Stumbling and Mumbling

Does economics matter?

Does economics matter? I ask because I suspect I would understand political debate better if I realized that it doesn’t.

Everybody tends to over-rate the importance of their profession: it’s part of deformation professionelle. Lawyers over-rate the importance of the law, artists of the arts and so on. Maybe economists do the same. Perhaps we should realize that most people who are interested in politics just aren’t interested in economics.

If we adopt this perspective, a lot falls into place. It helps explain centrists’ hostility to Corbyn. If you’re not interested in capitalist stagnation and responses to it – Ian Austin, for example, never mentions the economy in this piece – you’ll not see much to admire in Corbynism: all that will stand out are associations with ant-Semites and Stalinists, student leftist politics and a rejection of conventional Westminster methods. For such people, the enthusiasm people like me have for Corbyn and McDonnell’s attempts to build an alternative to neoliberalism look as eccentric as would an actor endorsing Corbyn because of an attractive policy towards theatres.

Rightist politics also become more comprehensible once we recognise that economics doesn’t matter. The strongest case for austerity and immigration controls is that these have nothing to do with economics. Like Brexit, they are instead attempts to assert that governments have control over social affairs. Their supporters just don’t care about their economic consequences because other things matter more: sovereignty and an assurance that the government is on top of things.

Brexiters talking about economics are like dogs walking on their hind legs. One partly admires the gymnastic trickery, but the job is badly done and the animal’s heart isn’t really in it.

Of course, the right and the media do talk about “the economy.” But by this they mean something very different from what I understand by it. To them, the economy is not about real people struggling to make a living. It is a reified hyper-reality, a means through which politicians try to establish credibility. This is why “the economy” has often been equated with the public finances.  

You might object that the right certainly do care about economics when it comes to opposing Corbyn’s call for higher taxes on the rich. I’m not so sure. Opposition to tax rises is perhaps instead like land-owners shouting at ramblers: “get orf my land”. They are motivated less by fears of material loss but by the violation of (perceived) property rights.

And here’s the thing. There is some justification for this denial of economics. The link between income growth and subjective (pdf) well-being is weak and even many of the worst off feel they are living comfortably. Granted, this might be a sign of adaptive expectations. But it also tells us that things other than economic growth are important: community, autonomy, physical and mental health and so on. From this perspective, perhaps it’s understandable that politicians should want to offer a sense of security – as in various ways austerity, Brexit and immigration controls do – rather than higher incomes.

But, but, but. As Benjamin Friedman has shown, economics does matter. Growth makes people more open-minded and tolerant whilst stagnation makes them meaner: it’s no accident that a decade of stagnation has led to a rise of reactionary populism. John Stuart Mill claimed that a stationary state of incomes provides “as much scope as ever for all kinds of mental culture, and moral and social progress”. Subsequent history, however, suggests he was wrong.

It might be the case that most politically-engaged people don’t care about economics. But nevertheless, economics does matter.

Corbyn: the heir to Blair

It’s not 1997 any more. This shouldn’t need saying, but attacks on Jeremy Corbyn such as this from Ian Austin suggests it does. He accuses Corbyn of wanting to turn Labour into “something very different” from its traditional mainstream social democracy.

What this misses is that Labour must reinvent itself, because the economic challenges we face now are very different from those of the 1990s. Take four examples:

1. In the 90s, real interest rates were high: longer-dated index-linked gilt yields were over 3.5% when Labour took power. Such high yields meant that the fiscal arithmetic worked against government borrowing; even modest deficits would have meant an ever-rising debt-GDP ratio. There was therefore a good reason for Labour to be “fiscally responsible”. Today, however, real yields are negative so the fiscal arithmetic means deficits are compatible with debt sustainability. And with Bank rate close to the zero bound (whereas it was 6% when Blair was first elected), there’s a much stronger case for looser fiscal policy.

2. Labour productivity and investment were growing OK in the 90s. That meant the job of economic policy was largely to keep the show on the road – to offer business a stable policy framework within which confidence to invest and innovate would be maintained. Today, of course, things are very different. Productivity has pretty much flatlined for years, and the share of business investment in GDP was a percentage point lower last year than it was in 1997. This suggests a case for governments to take a more active role to raise productivity and investment.

3. New Labour thought that a stable policy framework was sufficient to ensure macroeconomic stability. We know now that this is not the case and that even with stable policy, capitalism can generate severe crises.

