Stumbling and Mumbling

Against high CEO pay

Imagine we lived in a feudal society in which lords exploited peasants. A defender of the system might argue that wealthy lords perform a useful service; they protect their peasants from invasion and theft thus giving them security and a little prosperity. And competition between lords should improve these services; bad lords will find their lands and peasants seized by better lords who become wealthier as a result.  

Such an argument would, however, miss the point. The case against feudalism is that the system as a whole is unjust and inefficient. The fact that good lords provide services and are richer than bad ones is quite compatible with this.

This analogy came to mind whilst reading Ben Ramanauskas’s defence of high CEO pay. The fact that good CEOs make a positive difference to a company does not in itself justify a system in which CEOs in aggregate – many of whom are far from good – get fortunes.

Two big facts suggest that such a system might well be inefficient.

One comes from Rene Stulz and Kathleen Kahle. They point out that there are now fewer stock market-listed companies than there were years ago, and most are less profitable than they were. This alerts us to the possibility that agency failures – the inability of shareholders to oversee managers – are damaging.

The second, bigger, fact is that as CEO pay has risen, productivity growth has fallen. This is consistent with the possibility that increased inequality between bosses and workers is inefficient (pdf). We have many theories as to why this might be. Inequality reduces trust, which is necessary for growth. High pay crowds out intrinsic motivations (pdf) and causes managers to focus (pdf) upon things that are monitorable (such as short-term earnings) rather than ones that are not, such as longer-term investments and innovations. Hierarchical systems lead to bad decisions because bosses lack complete information, and can demotivate junior staff. And high CEO pay encourages juniors to engage in office politics to seek promotion, and incentivize managers to strengthen their position by discouraging disruptive innovation and entrenching monopoly power.

But what of the argument that competition eventually eliminates bad bosses? True, it does sometimes; the relatively egalitarian John Lewis Partnership has done better than department stores such as House of Fraser or Debenhams, for example. But market forces are weak (and perhaps getting weaker).

One reason for this is simply state intervention; without this, almost all shareholder-owned banks with their high-paid CEOs would have vanished.

Another reason is that there isn’t really a properly-functioning market for CEOs. I own tens of thousands of pounds of shares, but I’ve never been asked to vote on a CEO’s pay. Instead, the vote is exercised by fund managers many of whom are more bothered by the relative performance of their funds than absolute performance. We have widespread agency failures in which mates pay each other. And as Milton Friedman said:

If I spend somebody else’s money on somebody else, I’m not concerned about how much it is, and I’m not concerned about what I get.

Unsurprisingly, then, there is little clear link between CEO pay (pdf) and corporate performance. It might be that high pay is better explained by rent-seeking than as a reward for maximizing shareholder value - though as it's almost impossible to know in most cases what constitutes maximal value, we might never know for sure.  

In fact, my analogy with feudal lords is too generous to CEOs. Whereas (arguendo) a bad lord would pay for his incompetence perhaps with his life, bad CEOs walk away with fat pay cheques.

When so-called free marketeers try to defend bosses’ pay, they do the cause of free markets a huge dis-service by encouraging people to equate free markets with what is in effect a rigged system whereby bosses enrich themselves with no obvious benefit to the rest of us.

On models & downs

Simon has a nice post on the contrast between economic models which are theoretically coherent but empirically weak, such as microfounded DSGE models, and empirically stronger but theoretically weak models such as VARs. This poses the question: why do we need both?

To see why, think about American football. A team has four attempts (“downs”) to advance ten yards. If it doesn’t do so, its opponents gain possession. Many teams therefore often punt the ball downfield on the fourth down, so that they concede possession as far from their goal as possible.

How would an economist model this behaviour?

We could do so in atheoretical statistical terms, by simply regressing the probability of a team punting upon a few variables: distance from goals, yardage needed, quality of running backs and so on. This should yield decent predictions.

But what if the rules were to be changed one season, so a team were allowed six downs before conceding possession? Teams would then be much less likely to punt, and more likely to try to win yardage by running or passing. Our atheoretical model would fail. But a microfounded model based upon teams trying to rationally maximize expected points would probably do better.

