Stumbling and Mumbling

Not trashing Thatcher

At this week’s Labour conference, Tom Watson told members to stop “trashing” the record of New Labour. This raises a paradox – that if any party should be attacking the record of a successful recent leader, it should be the Tories, not Labour.

Put yourself in the shoes of a Tory loyalist. You support Osborne’s introduction of a National Living Wage. But Thatcher was opposed to state intervention to support wages, and allowed Wages Councils to wither (though it was the Major government that finally abolished them). You want to withdraw from the single market if this is necessary to control immigration – but it was Thatcher who helped create that market. You want to reintroduce grammar schools – but Thatcher abolished many of them. You support Philip Hammond’s promise to “reset” fiscal policy – but Thatcher preached the need for “good housekeeping.” You’re worried that immigration will undermine traditional communities – but Thatcher destroyed many of these in mining areas. You support Ms May’s desire to put workers onto company boards – but Thatcher championed “management’s right to manage.”

From this perspective, Tories should be trashing Thatcher’s policy. However, I very much doubt that her name will be booed whenever it is mentioned at next week’s conference, and Tories don’t use the word “Thatcherite” as a term of abuse in the way Labour members use the word Blairite.

Why is this? It’s not because, on domestic policy, Corbynistas are as distant from Blairism as May is from Thatcherism. They support New Labour policies such as tax credits, minimum wages and infrastructure spending.

Instead, there are other reasons. One is that Blair has become synonymous with the war in Iraq, whereas Thatcher was smart enough (or lucky enough) to start a war she could win.

Also, “Thatcherism” and “Blairism” function much as House Stark or House Bolton do – as indicators of tribal loyalties rather than ideology. Tories can think of themselves as Thatcherite even whilst renouncing many of her policies because they regard her as one of their tribe: she was on the right side of the class war. Even in his pomp, however, many Labour members never really regarded Blair as “one of us”.

There’s something else. Tories don’t think so much about political ideas: they don’t “problematize” or “workshop” them. Instead, as Oakeshott said (pdf), governing is for them a “specific and limited activity” to be gotten on with rather than theorized about. This often leads them to value unity over theoretical arguments - at least when Europe isn't at stake. And because people aren’t very good at thinking, and because there’s a thin line between being principled and being a sanctimonious twat, this gives them a big advantage.

Immigration: the right's problem

A commenter on a previous post asks: why is immigration such an obsession on the left? To answer this question, let’s first note that the free market right should be strongly opposed to immigration controls.

This is simply because immigration is a matter of freedom. Restrictions on immigration deny people the freedom to live where they want; employers the right to hire whom they want; and landlords the right to let their property to whom they want.

I’m old enough to remember when rightists did indeed assert these freedoms. During the Cold War one of the biggest accusations against the USSR was that it denied its subjects the right to emigrate. And Norman Tebbit’s famous 1981 speech in which he praised his father who “got on his bike and looked for work” could be regarded as applauding free movement: if it’s praiseworthy to get on your bike and look for work, shouldn’t we also praise those who get on boats and planes to do so?

Few rightists today, however, proclaim the rights of migrants. Yes, some do such as Bryan Caplan and Sam Bowman. But such men have far less influence than their intellect and integrity merit.

This poses the question: why are so many Conservatives who have traditionally asserted the virtues of free markets so silent about the merits of migration?

You might say it’s because freedom is a matter of degree and must be limited to accommodate other goods.

But this won’t do, for three reasons:

 - Many of those who want immigration controls also want economic freedoms to be restricted in other domains. Many Ukippers, for example, support (pdf) price controls and nationalization.

 - A big case for freedom lies in the invisible hand – the idea that aggregate welfare increases when each individual is free to pursue his own goals. If you’re going to deny the benevolence of the invisible hand in the domain of immigration, it’s difficult to assert it in other domains, especially as the empirical evidence (pdf) suggests that (in economics at least), free migration is indeed benign.

 - The goods with which immigration is alleged to conflict aren’t those which free marketeers value highly. Let’s concede that immigration does undermine social cohesion (something which I doubt). So what? Cohesion is a collectivist ideal which shouldn’t appeal much to free market individualists.

It should, therefore, be the right that is championing the virtues of immigration at least much – if not more so – than the left. So why isn’t it?