4. In the 90s, the inequality that bothered Labour was the 90/10 ratio. It was reasonable to ameliorate this through tax credits, a minimum wage and university expansion. Today, though, even once middle-class people are struggling, especially those too young to have bought a house. Instead, the inequality that matters most is the share of incomes going to the very top. In the 90s, this was just over 10%, but rising, whilst today it is over 14%. It’s plausible that this inequality – and the inequality of power that generates it – has contributed to our poor economic performance.

Even the most narrow-minded technocrat must therefore see that our changed economy requires a changed response (and in fact many technocrats in the Bank of England or IMF do see this). As Joe Guinan and Martin O’Neill write:

If we are serious about addressing real economic challenges then we need a different set of institutions and arrangements capable of producing sustainable, lasting, and more democratic outcomes.

Such arrangements mean not just looser fiscal policy but, as they say, measures to increase investment and oppose managerialism, such as worker coops. Measures such as more public ownership, a state investment bank and more co-ops are things any European would recognise as social democratic. Yes, it’s a different from of social democracy from New Labour’s. But a different economy requires different policies.

This is not to say that Corbynism is perfect. Far from it. I’m not keen on its student politics anti-imperialist posturing,and have my doubts about its economic plans: I’m not sure whether it can raise billions more in corporate taxes; its desire for more coops requires tons of detailed work; and I’d like to see more acknowledgement that there is still a big role for markets and entrepreneurship to play.

My gripe with Labour’s centrists, however, is that they seem oblivious even to the basic fact of capitalist stagnation and the challenges it poses: Austin writes as if a decade of falling real wages hadn’t happened.

And herein lies a paradox. Corbyn and McDonnell are, from this perspective, the true heirs to Blair. They recognise – as Blair did in the 1990s – that a new economy requires a new form of social democracy. And their critics, like Blair’s critics in the 90s, seem unaware of this fact.  

Food: a class issue

I’m pleased to see Phil McDuff joining free marketeers in complaining that anti-obesity strategies of the sort promoted by Jamie Oliver will hurt the poor. For me, though, there’s a deeper and nasty question here: if we can’t trust the poor to feed themselves properly, what can we trust them to do?

Yes, there are mechanisms whereby the poor might choose bad diets.

One is the fact that coping with poverty is so stressful that it depletes (pdf) cognitive bandwidth.

The other is a form of ego depletion. After a long soul-destroying day, people seek relief in drink or junk food. As James Bloodworth writes:

When we walked through the door at midnight at the end of a shift, we kicked off our boots and collapsed onto our beds with a bad of McDonalds and a can of beer. We did not – and nor have I met anyone in a similar job who behaves this way – come home and stand about in the kitchen for half an hour boiling broccoli. Regularity of dietary habit is simply incompatible with irregularity of work and income (Hired, p52)

There is, however, no reason to suppose that bad choices will be confined to diet. Quite the opposite. The poor face tight budget constraints and so have an incentive to look for the best value food, and we all know that bad diet can kill us. On both counts, they face strong incentives. Also, buying food is something we do regularly, which means we should eventually learn from experience how to do the job well. Yes, people can make mistakes. But cognitive biases apply most when we are making judgments under uncertainty: there’s a clue in the title of Kahneman and Tversky’s first book. But this is not the case with food: we all know what chips taste like.  

If people make bad decisions about their diet, therefore, they are likely to make bad ones elsewhere. If we can’t trust them with their food choices, why should we trust them to vote, given that ignorance of basic political facts is widespread?* In this sense, anti-obesity policies are a slippery slope.

But as Phil says, there is an alternative here. One way to improve people’s diets is to increase their incomes so they can afford healthier food and to reduce the poverty, insecurity and bad working conditions that drive people to bad food. The problem is capitalism, not the poor.

Some of you might have an inkling as to why the millionaire Jamie Oliver and old Etonian Hugh Fearnley-Whittingstall don’t choose this route. But why don’t others?

Phil’s right. It’s partly due to classism – “a deeply rooted belief that the poor are feckless and make bad choices.” Also, there’s an element of what Nick Cohen called vice signalling. Governments that impose pain upon people look tough, strong and manly – even if (as in the case of benefit sanctions) those policies are counter-productive.

These, though. Are both symptoms of a deeper condition – a belief that the iron fist of the state must be used against the poor, and never against capitalism. Diet, like everything, is a class issue.