My analogy is not original. It’s exactly the one Thomas Sargent used (pdf) back in 1980 to argue for what we now call microfounded models. Such models, he said, allow us to better predict the effect of changes in policy:

The systematic behavior of private agents and the random behavior of market outcomes both will change whenever agents' constraints change, as when government policy or other parts of the environment change. To make reliable statements about policy interventions, we need dynamic models and econometric procedures which are consistent with this general presumption.

The question is: how widely applicable is Sargent’s metaphor?

I suspect it is in many contexts, not least of which is regulatory behaviour. It implies, for example, that simple regulations requiring banks to hold more capital will lead not necessarily to safer banks but to them shovelling risk into off-balance sheet vehicles.

I’m not so sure, however, about its applicability to macroeconomic policy, in part simply because people have better things to do than pay attention to policy changes. For example, the Thatcher government in 1980 announced targets for monetary growth which, it hoped, would lead to lower inflation expectations and hence to lower actual inflation without a great loss of output. In fact, output slumped, perhaps in part because inflation expectations didn’t fall as the government hoped. And more recently, households’ inflation expectations have been formed more by a rule of thumb (“inflation will be the same as it has been, adjusted up if it’s been low and down if high”) than by the inflation target.

This is not to say that the Sargent metaphor (and Lucas critique) are always irrelevant. They might well be useful in analysing big changes to policy. The question is: what counts as big?

My point here is the one Dani Rodrik has made. The right model is a matter of horses for courses. Atheoretical statistical relationships serve us well most of the time. But common sense tells us they will sometimes fail us. Our problem is to know when that “sometimes” is.

This is not to say that the microfounded model must always be one based upon rational utility maximization; it could instead be one in which agents use rules of thumb.

In fact, Sargent’s metaphor tells us this. David Romer has shown (pdf) that football teams’ behaviour on the fourth down “departs from the behavior that would maximize their chances of winning in a way that is highly systematic, clear-cut, and statistically significant.” There’s much more to microfoundations than simple ideas of rational maximization.

In defence of Laura Pidcock

Laura Pidcock’s claim that she has “absolutely no intention of being friends” with Tories because they are “the enemy” raises the question of whether tribalism in politics is a good thing. I suspect that, for her, it is.

This seems an odd thing to say. I don’t want politics to consist of a set of echo chambers in which people only talk to the like-minded, and I like to think this blog sometimes tries to speak to non-leftists. “My side right or wrong” has given us the ugly spectacle of some leftists supporting dictatorial or failed statist policies, and of supposed libertarians making common cause with fascists even though their philosophies should in principle be miles apart*.

On the other hand, though, there are some things to be said for tribalism.

First, it can be a useful cognitive short-cut. We all lack the knowledge and rationality to make good decisions, except in a very few spheres. Using others as a guide can therefore be what Gerd Gigerenzer calls a “fast and frugal heuristic”. For example, in 2010 I defended tribalism on the grounds that:

In being averse to having an Etonian as PM, I am taking a quick route to the judgment that such a man will take decisions about unknowable future events that I mightn't like.

Subsequent events have not discorroborated that view. Likewise, the fact that Brexit was supported by a bunch of cunts should have been a clue that it wasn’t a good idea**. Being on the opposite side of Farage is generally a comfortable position.

You might object that this isn’t always the case and that leftists have something to learn from Tories. There’s a little truth in this. Lefties should learn from Oakeshott, Burke and Hayek that individual wisdom and knowledge is bounded and that there is therefore something to be said for both markets (or decentralized decision-making) and tradition. And we should listen to thoughtful Tories such (pdf) as Jesse Norman.

But these are exceptions. The fact that the Tory manifesto was devoid of ideas tells us that the statist wing of the party has nothing useful to say, whilst the free market wing seems to consist of boilerplate Econ 101 which hasn’t progressed since Hayek (and what it learnt from him was wrong). And all sides have had their minds addled by Brexit. For the most part, Ms Pidcock isn’t missing anything by avoiding Tories.