One possibility is that the right never truly believed in freedom anyway. They merely used the it as a stick with which to fight the ideological Cold War, and as a means of attacking workers. Now that these uses are no longer necessary, rightists are exposed as the freedom-hating bigots they’ve always been.

But perhaps there’s something else, or another way of expressing the point. The Tory party has for most but not all of its history been highly pragmatic, capable of ditching principles or prejudices when electorally necessary. It has managed to retreat from the free market rhetoric of Thatcher without great turmoil; Osborne's embracing of the minimum wage, for example, caused little fuss.

Much of the left, however, is more idealistic. And herein perhaps lies the answer to the question: why is it preoccupied with immigration? It’s because immigration embodies a conflict between principle and practicality: free(ish?) migration is good policy (from both left and right perspectives), but electoral disaster. The left feels this dilemma but the right – especially the populist element thereof – is less troubled by it.      

Labour's advantages

“Perhaps Labour’s day is done, and it is time for something new” says Nick Cohen, a sentiment echoed by Janan Ganesh.

I disagree. Labour has two massive things going for it, which are immense obstacles to the formation of a new party.

One is class. Britain is a class-divided society, and strong political parties must have a class base (which is of course not to say their support should be confined to a particular class.) Labour's ties to trades unions give it this, and any new party will lack it.

It's often said that our FPTP system militates against new parties, which is true. But this is often a reflection of the fact that the class divide is partly a geographical split, with post-industrial areas divided from posher ones.

The second obstacle – which is not unrelated to the first – is path dependency. Political parties, like successful brands, are products of history. People support Man Utd not because of Marouane Fellaini but because they were attracted to the team by the likes of Bobby Charlton and Paul Scholes and got into a habit which they can’t break. In the same way, some will vote for a pig if it wears a Labour rosette.

Take, for example, the Greens. In many ways, these are more attractive than Labour – and certainly more so than the intellectual and political vacuum that is the Labour right. They are sounder on immigration and, I suspect, civil liberties and their joint leadership betokens some freedom from the leadershipitis that disfigures Labour. Nevertheless, the lack of a class base and benefit of path dependency makes me doubt they can supplant Labour.

A glance at the historical record shows what I mean. One thing this tells us is that it is rare for big incumbent parties to collapse. This alone suggests that Labour’s obituarists might be guilty of the fallacy of base rate neglect – as well as of wishful thinking. Where parties have collapsed it’s been because they lack a class base, such as the Liberals in the 1920s, or have betrayed the perceived interests of much of that base as the Tories did in abolishing the Corn Laws in 1846. (Scottish Labour might also be an example of the latter).

Equally, new parties succeed where they have a class base – as Labour did in the early 20^th century - but fail when they are the ego trip of a narcissist; think of Mosley’s BUF or David Owen’s SDP. It’s too soon to say into which category Ukip falls.

In saying all this, I am actually rejigging a point I made in a different context the other day. Judging political parties should be like assessing businesses. We must consider not merely or even mainly the calibre of the people running them: to do so is to commit the fundamental attribution error. We must also consider their structural advantages that come from history and market position. Very often, it is the latter that matter most. Warren Buffett has said that if these are strong enough an organization can survive being run by one’s “idiot nephew”.

I fear, however, that the Labour party is testing this hypothesis somewhat more rigorously than I would like.

What Blairites?

Corbynistas have gotten into the habit of calling their opponents “Blairites”. In some cases, this is unwarranted not because it is a smear, but because it is an unjustified compliment.

I mean this is two different senses.

One concerns immigration. Chuka Umunna thinks the UK should pay the hefty price of leaving the single market if necessary to impose immigration controls. And Rachel Reeves thinks Labour should listen to voters “legitimate concerns” about immigration – without telling us what exactly these are.

This desire for immigration controls fits uneasily with Blairism. For all his faults, Blair has always been pro-immigration. Back in 2005 he said that rising immigration was “precisely what one would want and expect”. And even the latter-day debased Blair says that “immigration is good for a country.”

And whilst he too speaks of voters “legitimate concerns”, he at least spells out what these might be, rather than using the phrase as a dog-whistle. For example, he says voters sense that immigration is uncontrolled and that some incomers don’t share our values.

Herein, though, lies the problem: these concerns raise awkward questions. How do we reconcile voters’ desire for control with freeish markets? If hostility to immigration is motivated by fears they have different values, why are Poles being attacked as much as Muslims? If, as Nick suggests, it is based upon people valuing “the familiar and the local” why did they vote for the wrenching change of Brexit, and why is hostility to immigrants strongest in the least lovable parts of the country such as Margate or Harlow?

