Stumbling and Mumbling

The Tories' imaginary world

Sometimes, the Tories offer us a glimpse into their psychology. So it was yesterday when Sarah Vine tweeted:

Watching the #RestaurantMakesMistakes and astonished to learn that people with dementia struggle to get benefits. Is this true? And if so, how is this not a national scandal?

What she’s expressing here is the cognitive dissonance that her own party’s policies actually have nasty effects upon real people. Her consternation arises from the fact that, for many Tories, this is not supposed to happen. Many of them, I suspect, are not actually evil but rather guilty of a recklessness that comes from a particular conception of politics – a conception which sees it as a game of positioning, and of pandering to the imagined world of the Daily Mail. Politics is a post-modern activity in which words and appearances are everything and consequences and reality are nothing.

So for example:

 - Benefit sanctions are supposed to crack down on cheats and malingerers, not real, deserving people. It is only when these appear on TV that the illusion – and it has been just that for years – is broken.

 - The “hostile environment” policy was meant to remove illegal immigrants rather than members of the Windrush generation who are, remember, 100% British.

 - Austerity was intended to establish prudent control of the nation’s finances. The fact that it has killed thousands is at best, a mere statistic, and at worst just another controversial claim.

 - Brexit is about prioritizing a conception of national sovereignty over GDP. And GDP is a mere statistic, not the jobs and livelihoods of real people. What was so transgressive about Jeremy Hunt’s promise this week to shut down Titan Steel Wheels was that he broke this illusion, and linked what is supposed to be a mere abstraction to the lives of real people.

All of this is possible because for Tories – at least professional ones in the media-political Bubble - politics is a reified activity separate from ground truth. Robert Protherough and John Pick have described how modern management “deals largely in symbols and abstractions...[with] little direct contact with the organization's workers, with the production of its goods or services, or with its customers.” For Tories, politics is like that. It’s a cosy game in which nobody is supposed to get seriously hurt: the losers only leave to get well-paid sinecures from fund management companies.

Of course, if we had a functioning media, reality would intrude. But we don’t, so it often doesn’t. The truth is difficult and complicated and in John Humphrys’ revealing words “a wee bit technical and I’m sure people are fed up to the back teeth of all this talk of stuff most of us don’t clearly understand.” Bubble journalists are much happier covering the Tory leadership race than they are at analysing the real-world effects of actual Tory policies - a preference which generates sympathy for charlatans rather than experts. As Tom Mills says, the BBC “will aim to fairly and accurately reflect the balance of opinion amongst elites.” That can efface ground truth.

The upshot is that our media-political establishment conforms to what Kenneth Boulding said (pdf) back in 1966:

 All organizational structures tend to produce false images in the decision-maker, and that the larger and more authoritarian the organization, the better the chance that its top decision-makers will be operating in purely imaginary worlds.

The problem which Ms Vine discovered this week, though, is that reality has a nasty tendency to intrude occasionally into the imaginary world.

The human factor

Could AI replace managers and even politicians? In their now-famous paper (pdf) describing how half of American jobs could be replaced by computers, Carl Frey and Michael Osborne say no: they estimate that chief executives, line managers and HR managers are among the 10% of occupations least likely to be computerized.

From the perspective of neoclassical economics, this is weird. It pretends that the job of bosses is to maximize profits, given a production function and prices of inputs. This is a constrained optimization problem which can easily be done by a computer.

Similarly, if you believe, Sunstein-stylee, that policy-making is a technocratic function of choosing optimal fiscal or monetary policy or the right choice architecture, the job can be delegated to computers, which have the benefit of being immune – in principle – to cognitive biases.

Which poses the question: what is it about bosses and politicians that make their jobs so unlikely to be replaced by tech? There are, I suspect, four things.

One is that the choice of what technology to adopt is not merely a matter of objective efficiency. It is also about power. In his excellent new book The Technology Trap, Frey describe how pre-industrial governments often forbade the use of labour-saving techniques, fearing they would cause a backlash and disrupt established hierarchies. And Joel Mokyr has written:

Resistance to technological change is not limited to labour unions and Olsonian lobbies defending their turf and skills against the inexorable obsolescence that new techniques will bring about. In a centralized bureaucracy there is a built-in tendency for conservatism. Sometimes the motives of technophobes are purely conservative in the standard sense of the word. This is equally true for corporate and government bureaucracies, and cases in which corporations, presumably trying to maximize profits, resisted innovations are legend. (The Gifts of Athena, p238)

A second problem is that knowledge is not necessarily codifiable. AI works where all possible options can in principle be listed. Alphazero, for example, learned chess and Go by being programmed with the laws of the games and then playing millions of games against itself. In other contexts, such an approach doesn’t apply, and not just because what we are trying to achieve is sometimes not as simple or articulable as winning a game.

