one argument for adopting a Taylor rule. The MPC just can't get the members to make judgment-based decisions.

A case for breaking up Iraq

Here's economic research which suggests a case for breaking up the Iraqi state - because nation-states make for better economies:

Artificial states are those in which political borders do not coincide with a division of nationalities desired by the people on the ground. We propose and compute for all countries in the world two new measures how artificial states are....We then show that these two measures seem to be highly correlated with several measures of political and economic success.

Not just highly correlated, but very sensitive. The 75th percentile of artificial states has a per capita GDP 83% higher than the 25th percentile of artificial ones. The authors conclude:

The artificial borders bequeathed by colonizers are a significant hindrance to the political and economic development of the independent states that followed the colonies.

Read the whole paper here (pdf).

Universities as signals

It's 20 years, almost to the day, since I left Oxford University. Thinking about this anniversary throws up a paradox.
On the one hand, people think it matters what university one attended. They regard "Oxford graduate" as a more meaningful description of people like me than "ex-graduate student at Manchester" or "ex-employee of Swiss Bank" or "ex-economist at Nomura" - even though I spent more time at the latter two than at Oxford.
But on the other hand, I don't know how much long-run effect Oxford had upon me.
The big influence is that it made me an economist; it was at Oxford that I acquired an interest in the subject. But it's being an economist that defines me far more than being an Oxonian.
Indeed, most of the content of the economics I studied at Oxford has long been irrelevant; all that tosh about the IS-LM model was little use in my professional career.
Almost all the economics I know was learnt after university. The little that did come from university - bits of international macro and econometrics - came mostly from my masters degree at Manchester. The only important legacies I've kept from Oxford economics are Kaleckian macroeconomics (useful, as he's one of the few great macroeconomists to consider profits important) and classical economic thought.
Nor did Oxford have a huge influence upon my political views. Sure, I was an enthusiastic Marxist when I arrived but not when I left. But this change was more to do with apathy than education. I don't think I heard the name of Hayek mentioned in the three years I was there.
The cliche is that Oxford doesn't impart substantial knowledge, but rather teaches one how to think.
I'm not sure. I never heard of Bayes' theorem or Kahneman and Tversky whilst at Oxford.
Still less did Oxford teach me how to write; I'm told I was almost illiterate when I started at the Investors Chronicle.
Of course, Oxford changed my life. Had I not been to Oxford I wouldn't have gotten the jobs I got or met the people I did. But I can say the same about Ed Rayner's history classes at the Wyggy - had I not gone to those, I wouldn't have gone to Oxford.
The most valuable and substantive thing I learnt at Oxford was a love of Hank WiIlliams.
This isn't merely self-indulgent introspection. There's an important message here for labour economics - it's that signaling is important.
Oxford matters not because it created human capital - it didn't. Instead, many people intepret the fact that I went to Oxford as a sign that I'm intelligent - the millions of words I've written aren't sufficient evidence of this.
And if they want to believe this, why should I bother to disillusion them?

Chrissy elsewhere

"There’s more evidence that Blair is a Marxist than that he’s a Christian"
At The Sharpener.

Motives don't matter

"Public services should put people ahead of profits" say Mark Serwotka and Steve Sinnott (via Tim). 
This claim contains a common  error - they think motives matter. They don't.
For one thing, we ain't invented telepathy. We just can't spot people's motives. The idea that "public service" = altruistic motives and private sector = money grubbing is just nonsense. Were the officials who dealt with Danny Biddle's compensation claim really better than any private insurance company workers? Is Chris Hohn just greedy?
The safest assumption we can make is that everyone's motives are either venal or eccentric. We can't rely upon enough people being altruistic.
And even if there were lots of altruists available to run the public services, it might not do us any good. This is because of the law of unintended consequences. Good people can do bad things. Bad people can do good things. Most good social science is the study of why this happens.
And here's a bit of luck. Humankind has stumbled upon a technology which can often transform bad motives into good outcomes. It's called the market.
The important question is: how can we import this technology into health and education?
In this context, the public-private dichotomy is woefully misleading. Private sector monopolies are as bad as public sector ones; this is why Serwotka and Sinnott are right to complain about the PFI.
Instead, the important components of the market technology are feedback and competition. Success in reforming public services requires that these be used, not private companies. How far this is possible is, of course, another issue. But it's the big issue.
Another thing: the public-private dichotomy is misleading in another sense. There's no reason why health and education services must be provided by either the state or shareholder-owned private firms. Worker co-ops are perfectly feasible. 

Who needs direction?

There's something about the spat between Clarke and Blair that should be deeply embarrassing for New Labour. It's not that the two disagree. What's embarrassing is what they agree upon.
Clarke says Blair has lost purpose and direction. Blair says he ain't. Both agree that governments should have "direction."
But why should they? Is this yet another example of their unthinking managerialist ideology? Managerialism is always "striving", "progressing", "moving forward", "facing new challenges." As Pick and Protherough say in this magnificent book, "to managerialists, the best is always yet to come."
Or is it a glimpse of their Fabian legacy - the belief that socialism is something to be edged towards, rather than accomplished?
There are, though, at least two traditions which say that governments don't need direction. There's the proper Conservative one, which says government consists in providing the means for people to live in peace together, not about imposing direction upon them. As Michael Oakeshott said in this great essay (word doc):

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.

Or there's the technocratic tradition, which says that after nine years in office, government should be about consolidating achievement, not about moving forward.
But then, what achievements has Blair got to consolidate?

Should Ulster join the euro?