At his best, Blair did not pander to voters’ basest instincts but rather succeeded in reconciling sensible(ish) policies with public support. There’s little evidence that his epigones are doing this. Triangulation had three points, not the one.

Which brings me to the second way in which so-called Blairites aren’t really Blairite.

In the 1990s, Blair had the wit to see that the economy had changed and that this needed new social democratic policies. For example, tax credits and university expansion were based in the recognition that globalization was reducing wages at the bottom end of the labour market and increasing demand for graduates; the stress on economic stability was intended to offer footloose companies the security they needed to invest in the UK; the stress upon debt sustainability was meant to placate bond vigilantes who were demanding high returns on government debt. And so on.

Blair’s talk of newness and modernity wasn’t just tiresome spin. It was a recognition that social democracy had to acknowledge new economic realities. This is the case now. Today’s new realities are zero productivity growth and secular stagnation that require pro-growth policies; negative real interest rates that render activist fiscal policy feasible as well as necessary; job polarization that makes social mobility harder; the failure of top-down managerialism; and the shift in inequality from a high 90/10 ratio to a high take by the 1%.

Although John McDonnell has shown signs of seeing these, “Blairites” seem not to. Although David Miliband writes of secular stagnation, he doesn’t seem to have much idea what it entails for leftist policies.

We should therefore get out of the habit of calling Labour’s right “Blairites”. They don’t deserve such a good name.

GBBO & the nature of the firm

Channel 4’s purchase of the Great British Bake Off raises big economic questions: what exactly is a firm, and what are a firms’ assets?

As you all know, Mary, Mel and Sue will not be joining the show when it moves channel, which has prompted everyone to claim that Channel 4 have spent £75m on a tent and a fat scouser – something they could have got in Millets Liverpool’s branch for rather less.

This highlights a general fact – that firms are often not merely collections of physical assets, intellectual property and explicit contracts. Their value often lies in key employees, and if these leave they can take a lot of corporate value with them. If viewers boycott the new GBBO because there’s no Bezza, then the GBBO is indeed not as valuable as Channel 4 thought.

 There’s nothing new in this. Back in 1994 shareholders in Saatchi and Saatchi got the hump with Maurice Saatchi and sacked him as chairman. He left to form a new advertising agency, taking a lot of Saatchi and Saatchi’s clients with him; the company never recovered. Shareholders thought they could control a valuable firm. But in fact a lot of the firm’s value was de facto controlled by Lord Saatchi. Channel 4 might have made the same mistake.

As Luigi Zingales pointed out in a classic paper (pdf), this changes how we should think about the firm. De facto decision rights – the things that give a company value beyond the value of explicit contracts - don’t necessarily lie at the top of the organization with shareholders, but might be scattered throughout the organization. This affects how companies can raise finance and how it should be valued: as Channel 4 might discover, it implies that assets can be less valuable than thought.

In truth, sensible people – the sort who aren’t TV executives – have known this all along. Private equity firms, among others, often devote lots of effort to retaining and incentivizing management at the companies it buys into: it’s odd that Channel 4 never thought of this. And one solution to the problem of powerful workers is to give them ownership, or the prospect thereof; law and accountancy firms, where people really are the main assets, are typically owned by worker-partners and not by outside shareholders.

 So far, so obvious. But here’s a problem. Sometimes, we don’t know where power lies. Is the GBBO like Top Gear which slumped when Jeremy Clarkson left? Or is it like the One Show or The Voice, which coped well with changes of judges and presenters? (Taggart even kept going long after the death of the actor playing the title role). The fact is, we can’t be sure. Of course, TV presenters and key employees in many firms like to think they are vital to the enterprises’ success. But the graveyards are full of men who thought they were indispensable.

This suggests that the valuation of many smaller companies, or parts thereof, might be even more uncertain than thought.

Warren Buffett has his own solution to this uncertainty – to invest only in companies which are so structurally sound as to be not dependent upon particular individuals:

If you've got a good enough business, if you have a monopoly newspaper, if you have a network television station — I'm talking of the past — you know, your idiot nephew could run it. And if you've got a really good business, it doesn't make any difference.

Sometimes, though, you cannot avoid the uncertainty. And then you have a problem, as Channel 4 might discover.