* We can’t rely upon the law of large numbers to ensure that errors cancel out. The point about cognitive biases is that they are, well, biases.

Rationalism, rationality & reasonableness

Rationalism and rationality, wrote Deirdre McCloskey, “are not often found in the same company.*” Robert Wright’s piece on the myth of perfectly rational thought reminded me of that saying. People who claim to be rationalists are often not wholly rational. As Robert says:

Cognitive biases are so pervasive and subtle that it’s hubristic to ever claim we’ve escaped them entirely.

Such hubris is, of course, itself that most ubiquitous of biases – overconfidence.

I’d add one thing to his examples: ego-involvement. The moment we’ve expressed a view, we feel we own it and have to defend it: this is a form of the endowment effect. We thus look for confirmatory evidence and downplay dissonant evidence. The more public your writings, or the more tied up your ideas are with your sense of identity, the greater these dangers will be**. A recent tweet by Jo Wolff captured a too-rare reaction to this danger:

Just remembered a pre-Dropbox story of colleague who had laptop and hard drives stolen, containing only copies of five book manuscripts that had been in progress for decades. Claimed it was a great relief - now freed up to think about new things.

What’s more, like Michael Oakeshott, I’m not sure that rationalism (at least in some senses) is appropriate for human affairs. We cannot treat these as mere operations of logic in part simply because there are too many plausible premises to start from. Niels Bohr’s saying fits the social sciences well: the opposite of a great truth is another great truth; I find that the appropriate response to very many claims is “yes, but.” The crooked timber of humanity does not fit logical schema.

Instead, our thinking should be a movement – which for me is incomplete – towards what Rawls called reflective equilibrium. We should toggle between general principles and specific judgments and empirical facts until they are more or less consonant.

What matters, I suspect, is not so much that one be rational as reasonable. There are at least three things one can do here:

 - Check for one’s own cognitive biases. In particular, be awake to the confirmation bias, groupthink and overconfidence. It's far easier to spot others' biases than your own. At least try to lean against that tendency.

 - Look for missing evidence and – better still – uncomfortable truths. The latter are not things with which to taunt opponents, but facts that make you yourself uncomfortable. For me, these include: the fact that there’s little popular demand for worker democracy; the possibility that a high citizens’ income would lead to a drop in labour supply or that it is ill-suited for the disabled or those with high housing costs; or the possibility that open borders would indeed lead to overcrowding. And so on.

 - Construct your own counter-arguments. Our opponents don’t usually help us improve our thoughts. Too often they merely preach to their own side: who’s persuaded by talk of gammons or remoaners? Or they build straw men: the left want to turn us into Venezuela and the right want to destroy the NHS. Or they are just too obscure: Jordan Peterson for example seems to me to be emulating the worst of the post-modernist left. To avoid this, try to build your own arguments against your own beliefs. I’ve tried this here and here, for example.

Of course, I wouldn’t pretend for a moment that I always follow this advice. Although I might in moments of high arrogance consider myself intelligent or well-read or educated, I’d never describe myself as rational.

Here, though, are two problems.

One is that there are pitifully few role models for this sort of thinking. The confident assertions of newspaper columnists are pretty much the antithesis of what I have in mind – just as Brian Cox’s “isn’t science great?” schtick is a lousy advert for the scientific method.

Secondly, let’ suppose – contrary to the vast bulk of evidence – that somebody were wholly reasonable and free of cognitive biases. Such a person would, I fear, never be invited onto the BBC’s political discussion shows. And their political influence would probably be minimal in the face of the overconfident untruths of their more passionate and less reasonable opponents. In the marketplace of ideas there is adverse selection. There is a sharp trade-off between intellectual virtues and effectiveness.

* Knowledge and persuasion in economics, p323 in my copy.

** One reason I like writing for the IC is that the views I express there are distant from my identity: my idea of who I am doesn’t depend much upon my view of whether stock markets are efficient or not. Even then, however, I’m not immune from ego-involvement.

On neoliberalism

Is neoliberalism even a thing? This is the question posed by Ed Conway, who claims it is “not an ideology but an insult.” I half agree.

I agree that the economic system we have is “hardly the result of a guiding ideology” and more the result of “happenstance”.