She is also to be applauded for recognizing that politics is not a cosy game in which, after lively debate, jolly good chaps retire to the bar to have a laugh. It is instead a matter, literally, of life and death: Tory benefit cuts have driven people to suicide, and their threat to deport foreigners has caused genuine distress and uncertainty. In these senses, Ms Pidcock is right to call them the enemy. We live in a class-divided society in which the political question is ultimately Pete Seeger's (or Billy Bragg's): which side are you on?

There’s something else. There has always been a danger that Labour MPs would be seduced by the glamour and wealth of the people they meet in parliament: not just Tory MPs but lobbyists and businessmen. This is one of many ways in which their radicalism can be dissipated. It’s why the ending of Orwell’s Animal Farm has such force for the left:

 The creatures outside looked from pig to man, and from man to pig, and from pig to man again; but already it was impossible to say which was which.

Ms Pidcock is awake to this danger. For that, I applaud her.

* Such an alliance, however, makes sense if you regard right libertarianism not as a coherent philosophy but merely as the voice of over-entitled white men. As a friend of mine said, “we’re all Robert Nozick on a bad day.”

** I’m not of course saying that all Brexiters are cunts.

The weather/climate bias

Ben and Simon complain about the BBC’s unbalanced coverage of Patrick Minford’s Brexit fantasies. I sympathize. I suspect this was due to the BBC being so desperate to avoid the allegation of being biased against Brexit that it toppled over too far the other way. Such an error is in theory easily remediable.

I fear, though, that there might be a more insidious bias at the BBC, which arises from the very nature of news itself – a tendency to report the weather rather than the climate.

What I mean is that economic “news” consists of reports of high-frequency events: changes in share prices, inflation, unemployment and so on. What this ignores are slower moving changes which are in fact of much greater significance, such as: the decade-long stagnation in productivity and GDP per head; the slowdown in world trade; job (pdf) polarization; the combination of savings glut, shortage of safe assets and slowdown in capital spending that have led to negative long-term real interest rates; and the flat Phillips curve which signals that workers lack (pdf) bargaining power.

Under-reporting of these developments is not merely an intellectual error which creates a bias against understanding. It leads to systematic distortions.  One is a failure to appreciate the extent to which the economy is failing ordinary working people. The other is excessive sympathy towards fiscal austerity, the case for which is gravely undermined by stagnant demand and negative real interest rates.

These biases are exacerbated by three others. One, as Jon Snow has said, is that senior broadcasters are out of touch with “ordinary” people. They don’t therefore understand the extent to which a few pounds make a huge difference to material and mental well-being, and so under-appreciate the importance of slow-moving developments which trap people into low incomes.

A second is a failure to make connections. People are generally bad at linking economic events. In particular, journalists have under-appreciated the tendency for economic stagnation to foster intolerance. The economic climate influences the political climate. In not making this connection, the importance of economics is under-rated.

A third is what I’ve called a bias against emergence. Journalists like human interest stories – somebody to praise or blame. But the developments I’m thinking of aren't such stories. No single person is to blame for stagnation, negative rates and job polarization. They are complex stories. Reporting them doesn’t fit the standard template of what constitutes journalism.

My point here is a simple one. Media bias isn’t simply due to reporters being incompetent or right-wing gits – though some are. It can also arise unintentionally.

A new capital?

What does capital do in the digital economy? This is the question posed by Phil in an important post. He says:

Capital is proving itself surplus to the requirements of social production and is therefore assuming ever more parasitical, rentier forms…How long can these parasitic relations last? When will Uber drivers call time on the very visible deductions made from their fares and replace the app with a cooperative effort? Is the time coming when Silicon Valley can no longer ponce off ad revenues generated from other people's content? 

I certainly agree that a feature of modern capital is parasitism. Perhaps the most egregious examples of this are not so much social media firms using the free content provided by its users to generate ad revenue for themselves but the way in which bookies and doorstep lenders (the latter with mixed success) use their low cost of capital to exploit the desperate.

However, I’m not so sure that labour can yet be as autonomous as Phil claims.

Compare my job to the classic old-style industrial capitalist. The latter not only provided machinery and working capital but also in many cases the production process itself, as he had invented it. The IC gives me none of these things. I have all the physical capital I need at home. All the IC provides is a content management system which sometimes works.