The centrist crisis

Tim Farron said this week that “there is a hole in the centre of British politics right now.” This is true, if not in the sense he intends.

What I mean is that several big political developments of recent years are a backlash against centrist politics: the rise of Corbyn; Brexit; the collapse in the LibDems vote in 2015; growing distrust of experts; and increasing hostility to immigration. The hole in centre exists because voters have deserted it. Such trends, of course, have counterparts in the US and much of Europe.

There’s a reason for this. Centrism requires a healthy capitalism. Support for a mixed economy rests upon the ability of capitalism to raise living standards and generate the taxes that pay for public services. And the centre ground requires that people have a stake in the system (so they don’t want radical change) but also have trust in the Establishment and goodwill towards others, so they support mildly progressive policies. This too depends upon capitalism being healthy – because as Ben Friedman has shown, good economic growth creates tolerance, trust and open-mindedness whist stagnation breed intolerance and extremism.

But this economic base for centrism has greatly weakened. As the IFS says, real median earnings are still lower now than they were before the crisis. As a result, older workers’ incomes haven’t changed since then whilst younger ones’ have fallen significantly.

On top of this, unaffordable housing means that younger people have less stake in the economy than they used to have, whilst job polarization and the degradation of formerly middle-class jobs have undermined the sense of content with the system which has often been the bedrock of centrism.

We saw in the 1930s and 70s that economic crises weaken the political centre. We’re seeing that again.

However, centrists haven’t just been hurt by the economic crisis. They are also in intellectual disarray, which might in part be the result of their failure to adapt to the stagnation of capitalism. Yesterday, thehistorian said that Labour’s centrists “don't have enough alternative ideas”. Bang on cue, David Miliband’s piece in the New Statesman vindicates him. Whilst David is absolutely right to say that secular stagnation and turbocapitalism pose new challenges for the centre left, he is sadly silent on what policies might meet these challenges.

Anti-centrists do have answers here. Nativists say closed borders; the libertarian right says freer markets; and the Left says higher corporate taxes, nationalization and printing money. Such answers might be inadequate or worse. But something beats nothing. And nothing is what the centrists seem to have.

This, however, need not be the case. Support for tax credits, infrastructure spending, more choice and voice in public services, the softest of Brexits (if any) and better early years education are good coherent policies which the centre could offer*.

And there’s one big cognitive bias which centrists could exploit. This is the compromise effect – the tendency of people to choose middling options when faced with extremes. Voters have often backed centrist parties for the same reason they buy the second-cheapest bottle of wine rather than the cheapest or middlingly-priced TVs rather than high-end ones. If the centre could find a viable proposition, and sell it by exploiting the contrast to the extremes, it might have a future.

Or would it? Whilst the intellectual crisis of centrism is resolvable, the economic stagnation that has caused a revulsion with the centre might not be.

* Personally, I doubt that they’d be adequate – but they’re better than nothing.

Persuasion in a post-truth world

How should economists engage with a man who knows nothing about economics? Matthew Bishop says we should treat him as a “worthy interlocutor in a way that values his opinion”. I’d caveat this.

We should make two distinctions here. One is between the man who genuinely wants to learn more, and the one who is loudly spouting nonsense for political reasons.

The former deserves all our help. Geoff Riley and Diane Coyle offer useful suggestions for him, but I fear that there aren’t ways of supporting such people; the media generally fails atrociously.

The latter, however, deserves our derision and contempt – of the sort that Douglas Carswell got when he claimed that the sun rather than the moon causes tides*. Such people are polluting public debate, and generally committing several cognitive biases as well: overconfidence; the halo effect (the belief that a policy that’s good in one aspect must be good in others); motivated reasoning; and the Dunning-Kruger effect too.

In this context, I’m not sure about Matthew’s analogy:

If physicists laughed at everyone who attempted to comprehend what is happening at CERN, or linguists mocked every grammatical error made by friends practising their holiday Spanish, people would soon give up trying to participate out of exhaustion.

This would be a bad thing if people were genuinely trying to understand and get better. Many, though, are just closed-minded bigots. One of the most deplorable trends of our time is the rise of narcissistic loudmouths and the media’s encouragement of them. Such people should be told: shut up you ignorant lout**.