I say this because neoliberalism is NOT the same as the sort of free market ideology proposed by Friedman and Hayek. If this were the case, it would have died on 13 October 2008 when the government bailed out RBS. In fact, though, as Will Davies and Adam Curtis have said, neoliberalism entails the use of an active state. A big part of neoliberalism is the use of the state to increase the power and profits of the 1% - capitalists and top managers. Increased managerialism, crony capitalism and tough benefit sanctions are all features of neoliberalism. In this respect, the EU’s treatment of Greece was neoliberal – ensuring that banks got paid at the expense of ordinary people.

I suspect, though, that measures such as these were, as Ed says, not so much part of a single ideology as uncoordinated events. Tax cuts for the rich, public sector outsourcing and target culture, for example, were mostly justified by appeals to efficiency, and were not regarded even by their advocates as parts of a unified theory. To believe otherwise would be to subscribe to a conspiracy theory which gives too much credit to Thatcher and her epigones.

In this sense, I mostly agree with Paull Mason:

Neoliberalism is a time-limited global system sustained by coercive imposition of competitive behaviour, parasitic finance & privatisation.

I'm not sure about that word “system”. Maybe it attributes too much systematization to neoliberals: perhaps unplanned order would be a better phrase. But it's better to think of neoliberalism as a bunch of arrangements ("system" if you remove connotations of design) rather than as an ideology. Ed has a point when he says that almost nobody fully subscribes to “neoliberal ideology”: free market supporters, for example, don’t defend crony capitalism.

And it’s useful to have words for economic systems. Just as we speak of “post-war Keynesianism” to mean a bundle of policies and institutions of which Keynesian fiscal policy was only a small part, so we can speak of “neoliberalism” to describe our current arrangement. It’s a better description than the horribly question-begging “late capitalism”.

This isn’t to say that “neoliberalism” has a precise meaning. There are varieties of it, just as there were of post-war Keynesianism. Think of the word as like “purple”. There are shades of purple, we’ll not agree when exactly purple turns into blue, and we’ll struggle to define the word (especially to someone who is colour-blind). But “purple” is nevertheless a useful word, and we know it when we see it.

If neoliberalism is a system rather than an ideology, what role does ideology play?

I suspect it’s that of post-fact justification.

Put it this way. In the mid-80s nobody argued that the share of GDP going to the top 1% should double. Of course, many advocated policies which, it turns out, had this effect. Some of them intended this. But those policies were justified on other grounds, often sincerely. Instead, the belief that the top 1% “deserve” 15% of total incomes rather than 7-8% has mostly followed them getting 15%, not led it. A host of cognitive biases – the just world illusion, anchoring effect and status quo bias underpin an ideology which defends inequality. John Jost calls this system justification (pdf). You can gather all these biases under the umbrella term “neoliberal ideology” if you want. But it follows economic events rather than is the creator of them.

So, I half agree with Ed that neoliberalism isn’t a guiding ideology. But I also agree with Paul, that it is a way of describing a particular economic system.

I don’t, however, want to get hung up on words: I’d rather leave such pedantry to the worst sort of academic. What’s more important than language is the brute fact that productivity and hence real incomes for most of us have stagnated for years. In this sense, our existing economic system has failed the majority of people. And this is true whatever name you give it.

On guilt by association

When is guilt by association not a fallacy? I ask because of two things I’ve seen recently.

The first is Daniel Hannan’s fear that we’re heading for “absolutely the most harmful outcome imaginable” of Brexit, “namely leaving the Single Market while keeping the Customs Union.” He tries to blame everybody but himself for this, to which Jonn Elledge replies: “it is not enough to blame your opponents for the world’s failure to live up to your fantasies.”

The second example is David Goodhart’s claim that the treatment of Windrushers is an outrage. To this, Jonathan Portes accuses him of “astonishing hypocrisy” as Goodhart was “one of the most vocal cheerleaders for the "hostile environment" from the beginning, knowing full well what it would mean.”

In both cases, their opponents accuse Hannan and Goodhart of a form of guilt by association. Hannan’s support for Brexit, his opponents say, associates him with the fiasco we have, whilst Goodhart’s anti-immigrationism, it is alleged, implicates him in the Windrush scandal; Goodhart denies this by saying he’s not responsible for bad implementation.

Let’s take an obvious example of the guilt by association fallacy: “how can you be a vegetarian? Hitler was a vegetarian!” This has exactly the same structure as: “how can you support Brexit when it is also supported by little Englanders and racists and will be implemented by buffoons?” Or: “how can you support the hostile environment policy when it’s supported by racists and implemented by [insert derogatory adjective here]?”