But this does not mean the IC has little power over me. What it has is brand power. This allows it to extract money from readers, some of which comes to me. Its brand allows me to monetize my work in a way I can’t so easily do from blogging. From my point of view, the IC is a reliable and efficient alternative to Patreon. To get access to this, I must perform some mildly oppressive, exploited and alienating work.

Much the same is true for other immaterial workers. Working for a top accounting, law or advertising firm gives you a means of monetizing skills that are otherwise harder to monetize. (Not impossible, because workers do leave to set up on their own account. But the fact that many don't tells us that they are bound to the brand.)  

A similar thing answers Phil’s question: why don’t Uber drivers leave to join a coop?

Some do. But there’s a big barrier here.  Uber has a brand presence which links cabbies to millions of potential customers. Potential rivals lack this. And as David Evans and Richard Schmalensee show, it’s hugely expensive and risky to create good platform businesses: you suffer massive costs before getting the platform to sufficient critical mass – with people on both sell and buy sides – to be viable.

The fact that labour is immaterial is only part of the story of the new economy. Capital has become immaterial too. Intangible capital such as brand power ties us to capitalism. I need the IC’s brand to make a living, just as my ancestors needed cotton gins.

Perhaps, therefore, the shift to immaterial labour (insofar as it is happening) doesn’t much increase the autonomy of workers. Yes, the glue that binds us to capital has changed, but the social relationship is similar.

There’s a paradox here, and a question.

The paradox is that one early hope for the internet was that it would cut out the middleman by removing the information advantage he traditionally had. And yet it has enabled capital to become the middleman in more ways. The power of Uber, Facebook and brands generally come from being middlemen between workers and customers or writers and readers.

The question is: is intangible capital a social good or just a private one? Traditional machines are a social good; they increase aggregate output. But this is not so true of intangible capital. Coca-Cola’s brand is certainly an asset for Coca-Cola shareholders (and workers). But it’s a liability for Pepsi. Likewise, Uber’s brand is a barrier to entry for rivals. It’s what Warren Buffett calls an economic moat: it increases Uber’s value, but at the expense of making the economy less competitive. In this sense, perhaps Phil is very right: the new capitalism is parasitic.

It might be no accident that the growing importance of intangible capital has led to increased monopoly and less competition (in the US if not elsewhere) and hence to a strong stock market but weak economy and stagnant wages for most workers.

It might, therefore, be that capitalist stagnation and the shift to immaterial labour are related.  

Another thing: Phil draws upon the work (pdf) of Hardt and Negri, but I suspect it can be translated into bourgeois social science. Years ago, Luigi Zingales was pondering (pdf) what the new economy and growing importance of human capital meant for the nature of the firm, for example.  

Willing the ends but not the means

There’s a link between two of my recent posts which I’d like to bring out. It’s that actually-existing centrists and rightists make a mistake of willing the ends but not the means.

For example, centrists rightly want us to remain in the EU. Many, however, fail to appreciate that the vote to leave was strengthened by economic conditions which they helped to create. Austerity – in which the Lib Dems colluded – and capitalist stagnation (of which some have been insufficiently attentive) generated hostility to immigration, antipathy to elites and a desire for change.

Likewise, centrists and the right want an open, tolerant society but fail to see that stagnation creates closed-mindedness and intolerance.

Let’s take another example. Robert Halfon says Conservatism means “giving everyone a chance to climb.” But he doesn’t seem to realize that actually-existing capitalism militates against this. Inequality reduces social mobility (pdf): this is the message of the “Great Gatsby curve”. This is partly because it’s harder to climb a ladder when the rungs are further apart, and also because the rich give their children opportunities and connections which are denied to others. And on top of this, job polarization further reduces mobility, simply by removing rungs from the ladder.

Here’s another example. Whilst rightists profess a love of freedom, they fail to appreciate that capitalism can retard it. This isn’t just because capitalists impose oppressive working conditions upon millions of people. It’s also because policies that would create real freedom – such as a basic income or jobs guarantee – might undermine capitalism by giving people the freedom to reject bad pay and conditions.

