Why workers matter

So far this month, the FTSE 100 has risen 2.7%. There's a link between this fact and Emily Thornberry's resignation for that tweet.

The Footsie's gain is consistent with one of the strongest tendencies in finance - for Halloween to be a buy signal. This has an important and under-appreciated implication. It implies that, underneath their smart suits and brass name-plates, professional investors are in fact just like our pagan ancestors. They get gloomy around Samhain thus pushing share prices too low, and cheerful around May Day, which sends prices too high: the counterpart of "buy on Halloween" is "sell in May."

This, of course, is not the only evidence that the so-called experts aren't as smart as they think they are. It's well-known that most fund managers who try to pick stocks under-perform (pdf) the market. And new research shows that, in their personal investments, professional  investors do no better than amateur ones. Insofar as professionals do make money, it is because they benefit from social contacts and seeing order flow, rather than because of other expertise. One reason why bankers tried to rig Libor and the FX markets is that it's so damned difficult to make money honestly.

In this, of course, finance professionals aren't wholly different from other so-called experts. As Philip Tetlock and Paul Meehl (pdf) showed, political scientists and clinicians aren't so hot either.

There is, however, one group of people who do have insight into the future - consumers. Sydney Ludvigson and Martin Lettau have shown that aggregate consumer spending can predict (pdf) US equity returns - a finding corroborated by Bank of England research in the UK.

The success of consumers, in contrast to the indifference of experts, is consistent with the diversity trumps ability theorem: in conditions of bounded knowledge and rationality (or in other words, the real world), the dispersed and diverse knowledge of laymen can do better than experts.

Which brings me to Ms Thornberry. What made her tweet so embarrassing is that it highlights the managerialist Labour party's awkward relationship with the white working class. Its attitude has often been one of contempt for it - the subtext of that tweet - interspersed with a claim to "listen to its concerns" (if only on immigration.).

There is, however, a third way here. It lies in that diversity trumps ability theorem. This tells us that, under some conditions, the working class has dispersed, fragmentary, tacit knowledge that managerialists do not possess.

I say this is a third way because it requires two changes in the current relationship between Labour's leadership and the working class.

On the one hand, it means less pandering to beliefs that are reified nonsense. As Gavin Jackson shows, attitudes to immigration are more positive among people who have hard knowledge of immigrants living in their areas. It is the local experts on immigration that should inform policy, not the pub gobshite rehashing Daily Mail drivel.

On the other hand, though, it requires Labour to devise institutions which harness the dispersed, diverse knowledge that workers have - that is, to create worker democracy in both public and private sectors. This means Labour must respect the working class more and the managerialist pseudo-elite less.

The chances of either of these changes occurring is, however, slim. This is because the managerialist Labour party isn't merely out of touch with workers, but out of touch with economic reality too. 

Comments

[Luis Enrique]

um, but consumption doesn't necessarily predict returns because of dispersed knowledge on the part of consumers.

Suppose consumption decisions are taken with no reference to the future but merely respond to each individuals immediate situation and possible peer effects, in that world consumption patterns might be leading indicators.

[Broilster]

Hmmm, I'm very wary of the so called 'wisdom of crowds'. Reminds me of the whole MMR debacle amongst other things.

[call the sociologist]

Agreed she was a traitor and a danger to Labour's crumbling cause and a perfect gift to the Mail & Sun headlines on a bad Tory day. However it illustrates something about the BBC who took up a story about an opposition politician who sent a tweet. BBC must have thanked the tabloids for this breakfast on the sofa populist stuff. Meanwhile they were back to endlessly interviewing Farage as usual and giving UKIP the dominance we have come to expect from our public broadcaster.

[Metatone]

I'm with Luis Enrique - this is so possibly a connected variable...

[Dave Timoney]

In suggesting that "Labour must respect the working class more and the managerialist pseudo-elite less" you're rather ignoring the history of the party. Managerialism long predates the neoliberal infection and there has always been a class divide within Labour between the officers and the other ranks.

The irony of people like Jason Cowley criticising Ed Miliband for not being Clem Attlee is that the current leader is actually cut from the same cloth. I imagine Attlee would have been as nonplussed by Lady Docker as Miliband was by Myleene Klass.

The problem with Emily Thornberry was not that she took the photo, but that she didn't defend her action with "I'll snap whatever I fucking like". What this incident shows is not that the CLP are snobs, but that they're wimps. This is why a wuss like Alan Johnson is considered a contender and any lippy Scotsman is considered a "bruiser".

[gastro george]

It seems that the "twitter storm" was a whole 300 tweets per hour. Is that what politics has become?

[rogerh]

So what makes someone vote this way or that? I doubt anyone reads manifestos or labours much over the issue - its which lot look marginally better or less worse than the other lot. As in Ancient Rome, who manages the crowds is what matters. In touch - hardly matters. In marketing consumer products asking the customers might tell you which colour to make a soap powder packet but not much else. To design a new product you put faith in a team (see Dyson) but politics is stuck with the Overton Window so little new can happen so same-old same-old. So I don't think it matters much that Labour is out of touch, so are the Tories, the problem is seeming to be out of touch - a gift handed to the Tories by Thornberry having a 'Ratner Moment' - a stupid stunt and crass timing.

[call the sociologist]

Saturday papers in all our supermarkets at least three front pages including Tabloid Times screaming now two days later that the tweet crisis has worsened in Labour. A single silly tweet by a relatively unknown Labour London MP, = Tory/ UKIP propaganda seen by many millions for two days now.

[call the sociologist]

Trouble is they could worry about managerialism in everything but the Leadership of their party. For all their verbosity about it not one could challenge their manager. Already it looks like the Tories until 2020 because Labour forgot in their model to include the consumers/voters who have rejected in massive numbers their own manager who they have said they want changing.

[ThomasH]

Could somebody explain why the photo is objectionable. (I stipulate that "white vans" are thought to be owned by working class voters and that the flags are "English.")

[gastro george]

Marina Hyde is quite good today: http://www.theguardian.com/commentisfree/2014/nov/21/emily-thornberry-tweet-contempt-people-like-them

Especially about the contempt that the media have about "white van man", despite their content. But it's obviously important because, you know, the old-Etonian Dave C has so much understanding about and respect for the English working class.

[gastro george]

Seeing tomorrow's Observer headlines on the web site, you'd have to think that they're going to support the Tories in the next election. Or maybe they'll be the last Lib Dem voters left.

[e]

@ThomasH
The image/the tweet can be viewed as a trope for “mindless working class”.
The phenomenon of football hooliganism (new to broadcasting mid ‘70s) is associated with flying the flag of St George. Football in “the days of hooliganism” was almost exclusively a working class pursuit. The now standard media/political narrative which characterises “the working class” as the authors of their own poverty; their own unemployment; and the cause of badly maintained council estates (as pig ignorant, if not hooligans) began to surface along with Thatcherism circa 1979: prior to this having aspirations to be “middle class” was not a condition upon which respect was withheld. This is not so these days. So, the photo can be taken as evidence that New Labour’s conceit (AKA: being out of touch/being thatcherite) is alive and well in EM’s One Nation Labour. Useful if what you’re looking for is something to bash Ed Miliband /Labour with whilst pretending to have nothing but respect for the plebs you wish to sell things to.

[windsock]

What that tweet shows is that Emily Thornberry is a crap politician. She was buying into the idea that cross of St George England flag = UKIP = (BNP+EDL+NF). All she had yo say under the photo was "Rochester. Great to see enthusiastic patriotism. Hope they are voting Labour!". But she chose to be a smartarse.