So, if my first example is an obvious fallacy, why aren’t by second and third examples?

The answer is that sometimes association has information value. When it does, guilt by association is not a fallacy.

“Hitler was a vegetarian” tells us nothing about the merits or demerits of vegetarianism. However, the fact that a policy is supported by racists and will be implemented by people who fall well short of angelhood does have information value: it alerts us to the type of policy we’ll get.

In saying this, I’m not using hindsight. Just before the referendum I wrote:

Some of you have a vision of a Britain outside the EU that is a free, liberal, socialistic country. These are ideals with which I have sympathy. But we are kidding ourselves if we think a vote for Leave will be a move towards such a society. Instead, it’ll be a mandate for Farage and the inward-looking, reactionary mean-spirited philistinism he embodies.

And later in 2016 I said of immigration targets that:

if you give power to the state it’ll be misused, because the actually-existing state is a stupid bully. Just as “anti-terror” laws have been used to harass journalists and peaceful protestors, so immigration controls will hurt decent people. And for the same reason - because they are the softest targets.

If someone of my limited cognitive skills could see this, I’d expect others to do so.

Critics of Hannan and Goodhart, therefore, are right. The fact that their causes are associated with bad people was a strong clue that they were indeed bad ideas.

Many of you, I guess, will be with me so far.

But here’s the thing. You can make exactly the same criticism of me. I support much of Labour’s economic policy, especially anti-austerity and backing for coops. To this, some will ask: how can I do so, given that such policies are also supported by anti-Semites, big staters and various cranks and fanatics?

My answer is that these are a much smaller fraction of Labour supporters than were (say) little Englanders and neo-racists of Brexit, and so the information value of crankish support for such policies is low. But I’m not 100% confident in this answer.

Job Guarantee: Marxist or Keynesian?

For decades there has been a debate about the differences and similarities between Marx and Keynes. The question of whether we should introduce a job guarantee highlights this debate: is it a means of supporting capitalism, or a challenge to it?

A job guarantee is the offer by the government of a job at a living wage to anybody that wants one. This would, in effect, eliminate involuntary unemployment. Pavlina Tcherneva has a nice paper (pdf) describing the details. Other advocates of it are Randy Wray (pdf)  and colleagues, FitzRoy and Jin (pdf), Paul, Darity and Hamilton and Wisman and Pacitti.

The case for such a policy seems obvious. Although official unemployment seems low, there are a further 2.1 million people out of the labour force who want to work. This means there are almost 3.5 million unemployed – 8.5% of the working age population. And for some groups – the young, unskilled, some ethnic minorities, the disabled or unwell – the jobless rate is far higher.

This matters because unemployment is a massive cause of misery. It is associated with (pdf)  unhappiness, suicide, and lower wages (pdf) and worse job prospects even for those who return to work: Danny Blanchflower and David Bell summarize (pdf) its many ill-effects. As Jeff Spross says:

A job is not merely a delivery mechanism for income that can be replaced by an alternative source. It’s a fundamental way that people assert their dignity, stake their claim in society, and understand their mutual obligations to one another. There’s pretty clear evidence that losing this social identity matters as much as the loss of financial security. 

What’s more, there seems an obvious Keynesian* case for a JG. It would act as an automatic stabilizer, boosting aggregate demand in bad times but shrinking in good. By offering companies the prospect of high and stable demand, it should encourage capital spending.

It could then encourage a form of wage-led (pdf) growth. The JG would act as a floor for both wages and working conditions. In knowing that they couldn’t drive these down, employers would have to raise productivity and try to economize on labour by investing in new technology. In this sense, a JG could do in the 21^st century what strong unions and full employment did in the 1950s and 60s.

What, then, could possibly be said against the idea?

There are big practical problems. Do local governments really have the management expertise to identify necessary work and manage those projects? And there’s a danger that under right-wing governments a JG will become not a way to offer dignity to the unemployed but rather a form of workfare. It’s partly for this reason that I agree with Steve that a JG must be accompanied by a citizens’ income.

There are, however, other issues here. Which is why I say a JG might be a Marxian policy rather than a Keynesian one.

Simon describes one:

Suppose we start with an economy with stable inflation, implying unemployment was at the NAIRU, and introduce JG. As this puts upward pressure on inflation because the costs of losing a job are reduced. the only way of keeping inflation stable is to deflate demand, which of course would reduce output.