I’d add that competitive markets are incompatible with actually-existing capitalism. One reason for this is that capitalism tends to degenerate into cronyism as big business buys politicians. On top of this, technical change seems to have made capitalism less competitive than it used to be.

There’s a common theme here. It’s that actually-existing capitalism nowadays thwarts the values that centre-rightists profess to have: toleration, openness, opportunity, freedom and competitive markets.

They’ll reply to this that capitalism has done wonders to create prosperity, and in doing so has created real freedom and civilized values.

They are absolutely correct. However, to take for granted that capitalism will continue to do so is to commit the fallacy of induction. Marx claimed that:

At a certain stage of development, the material productive forces of society come into conflict with the existing relations of production…From forms of development of the productive forces these relations turn into their fetters.

It may be that this is now true of capitalist relations of production. If so, we need much more critical thinking about capitalism, and reform thereof (to put it mildly) if we are to promote the values of centrists and rightist. Such thinking, however, is absent especially on the right. Insofar as it takes an interest in economics, it is in the fantasies of Patrick Minford rather than in analysis of the real economy.

It’s for this reason that I say they will the ends but not the means.

A better centrism

Several readers have complained about my criticism of centrism. “Your idea of centrism is not mine” they say.

To which I say: now you know how I feel when rightists claim that centrally planned economies discredit socialism; they are attacking a conception of socialism which isn’t mine.

I therefore sympathize with those offended centrists. In both cases, we have the same problem. Just as actually-existing socialism doesn’t discredit other notions of socialism, so the flaws in actually-existing centrism don’t discredit other conceptions of centrism.

So, what are these conceptions? Some I’ve seen on Twitter look like silly self-serving assertions that would fail any ideological Turing test - such as the claim that centrists base their views on evidence rather than ideology, for example on the question of how far markets work.

But pretty much everybody claims to base their views upon evidence. The difference between me and actually-existing centrists consists in which evidence we prioritize. For me, the load-bearing facts are that actually-existing capitalism give us too much inequality, oppression and stagnation. For actually-existing centrists such as Labour’s centre-left, the facts have been that the far left has been unelectable.

Equally, there has been too much of a tendency to define centrism by what it’s not rather than by what it is – that it is neither left not right. But as Nick Barlow says, this means it’s “a phrase that’s effectively meaningless, a political buzzword.” 

For me, a better centrism would be based upon four principles:

 - Cosmopolitanism Centrists should want an open economy with freeish immigration. Hostility to Brexit stems from this.

 - Social liberalism.

 - Rawls’ difference principle – in particular that inequalities are tolerable only to the extent that they are “to the greatest benefit of the least advantaged members of society.” This, I suspect would distinguish centrists from “neoliberals” who in Sam Bowman’s perhaps elastic conception of the term only “care about the poor.”

 - Devolving power. One attractive feature of some radical centrism (and part of the Liberal tradition)  is the desire to decentralize. Strengthening local government, attacking corporate monopolies and encouraging coops are all features of this. Perhaps it’s this principle that most sharply distinguishes better centrists from actually-existing centrists of New Labour and the Lib Dems in government.

I would hope that the centrists who took umbrage at my piece would subscribe to these principles.

Which poses the question. Why, then, am I not a centrist?

Partly, the difference is an empirical matter – of how far inequalities actually do benefit the worst off: I suspect they don’t very much. Also, I suspect that centrists don’t sufficiently appreciate the extent to which capitalism and class divisions are barriers to these principles – for example, that capitalist stagnation creates intolerance.

But perhaps there’s something else. Maybe the difference between me and centrists is tribal one. My cultural referents are leftist ones: I’m happy to sing the Red Flag and even Internationale. My intellectual influences are less Keynes and more Kalecki, Bowles, Roemer and Elster.  And perhaps above all, my working class background – retained in my accent – puts a barrier between me and even the most generous centrists. These differences aren’t wholly rational. But as Hume said, “reason is, and ought only to be, the slave of the passions.” He might have added that anybody who thinks this isn’t true of them is kidding themselves. My response to centrists who claim to be pure evidence-based pragmatists is the same as Dylan's response to the accuation, "Judas!": I don't believe you.  

On zero-sum thinking

One reason to welcome Steve Bannon’s departure from the White House is that it represents a setback for zero-sum thinking.