Here, though, lies my second distinction: between what is practical and what is ethical. Just because a man deserves our contempt does not mean it is practical to give it him. Matthew is right to say that if we are to change his mind, we should meet him halfway – by taking whatever sliver of truth there is in his beliefs and using it to enlighten him. As Blaise Pascal said:

People are generally better persuaded by the reasons which they have themselves discovered than by those which have come into the mind of others.

There is, however, a danger here. In taking mistaken ideas seriously, we risk giving them more credence than they merit. And persuasion might be more practical if it exploits cognitive biases than if it tries to overtly oppose them. On both counts, we might face a trade-off between truth and effectiveness, which risks us forgetting Galileo’s words: “e pur si muove”.

The issue here is, of course wider and deeper than merely how economists engage with the public: I suspect the same issues arise in science and other areas of policy.

The underlying problem here is: how should we cope with the death of liberal optimism? Advocates of free speech such as John Stuart Mill believed that “wrong opinions and practices gradually yield to fact and argument”. In a post-truth world of asymmetric Bayesianism where people have had enough of experts such confidence is unwarranted. Liberals and experts have so far failed to come to terms with this.

* This just shows that we should leave the solar system to stop foreign bodies meddling with our seas. Let’s take back control of our tides.

** I try to do this: there are huge numbers of subjects - including a lot of economics - about which I know little: I try to keep quiet about them.

In defence of technology shocks

In his attack (pdf) upon macroeconomic theory, Paul Romer is especially critical of the real business cycle view that recessions are caused by negative technology shocks. He calls them “phlogiston shocks” and says:

there is no microeconomic evidence for the negative phlogiston shocks that the model invokes nor any sensible theoretical interpretation of what a negative phlogiston shock would mean.

Simon accuses him of attacking a straw man, saying that “the insistence on productivity shocks as business cycle drivers is pretty dated.” And the standard undergraduate textbook, Carlin and Soskice’s Macroeconomics, says RBC theory “is not the mainstream view.”

Looking through a macro prism, such scepticism is reasonable. How can people forget how to do things? Yes, there can be intellectual regress (which is what Romer alleges of DSGE models!) but surely not at the frequency of business cycles.

However, if we ditch representative agent thinking and think instead of firms as being inherently heterogenous, the notion of a negative technology shock seems more reasonable.  

Xavier Gabaix points out that even in a large economy aggregate fluctuations can arise from the failure of one or two big firms. This is especially possible if those firms are important hubs, whose troubles plunge supplier or customer firms into trouble: as Daron Acemoglu shows, networks are crucial in transmitting (or dampening) firm-level shocks throughout the economy.

It seems to me that this is a plausible description of the financial crisis. Banks became less able to supply credit than we thought; this was a firm- or industry-level negative technology shock. And because banks were key hubs, this shock was transmitted to the wider economy.

You can squeeze this into DSGE-style models, as (for example) Michael Wickens (pdf) and Hashem Pesaran (pdf) have done. Whether you should do so, though, is another matter: I fear that such exercises might be examples of economists seeing something happening in the real world and wondering if it is possible in theory.

However, evidence on the importance of firm-level shocks is not confined to 2008-09. In Coping with Recession Paul Geroski and Paul Gregg estimate that just 10% of firms accounted for 85% of the drop in employment in the 1989-91 recession. It’s not clear whether this was due to an identifiable single technology shock or what. But this is strong evidence that heterogeneity matters. They wrote:

 Describing what happens during recessions using simple macroeconomic aggregates and representative firm models of the economy produces a seriously distorted picture of events. Recessions are about what happens to differences between firms much more than they are about what happens to firms on average.

Now, I’m not saying here that recessions are always and everywhere technological phenomena; recessions differ and maybe there’s no single general theory of what causes them. Nor does this view necessarily have policy implications. One could argue that whatever causes recessions, the response should be expansionary macro policy.  

There might, however, be one implication of this. If recessions are occasionally due to technology shocks, then they might be sometimes be inevitable and unpreventable by macro policy: the consistent failure of economists to forecast recessions is consistent with this (though not proof of it).

What I’m doing here is making a plea. In throwing out the bathwater of representative agents and the very dirty bathwater of equilibrium business cycles, economists should be careful to keep the baby of possible technology shocks.

Immigration as social mobility

Last week, Theresa May spoke of wanting to increase social mobility, so that “it’s your talent and hard work that matter, not where you were born.” This week she wants to restrict immigration. There’s a massive contradiction here.