Of course, you might claim – reasonably I think – that the NAIRU is low. And you could well argue that in bringing people into work a JG would improve skills and so help reduce the NAIRU in the longer run. But would the NAIRU then really be 0%? I suspect not, and that there’ll be some point at which Simon’s point holds.

When it does, a JG will crowd out capitalistic employment.

To some, such as Kate Aronoff, this is a feature not a bug. “What feeds a profit margin and what makes for a good society don’t often overlap” she says:

From coastal remediation to oral history projects to avant-garde theatre [as the WPA used – CD], there’s plenty of valuable and low-carbon work to be done that simply isn’t valued by the private sector. It’s hard to imagine any company, for instance, being able to make a profit off of building playgrounds or keeping elderly people company to help ward off loneliness, which has been linked in several studies to premature death. 

This is one sense in which a JG challenges capitalism. It poses the question: what is economic value? Does it consist only in profitable activity, or instead in non-market work in reducing loneliness, and shoring up society and the environment?  

There is, of course, another sense in which the JG opposes capitalism. As Jeff says, echoing Kalecki:

With full employment, the capitalists lose their leverage to depress workers’ wages and must give up more profits. But, more than that, when it comes to running endeavours that are ostensibly “theirs,” the capitalists are forced to bargain with and bend to the will of workers “below” them. Their position as the demigods of the economy—granting employment when they are appeased, and taking it away when they are angered—is undone.

How will capitalists respond to this? The benign possibility is that they do so by improving working conditions and thereby productivity: we’ve good evidence that more cooperative forms of capitalism are more efficient. The less benign possibility is that they simply close up or stop investing, as they fear that lower profit margins will do more damage to profit rates than higher aggregate demand does good. History warns us that both responses are possible: in the 50s and 60s we saw the former, but in the 70s the latter.

And then there’s a third challenge to capitalism. A worthwhile JG will fit jobs to workers’ needs: it’ll design them around people’s needs to care for family members and will provide jobs suitable for those with health problems. This is the opposite of much of what the capitalist state has tried to do, which has been to change people to suit the needs of capitalists – to, in William Beveridge’s words “make and keep men fit for service.”

What we have there, then, are two different conceptions of a JG. On the one hand, it might be a policy which helps capitalism function better. But on the other, it might be a form of transitional demand – a policy which whilst fulfilling human needs is one that cannot actually be sustainably adopted by capitalism and is instead a stepping stone towards socialism.

I’m honestly not sure which it is.

* Yes, I know a JG has been more associated with MMT than with Keynesianism. I'm using "Keynesian" in the sense of policies designed to support capitalism by increasing employment. I'll leave the differences between Keynesians and MMTers for another time.

On Britain's intellectual decline

The commemorations of Marx’s 200^th birthday have done at least one thing: they’ve reminded me of Britain’s abject intellectual decline.

Listen, for example, to this debate about Marx (34 min in); Paul Mason’s interlocutor couldn’t tell the difference between Marx and a bucket of fish.

Contrast this with a few decades ago. Then, if you wanted a critical assessment of Marx, you might reasonably have asked Leszek Kolakowski, Samuel Hollander or Isaiah Berlin – men who, agree with them or not, knew what they were talking about. Today, his most high-profile critics are ignorant gobshites.

This, however, is but one example of the intellectual decline of public life. For me, the BBC’s recent series, Civilisations, contrasted horribly with Clark’s version. Most programmes seemed to be random observations with no narrative flow – and directors who lacked the courage to have the camera linger on the art as Clark’s did.

In the same vein, compare Jacob Bronowski’s The Ascent of Man to, say, Brian Cox.

More strikingly, can you image the BBC devoting 50 minutes to two old white men discussing Wittgenstein, as it did in 1976?

This is mirrored in our politics. On both front benches today there are pitifully few people one could call intellectuals (as distinct from intelligent): Jesse Norman and Barry Gardiner are the only ones I can think of immediately. The 60s and 70s, however, gave us Crosland, Foot, Jenkins and Crossman among others. And although Thatcher was considered no great intellectual in her time, she peppered her speeches with references to Hayek, Friedman or Popper. Can you imagine Theresa May citing similar men? Are there even any?