His idea that the US is at “economic war” with China embodies an us vs them mentality: what’s good for China is bad for the US and vice versa. To put it mildly, this is only one way of thinking. We might instead see the rise of China as good for everyone. In the long-run, a billion more prosperous consumers is a big market for the west. And before, then, what’s so bad about a supply of cheap goods? Globalization is not (pdf) to blame for stagnant US wages.

Bannon’s view is, in a sense, atavistic. It harks back to the mercantilist view that trade surpluses and the accumulation of gold were the aim of economic policy. Such a view was zero-sum: more gold for us meant less for them.

It also echoes the view of Thucydides view – reinvented recently as the “Thucydides trap” - that the rise of one state is a threat to another:

What made war inevitable was the growth of Athenian power and the fear which this caused in Sparta.

Bannon, of course, isn’t so exceptional here.  Talk of an economic war appeals to millions of Americans, it chimes with Trump’s view that the world is split into winners and losers, and it perhaps also echoes the mentality that gave us Brexit: the EU is seen as something “they” impose on “us” rather than as a means of cooperating with our neighbours for mutual advantage. One reason, I suspect, for the popularity of Game of Thrones is that its depiction of a brutal zero-sum world speaks to the zeitgeist.

 Such a view was, of course, rejected by Adam Smith, who pointed out that trade was mutually beneficial – a positive-sum game. It probably no accident that it was only after this discovery that mankind escaped the Malthusian trap: for pretty much all of human history until around the 18^th century incomes per head stagnated (pdf), but they have soared since.

Which poses the question. Why have we seen a recrudescence of a discredited and harmful economic ideology? Why have Bannon’s simplistic “us vs them” thoughts been so popular?

The answer, I think, lies in a fact which Marx saw more clearly than most – that capitalism contains both positive- and zero-sum elements. On the one hand, it has given “an immense development to commerce”, but on the other hand it does so by exploiting workers.

When capitalism is growing well the positive-sum elements are most salient and celebrated. When it stagnates, however, the zero-sum aspects become clearer. If the pie isn’t growing, a bigger slice for somebody else means a smaller slice for us. Stagnation thus makes us mean-spirited, regarding others as threats rather than opportunities. And as Phil says, because so many define others through the prism of ethnicity and gender, we get racism and sexism.

It’s surely no accident that the zero-sum mentality has strengthened since the financial crisis. How we live shapes how we think. And we live in zero-sum times.

Most decent people, from across the political spectrum, rightly decry Bannonesque talk of economic war. What many insufficiently appreciate, however, is that the appeal of such talk is rooted in a material failure of capitalism. Until this failure is removed, there’s little hope of more enlightened thinking. Bannon the man might have lost some power, but I fear his baleful influence will continue. 

Centrism: the problem, not the solution

There’s talk, much of sceptical, of the formation of a new centre party. For me, this misses the point – that centrists are the problem, not the solution.

Owen Jones is bang right to say:

It is the economic order centrists defend that produced the insecurity and stagnation which, in turn, laid the foundations for both the ascendancy of the left and its antithesis, the xenophobic right.

This is true in two senses.

First, centrists contributed to the financial crisis by under-estimating the fragility of the system. They over-estimated market rationality. As Martin Sandbu says, the lie of capitalism is that “market values of financial and other assets accurately reflect the economic value they represent.” They also failed to appreciate that top-down management unconstrained by effective oversight is dangerous: the banking crisis wasn’t just a market failure but also an organizational failure.

If that was an error of omission which is clearer with hindsight than it was at the time, centrists’ second error is less forgivable: fiscal austerity. The Lib Dems supported this in government, and Labour’s centre-right failed to oppose it vigorously enough.

These two errors have had disastrous effects. They have given us a decade of stagnant real wages. Not only is this terrible in itself, but it also led to Brexit. Stagnation bred discontent with the existing order and hence a demand for some sort of change, and also had the effect history told us it would – of increasing antipathy towards immigrants.