I say this for a trivially obvious reason – that migration is a fantastic form of social mobility because it raises people out of poverty. Orley Ashenfelter, for example, shows (pdf) that real wages at McDonalds are seven times higher in the US than in India: Indians are poorer than westerners not because they’re less talented or lazier but because India is a poorer country.

Allowing people to migrate would allow them “to go as far as their talents will take them”, which is what Ms May wants. Immigration controls, on the other hand, mean that “where you were born” will, in millions of cases, condemn you to life-long poverty.

It’s obvious, therefore, that anyone who is sincere about wanting everyone to have a “fair chance to go as far as their talent and their hard work will allow” should favour open borders.

So, why doesn’t Ms May?

One possibility is that she simply hasn't thought about it much - though what does that tell us about politics?

There are some nastier possibilities. Maybe she doesn’t want real meritocracy but merely a sham appearance thereof that would serve to legitimize inequality.

Worse still, it might be because of the same sort of hypocrisy that leads Europeans to want rights of free movement for themselves but not for others. Whereas we British have “legitimate concerns” that politicians must address, foreigners are a problem to be managed. Chris Bertram say this is racist. I’d add that it looks like feudalism: the highborn (those of us born into rich countries) have a right to preserve and increase our wealth, whereas the lowborn must be kept in poverty by the use of force.

Maybe I’m being too harsh here, though. Perhaps the free migration that would increase social mobility would incur some costs – not so much economic as cultural or just the sort of sense of disquiet that accompanies rapid change. And perhaps members of nations have obligations to each other that justify excluding outsiders, even though these nations are in part merely imagined communities: this is one issue in the debate (pdf) between the Rawls of The Law of Peoples (pdf) and cosmopolitans.

I don’t want to take sides on this: FWIW my instincts are for open borders but I see that this would have huge practical problems. My point is merely that immigration restrictions are a massive barrier to social mobility, meritocracy and the alleviation of absolute poverty, and should therefore be supported if at all only with a heavy heart and misgivings about their massive cost. What I find hard to understand or forgive is that so few of their advocates seem to feel such misgivings.

Another thing: you might object that politicians have a duty to their voters, not to the world. This is too glib: can people really legitimately incur duties to harm others? Should we, for example, respect a hired killer's duty to carry out his employers' orders?

Grammar schools & stereotype threat

In the debate about grammar schools, everybody assumes that it is those who pass the 11+ who should be admitted to them. But why should this be? Mightn’t it be more efficient instead to admit those who do badly?

I ask because of some recent experiments by Victor Gonzales at Tilburg University. He got people to solve some Raven’s matrices. Then he randomly gave out medals and asked people to redo the tests. He found that low-ability people who got a medal improved substantially, whilst high-ability people who didn’t get one did just as well.

The reason for this lies in self-serving biases. Low ability people who got a prize thought they were good and this increased their ambition and self-belief, thus motivating them to do better. As Arsene Wenger said, “If you do not believe you can do it then you have no chance at all”. However, high ability people disregarded the signal sent by the lack of a prize, believing they were good anyway.

I know, I know. At this stage many of you are shouting: this looks like the sort of priming result that is notoriously hard (pdf) to replicate.

However, I suspect it does have real-world relevance. Stereotype threat – our tendency to live up or down to stereotypes – is a real thing. As Rachel Kranton has shown, our (self)-identity shapes our behaviour, and this identity isn’t wholly exogenous but is at least in part shaped by our environment and by how others perceive us.

For example, girls in mixed schools are less likely to choose to study “masculine” subjects such as maths and science because being surrounding by boys reminds them more of their femininity and so prompts them to act girly. Jeffrey Butler has found that inequality leads to unwarranted perceptions of one’s ability. And Robert Oxoby has shown that low expectations – such as those formed by growing up in poverty – can reduce people’s ambitions and make them satisfied with less. People really can end up like a dog that’s been beat too much.

You might think this is a case for admitting 11+ failures into grammar schools. Low ability kids who get the prize of a place will raise their performance, whilst high-ability kids who fail won’t do worse: think of Will MacKenzie or Adrian Mole at their sink schools believing they were better than the rabble. Overall, academic performance will improve.

However, I don’t think this inference is warranted. This will only work if the low-ability kids are deceived into thinking they are good. This is probably not a trick that can be pulled off for long.

Perhaps a stronger inference would be that grammar schools are a bad idea because there’s danger that stigmatizing some people as being of low ability might prove to be self-fulfilling.