I know, I know, I know. You might think this is a very selective reading of history: there have always been lots of buffoons in politics (some Scottish miners on the Labour side and landed oafs on the Tory) and lots of crap on TV. Nor of course is the BBC an intellectual desert: any organization employing Jim al-Khalili and Helen Castor is doing something right. But I suspect there is at least a grain of truth here, even before mentioning the obvious dumbing down of the Today programme. (I’ll leave others to say whether this applies to other fields such as literature, music and other arts.)

This poses the question. Assuming I’m roughly right, why might this be?

It could be a legacy issue. Back in the 80s, academia was demoralized and in decline. Several good judges told me that if I got a PhD I would be unemployable in the UK. I wouldn’t have been a great academic, but I’m confident that many people who might have been got the same advice and went into finance, the law or other jobs.

And those who did become academics have faced another problem. The effect of the Research Assessment Exercises (and I suspect the intention) was to force academics to publish unreadable and unreplicated papers rather than to think or to engage with the public. (I gather that their successor, the REF, is a little different but its long-term effect is yet to be evident).  

The upshot of these developments has been a loss of public intellectuals. Just look at the people who appeared on Bryan Magee’s Men of Ideas: are there even equivalents today?

Perhaps, though, there’s something else – the rise of consumer culture. There was a time when politicians and the BBC considered what was best for the country – which of course wasn’t wholly incompatible with their self-interest. “The man in Whitehall [and Broadcasting House] knows best.” Long debates about philosophy might not have been what the public wanted, but BBC bosses thought they were good for us. Equally, whilst Thatcher and Attlee disagreed about almost everything they had at least one thing in common – a loathing of referenda. They thought political decisions should be taken by the people paid to do so. And because such decisions were tricky, they required people of intellect.

Today, though, that ethos has been replaced by the idea that the customer is king and that giving punters what they want is all that matters. If political and TV programming decisions are determined by opinion polls and focus groups – and failing that by some image of a narrow-minded voting and viewing public with no attention spans– there’ll be no room for the high-minded. Debate will be replaced by an exchange of sound-bites.

Now, this shift isn’t wholly wrong: there are times when we should indeed trust the public. But I wonder: in abandoning the “Man in Whitehall knows best” attitude, might we have lost something, especially when it has coincided with other social trends.

Progress in economics

I’m getting cheesed off with the economic culture war. One peeve I have with it is that economists do so many things that it’s easy to find examples of both bad work and good. Rather than speak in generalities, I’d prefer critics and defenders to focus more upon specific aspects of economics.

As an example of what I mean, I’ll take a bit of financial economics, as this might highlight what’s both good and bad in economics.

For years, we’ve had a mainstream theory here. The efficient market hypothesis says that all information is embedded into share prices and so you cannot beat the market without taking extra risk. And the capital asset pricing model tells us that the risk that matters is a share’s covariance with the market (or beta); idiosyncratic risk doesn’t matter.

Now, there is a distinction between these theories. From the off, the EMH arose from an empirical observation, that share prices seemed (pdf) random and the market was hard to beat*. Way back in 1953 Maurice Kendall pointed out the former (pdf). And in his excellent book Fischer Black and the Revolutionary Idea of Finance Perry Mehrling points out that Black had good evidence in 1967 that mutual funds under-performed the market. Even men who otherwise disagreed with the EMH shared this view. Benjamin Graham, for example, wrote (pdf) in 1972 that “the majority of the investment funds, with all their experienced personnel, have not performed so well as the general market.”

The CAPM, however, was less rooted in evidence and more a theory of equilibrium prices: in Bill Sharpe’s** paper (pdf) introducing the theory, there is pretty much no empirical evidence.

And in fact, there never has been any. Eugene Fama, the high priest of the EMH, has said that it “has never been an empirical success”.  Others have been less kind. Eben Otuteye and Mohammad Siddiquee say it has been “60 years of wasted effort". Economists have long known that beta isn’t the only determinant of returns, believing that size and value also matter – hence the so-called three factor model.

In fact, economists claim to have discovered countless “anomalies” – exceptions to both the CAPM and EMH. Many of these, however, are fragile: Campbell Harvey has said they are "likely false". And many others have diminished since they were pointed out – at least in the US and UK if not elsewhere – which is sort of consistent with a weaker version of the EMH: money-making opportunities don't last for long.

There seem to me, however, to be two pretty robust anomalies.