In many contexts there are what Donald Rumsfeld called unknown knowns – things we don’t know that we know. Tacit knowledge – hunches, gut feelings, things we have forgotten that we knew – matters. One reason why management is not merely a constrained optimization task is that even with given technology, good managers can tweak the production possibility curve outwards (pdf) by incremental improvements based upon hunches. Maybe brute force algorithms can replicate all these possible hunches and find the optimal one. But this is most easily done where the environment can be completely described – which is true of chess but not the real world.

There’s something else. An algorithm is, by definition, a set of rules. Sometimes, though, we succeed by breaking rules. For Israel Kirzner, this is in fact the very essence of entrepreneurship:

The Schumpeterian entrepreneur does not passively operate in a given world, he creates a world different from which he finds. He introduces hitherto undreamt of products, he pioneers hitherto unthought of methods of production, he opens up a new market in hitherto undiscovered territory.

Entrepreneurship, he says, “is the process of discovering new knowledge and possibilities that no one has either previously imagined or noticed."

Herein lies one reason why AI can’t replace politicians. The success of Trump, Farage and Johnson has come from breaking conventions, be it the idea that leaders should conform to a particular ideal of good character, or that policies be evidence-based and compatible with the interests of business and the median voter. As Will Davies says:

Come November this year, Farage, Johnson and their allies may well have achieved a far greater disruption of the political and economic status quo than Thatcher or Blair ever managed, with a smaller popular mandate and far less effort. They don’t need think tanks, policy breakfasts, the CBI or party discipline. They don’t even need ideas. All they have to do, in pursuit of their goal, is to carry on being themselves.

There’s one final thing. Even if algorithms weren’t racist, they’d be only indifferent managers for one other reason. Sometimes, we want the human touch – the arm round the shoulder, the jolly-up, or the understanding that we’re having an off day.

It’s for a similar reason that AI will, I suspect, never write great music. Yes, it can produce passable if derivative tunes. But it has not yet given us truly original songs or insightful lyrics, nor what great music gives us, the sense of one soul speaking to another.

The same thing applies in journalism. AI can, in a fashion write news stories: these follow articulable rule. But it cannot (yet) produce marketable opinion columns: readers want the prejudices, biases and errors that only humans can provide.

What they also want are stories, even, or especially, if they are nonsense. We’ve good evidence – corroborated by the fact that so many of them recommended Woodford’s funds – that financial advice is poor. And yet robo-advisors have not expanded as much as they should. A big reason for this is that people don’t want to believe that simple rules work (such as buy cheap tracker funds). They want narratives and great investors they can trust. Only humans offer these.

And this is why AI cannot replace politicians. We prefer bad decisions taken by humans to good ones taken by machines. As Ben Jackson says:

Much of our politics today revolves around the perception that decisions are being taken elsewhere, whether in Westminster, Brussels or Washington. Passing off the work of decision-making to the ultimate aloof elite, a computer, is not a serious way of confronting this issue. Sometimes it’s important to decide things for ourselves, and to feel like we’re deciding, even if we often go astray.

What I’m driving at here is not merely a version of Moravec’s paradox. Nor is it a story about computers, especially as we might be on the verge of an era of super-powerful ones. Instead, my point is about the nature of power and decision-making. These are not merely technocratic algorithmic processes but are instead essentially and inherently human. Which is what conventional neoclassical economics has traditionally under-estimated.

The recrudescence of zero-sum thinking

President Trump believes we live in a zero-sum world in which one country’s gain is another’s loss. This is evident in his reaction to Mario Draghi’s comment this week that additional monetary stimulus will be needed if euro zone inflation doesn’t rise. Trump tweeted:

Mario Draghi just announced more stimulus could come, which immediately dropped the Euro against the Dollar, making it unfairly easier for them to compete against the USA. They have been getting away with this for years, along with China and others.

Adding that this is “very unfair to the United States!”

This, of course, is bollocks. The US would actually gain from monetary stimulus to the extent that it strengthens the euro zone economy, thus allowing US firms to sell more to it: exports are more sensitive to demand than they are to exchange rates. What’s more, insofar as expectations of low interest rates cause investors to reach for yield and buy shares they are likely to also buy some US equities thereby giving Americans the benefits of a positive wealth effect and lower cost of capital. Sure enough, the S&P did indeed rise after Draghi’s speech. Trump tweeted that the index hit an all-time high this week, but failed to connect this fact and Draghi’s words.

Yes, Draghi deserves criticism. But it is for not responding soon enough to the weak economy and low inflation rather than for belatedly talking of doing so.

This is not the only example of Trump’s zero-sum “thinking”. He also recently tweeted that:

The United States has been losing, for many years, 600 to 800 Billion Dollars a year on Trade. With China we lose 500 Billion Dollars.