Ulster says yes - to the euro. Northern Ireland is the only region in the UK where a majority of medium-sized businesses want to join the euro.
There's a simple reason for this. Northern Ireland's proximity to the Republic means it does a lot of cross-border trade, and so the costs of being out of the euro - transactions costs and exchange rate volatility - loom larger. These figures suggest Northern Ireland's exports to the EU account for a higher proportion of its GDP than the UK average - despite the fact that the market sector accounts for a smaller-than-average share of Northern Irish GDP.
Which raises an interesting possibility.  Could it be that it's in Northern Ireland's interest to join the euro, even though it's not in the UK's general interest?
Certainly, this is a theoretical possibility; there's little reason to suppose that optimum currency areas must  always be co-terminous with national boundaries. Indeed, other evidence suggests that even developed countries  are not single economic units, in the sense of having greater capital mobility within the country than across it's borders.
Which raises a more general question. Could it be that economists focus upon national economies not because countries are natural economic units, but simply because that's where the data are? Hence the worry about national current account deficits but not about regional ones.

England, conglomerates and managerialism

Whilst watching England yesterday - well, you can't have fun all your life can you? - I was reminded of the conglomerate discount.
This is the tendency for  a firm containing many businesses to be worth less than the sum of its parts; it's the reason why many conglomerates - such as Hanson - split up in the 1990s.
Exactly the same problem afflicts England - the team is much less good than the players.
The analogy goes further. Conglomerates were worth less than the sum of their parts because there were few synergies - asset complementarities - between the various divisions. So there was no reason for the whole to be worth more than the parts. Worse, investors suspected that individuals within the messy organization were pursuing their own ends - ego-gratification, empire-building, an easy life - rather than maximizing profits for shareholders.
Exactly the same is true of England. Why has Frank Lampard had more shots on goal than any other player in this tournament? It's partly because he's going for individual glory rather than the good of the team, so he shoots from improbable distances rather than look for the killer pass. And it's partly because the killer pass isn't on, because his team-mates aren't making the runs into space; contrast the static England team to the fuid movement of the Arsenal. They prefer the quiet life, rather than expending energy and risking getting caught out of position.
This is a failure of management. One of the few legitimate functions of management is to create synergies between divisions of a company or between players. The best company bosses or football coaches do this. Sven has not.
However, few of England's critics seem to realize this. They focus way too much upon individuals - misled by ridiculous player ratings - and miss the fact that they just aren't playing as a unit.
I know I risk sounding like a one-trick pony here. But isn't this another manifestation of managerialist ideology? Too many people fail to see that management is - when done properly - a humble, narrow, technical activity; it's about finding, creating and building synergies. Instead, they think it's some mystical thing called leadership.
What the England team - and indeed the nation generally - needs is less glory-hunting "leadership" and more technical management.
Another thing: the conglomerate discount isn't always a discount, as this paper shows.

Direct democracy vs managerialism

Shuggy asks a good question: is my support for direct democracy consistent with my opposition to managerialism? Or wouldn't direct democracy encourage more managerialist spinning, as politicians try harder to sell particular positions?
Possibly. But I reckon there should be four countervailing considerations here:
1. Wisdom of crowds. Sure, people are stupid. Often, though, one person's stupidity cancels out another's. But not always, as Bryan points out.
2. Demand-revealing referenda. People should vote with money, not just voice. And making people pay is a way of making them think.
So, for example, a referenda shouldn't ask: should Britain have an independent nuclear deterrent? It should ask: are you willing to pay £400 for an independent deterrent?
3. The death of the mass media. One essential bulwark against groupthink is that information and ideas come from diverse sources. Direct democracy - or indeed any well-functioning democracy - therefore requires that newspapers become less dominant.
You might reply here that there's already sufficient diversity in the media. Wrong. The MSM are homogenous, in the sense that all are hierarchic organizations which trust experts and leadership.
4. Institutions change character. Direct democracy should not be judged merely on its short-run effects. In the long-run, its greatest benefit could be that it encourages people to think and act for themselves, and look less to leaders and managers. It's in this sense that direct democracy undermines managerialism.
All this said, there are two caveats. First, I'm not advocating direct democracy as practical politics. Rather, I regard it as an ideal which highlights how inadequate our psuedo-democratic institutions are.
Second, the case for direct democracy is not merely consequentialist. A strong argument for it is that if public affairs impose upon my life and my money, I should have the biggest possible say in those affairs.

For corporal punishment

Why not bring back corporal punishment? That's a question raised by Blair's macho talk about overhauling the criminal justice system.
Corporal punishment has obvious advantages. It's cheap. And it would satisfy the public's desire to see criminals punished.
Sure, it wouldn't take criminals off the streets, so it's an alternative to non-custodial sentences rather than to jail.
Would it be an effective deterrent? This is an empirical question which could be tested in pilot studies in different areas: how would the stocks, flogging or the pillory fare against tagging or community service? If the government is serious about evidence-based policy-making, it would want to find out.
There are two objections to corporal punishment that aren't good enough.
One is that it's illiberal. I just don't see this. Are a few public floggings really a lesser exercise of state power than a full therapeutic-managerialist approach to trying to change criminals' characters? And remember - corporal punishment is consistent with the due legal process that Blair is trying to undermine. Who's being anti-liberal?
Another misplaced objection is that corporal punishment is barbaric.
New Labour cannot use this objection - not when it wants to spend billions on the means of burning millions of innocent people to death.
What's more, good deterrents are necessarily barbaric. If criminals are over-confident of getting away with their crimes, and have high time-discount rates (so they attach little importance to future costs), only really nasty punishments will deter them.
I suspect the refusal to contemplate corporal punishment is based on not rational empirical considerations, but simply on the "yuk factor."
Or is there something else at work? Could it be that the refusal to countenance it is based on an Enlightenment prejudice, that only "modern" policies can possibly be acceptable? How else can you explain why we tolerate nuclear weapons but flinch at much smaller pains the state might inflict?