One is the tendency for low-beta stocks do better than they should and high beta ones worse. This was first pointed out by Fischer Black, Michael Jensen and Myron Scholes in 1972 but has since been corroborated by lots of other evidence (pdf). The other is that stocks which have done well in the past tend on average to subsequently out-perform. This has been found not just in shares but in other assets too. In my day job, I have constructed very simple defensive and momentum portfolios in real time. Both have for years beaten the market.  

There are, I think, some general messages to take from all this.

One is that the distinction between mainstream and heterodox doesn’t mean much. The first evidence against the “mainstream” CAPM came from “mainstream” economists.

Secondly, bad theories such as the CAPM are beaten not by competing theories but by facts. Of course, behavioural finance is an alternative to the CAPM. But what gives it credence is not the plausibility of its assumptions but the existence of some facts that are easier to square with behavioural finance than the CAPM. The momentum effect, for example, might well be due in part to investors’ tendency to under-react to news.

Thirdly, all this is a counter-example to what Jason Smith says. He claims that of both heterodox and mainstream economics that “neither appear to value empirical data. Neither appear to make accurate forecasts.” But this is not true in this case. There’s a vast library of research on empirical asset pricing, some of which – momentum and low-beta – survives the replicability crisis. And we do have some (so far!) successfully accurate forecasts, that momentum and low-beta stocks generally out-perform.  

Fourthly, my story is of a retreat from a single unified theory. Empirical evidence has undermined an elegant parsimonious theory (the CAPM) and left us with a few hard facts and a few mechanisms to explain them, such as constraints upon short-sales and leverage, and the presence of at least some cognitively-constrained investors. I think there’s been progress, but it’s away from grand theory and towards messy reality. Maybe this is – or will be – true of other parts of economics.

* I’m speaking here of the EMH as applied to individual stock prices rather than the overall level of share prices. It’s quite possible, as Paul Samuelson said, that stock markets are “micro efficient but macro inefficient.”

* Sharpe was only one of several fathers of the CAPM.

The problem with power poses

Millions of people will have looked at the newspaper front pages this morning and wondered: why is Sajid Javid looking like an utter tool? The answer sheds light upon the nature of academic research and people’s attitudes to it.

The reason for his absurd stance can be found in a paper (pdf) by Amy Cuddy and colleagues. They claim that by using “expansive postures” a person can “embody power and instantly become more powerful”:

By simply changing physical posture, an individual prepares his or her mental and physiological systems to endure difficult and stressful situations, and perhaps to actually improve confidence and performance in situations such as interviewing for jobs, speaking in public, disagreeing with a boss, or taking potentially profitable risks.

There’s just one big problem with this. It’s that what scant evidence there ever was for such a claim has not been corroborated by later studies. What we have here, then, is yet more evidence for the replicability crisis.

The mistake that Javid and other Tories has made is to be too credulous about academic research. For me, a single scientific paper should be the start of an inquiry rather than a basis for immediate action. When we see an interesting claim such as Cuddy’s we must ask (at least) two questions: what other evidence do we have for it? And: what mechanisms might produce such an effect?

Power poses fail these tests. Possessing power is not merely a matter of what happens in your own head. It’s about how others see you. When we see someone adopting an expansive posture (such as manspreading) do we really think: this is an admirable person worthy of our deference?

No. This alone should have alerted Tories to a lack of external validity in that paper.

Then we have the second question: what’s the mechanism? Maybe it’s possible that spreading one’s legs like that releases testosterone. To most observers, however, it merely reminds them of Prince Regent in Blackadder. That is no way to win respect. And in fact in England at least we have a long tradition of laughing at people who think they can aspire to power by striking unconventional poses. As Bertie Wooster says in The Code of the Woosters:

The trouble with you, Spode, is that just because you have succeeded in inducing a handful of half-wits to disfigure the London scene by going about in black shorts, you think you’re someone. You hear them shouting ”Heil, Spode!” and you imagine it is the Voice of the People. That is where you make your bloomer. What the Voice of the People is saying is: “Look at that frightful ass Spode swanking about in footer bags! Did you ever in your puff see such a perfect perisher?”

In not being aware of any of this, Tories such as Javid have demonstrated a tin ear for our cultural referents. They’ve done so, I fear, in part because of wishful thinking. The prospect of becoming “instantly more powerful” merely by standing in a particular way is a tempting one. And politicians – like other people – have always been quick to believe what they want to believe.

In truth, though, in acting on a belief for which there is no evidence, Tories have merely made themselves look stupid. This, of course, is not just true of power posing.