You don’t need me to tell you that this is also bollocks. It is like me complaining that I lose money by my trading with Lidl. I don’t, of course. I merely exchange goods for money – which is exactly what US citizens with China are doing. Free exchange benefits both buyer and seller. It’s positive sum. In believing otherwise, Trump is expressing the pre-Smithian mercantilist idea, that wealth consists in piling up money by running a trade surplus, rather than in the expansion of consumption opportunities and increased productivity that comes from trade.

Everybody who has even the foggiest notion of economics can see that Trump is spouting mindless drivel: you don’t need to be a devout free-marketeer to see that trade usually benefits both parties.

Which poses the question: how can such nonsense even be entertained?

It’s here that we Marxists are alive to a fact that centrists and rightists sometimes neglect – that ideas have a basis in real material conditions. It is surely no accident that Trumpian zero-sum thinking became accepted among many voters after years of economic stagnation: even after their recent rise, median real household incomes are now only 2.2% above 1999’s levels. If the typical person’s income is flat-lining, he will eventually be willing to believe that one person’s gain is another’s loss. As Ben Friedman argued in a 2006 book which has been vindicated by subsequent events, economic stagnation breeds intolerance.

It’s not sufficient for those who support rational economics and an open society to decry Trump’s gibberish. If they are to triumph, such values require a society which delivers the goods for most voters. Much of the ruling class in both the UK and US neglected this fact before 2016, and we are all paying the price of their failure.

Another thing: this is not to say that there are no zero-sum processes in economics. It's quite possible that the increased wealth, power and incomes of the ultra-rich have come at the expense of everybody else. Despite his fondness for zero-sum thinking, however, Mr Trump never mentions this. 

New Labour: success and failure

Did New Labour really ignore inequality? Responding to Corbyn’s claims that successive governments have neglected it for decades, Blair replies that New Labour “made the UK more equal, more fair and more socially mobile.”

Both men, I think, are partially right.

Blair is correct to say that New Labour massively increased spending on public services and reduced child and pensioner poverty.

However, overall inequality did not change much under New Labour despite that fall in poverty. One reason for this is that as Robert Joyce and Luke Sibieta at the IFS have pointed out (pdf), their tax and benefit reforms “had relatively little net impact on the top half of the income distribution”. Another is that pre-tax inequality rose in one important respect at least: the share of pre-tax incomes going to the top 1% rose from 10% to 12% between 1997 and 2007, before falling back as a result of the banking crisis.

It is in this last fact, I think, that New Labour’s failure lies, and where Corbyn has a point. Blair and Brown were far too managerialist, and too deferential to bosses: this much was evident not just in Brown’s lauding of them as wealth creators and courageous leaders but in his inviting the likes of Derek Wanless, David Freud and James Crosby to conduct policy reviews. Bosses, New Labour thought, were trusted experts.

In this respect, New Labour was indeed neoliberal. And this had at least three big costs.

One is that the importing of crude managerialism into the public sector failed to raise productivity: the ONS says this flat-lined (pdf) under New Labour. Yes, the public services improved. But this was simply because the government threw money at them. This made the health of the public sector dangerously dependent upon that of the private sector.

The second is that it meant that New Labour under-appreciated the many pathways through which the excessive wealth and power of the top 1% can worsen economic performance.

 Thirdly, it fostered the belief that private sector companies could run themselves tolerably well if left alone. The banking crisis, however, revealed this to be a fiction.

That said, it is a little harsh of Blair’s critiques to blame a lack of banking regulation for the economic crisis. For one thing, the crisis was not due mainly to rising domestic debt. The banks that failed in 2007-08 did not, for the most part, do so because their loans turned bad. Instead, the main failures were due to terrible take-over decisions, such as RBS’s buying of ABN Amro, or because they relied upon wholesale funding which dried up in 2007: this was Northern Rock’s problem. Credit controls would probably not have prevented these failures.

And for another, the crisis was global. It would have hit the UK even if we’d had tighter regulation. In fact, in 2009 UK GDP fell only slightly more than the OECD average (4.2% against 3.4%) and it fell less than it did in Germany and Sweden, whose economies are often held up as models of what the UK should be. No reasonable policies could have insulated us from the global financial crisis.

From this perspective, it is absurd to blame New Labour for the subsequent austerity (except to the extent that we should blame it for losing the 2010 general election). We’d have had a deep recession in 2009 whatever the government would have done, and this would have greatly increased government borrowing thereby giving the Tories and the media the chance to complain about Labour profligacy. Austerity is the fault of the Tories and Lib Dems, nobody else.

New Labour had its faults, many of which are more obvious with hindsight than they were at the time, and the left is wholly correct to want to move on from its economic policies which are now out-of-date. But these facts should not detract from another fact – that Labour did indeed do much to reduce poverty.