In this context, centrists made a third error. With a few exceptions, such as the heroic Jonathan Portes, they failed to make a robust case for immigration: remember Labour’s shameful “controls on immigration” mug? This might be no accident. Blaming immigrants for poor public services and low wages helped to deflect blame from where it really lies – with austerity, crisis and capitalist stagnation.

Centrists are right to oppose Brexit. What they don’t appreciate, however, is that they themselves helped to create the conditions which led to the vote to leave.

I don’t think these were idiosyncratic failures of individual politicians. I suspect instead they arose from three systemic failures of centrism:-

 - Insufficient scepticism about capitalism. Centrists have failed to appreciate sufficiently that actually-existing capitalism has led to inequality, rent-seeking and stagnation. New Labour’s deference to bosses fuelled their presumption that banks were in good hands and didn’t need to be on a tight leash.

 - A blindness to the importance of inequalities of power. Centrists take it for granted that elites should be in control, even if they lack the capacity to be so. This left them vulnerable to Vote Leave’s slogan, “take back control.”

 - Excessive deference to the media. Centrists were for years obsessed with a form of “electability” which consisted in accommodating themselves to media lies about austerity and immigration.

In these senses, then, centrists’ failure has been a structural one.

Which poses the question: why, then, does centrism seem so appealing?

I suspect the answer lies in the failure to appreciate the distinction between extremism and fanaticism. Centrism’s intuitive appeal lies in the tendency to associate it with the virtues of moderation and empiricism.

Such an association, however, is at least partly unwarranted. In failing to appreciate sufficiently the flaws in capitalist hierarchy, centrists are being ideologues more than empiricists.

Job polarization

Today’s labour market figures show that we’re seeing job polarization – a relative decline of middling jobs.

My chart shows the point. It shows changes in employment by occupation since 2010, when employment troughed*. You can see there’s been a fall in the number of administrative and secretarial jobs, and stagnation in the number of skilled tradespeople, but increase in the number of professional and “associate professional” jobs, and in the number of care workers. These trends would look stronger if we looked at changes in the last ten years; in this time, the number of skilled tradespeople has fallen.

Looking at wages, there’s a more complicated picture. The clearest story here since the trough of the recession has been the relative rise in managerial pay. This isn’t simply because this is more cyclical than other pay: their wages matched average pay during the 2007-10 downturn. What is perhaps cyclical, though, is the wages of skilled trades. These have outstripped average pay, but this doesn’t recoup their fall in relative wages during the recession.

Despite rising demand and rises in the minimum wage the pay of care workers has declined relative to the average, perhaps because of an abundant supply.

We’ve also seen a relative decline in secretarial pay, which is consistent with declining demand for the occupation.

However, professional and associate professional pay has declined in relative terms. This is consistent with such jobs being less good than they used to be. Or maybe there’s an element of job rebadging here: previously humble occupations have been renamed, dragging average pay down. Or perhaps what we’ve seen is demand for such occupations respond to a decline in relative price.  

A big question here is: what does this mean for social change generally? I’d suggest (tentatively) two things.

One is that all this is ambiguous for equality.

One the one hand, there’s an equalizing tendency here. A couple comprising a skilled tradesman and a secretary would have an above-average household income. But the gap between them and the worst-off has fallen, because of their declining relative pay.

But on the other hand, these changes are increasing inequality not just by raising managerial pay but also by encouraging assortative mating. Once upon a time, well-paid men married their modestly paid secretaries, and this tended to equalize household incomes. Today, there are fewer secretaries to marry. The equivalently placed man is therefore more likely to marry a wellish-paid female. And this exacerbates household inequality.

Perhaps, though, there’s something else. These changes might justify the expansion of universities. Job opportunities for diligent but non-academic people – secretarial and craft work – have declined. Such folk need therefore to go to university to have a chance of a good job. Having a degree doesn’t guarantee getting such a job. But it increases your odds.

There is, though, a more general point here. You don’t have to believe in economic determinism to think that the labour market shapes our culture, with perhaps longish lags. It’s plausible, therefore, that these occupational changes will lead to cultural change perhaps of sorts which we cannot yet predict. It’s not at all clear to me that these changes will be wholly welcome.  

* The numbers aren’t seasonally adjusted, so I’m comparing 2017Q2 with 2010Q2.