Stumbling and Mumbling

The bias against social science

We need the social sciences, but the media does not provide them. I say this because of a recent tweet by Frances Coppola:

If there is one thing we should learn from Auschwitz, it is that atrocities are committed by ordinary, nice people with the full support of other ordinary, nice people.

This contains an unpleasant truth, captured by Hannah Arendt’s phrase “the banality of evil”: at least some of the perpetrators of the greatest crime in history were just very ordinary men.

But this is an extreme manifestation of a general truth, which is the essence of social science – that social events are not the simple product of individual character. History, said Adam Ferguson, “is the result of human action, not of human design.” His contemporary Adam Smith thought that the invisible hand would at least sometimes cause selfish men to act in the public interest:

It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest. We address ourselves, not to their humanity but to their self-love, and never talk to them of our own necessities but of their advantages. 

Conversely, Marx thought that competitive forces would cause even decent capitalists to endanger their workers:

Capital is reckless of the health or length of life of the labourer, unless under compulsion from society…But looking at things as a whole, all this does not, indeed, depend on the good or ill will of the individual capitalist. Free competition brings out the inherent laws of capitalist production, in the shape of external coercive laws having power over every individual capitalist.

Smith and Marx’s disagreement hides a common idea – that social facts are the product of complex mechanisms, not individual character.

Indeed, very often individuals’ intentions can prove self-defeating. If everybody tries to save more, aggregate incomes fall and so we save less. If everybody tries to work longer in the hope of getting promotion, we all slog ourselves without changing our job prospects. If each individual capitalist tries to raise profits by cutting wages, aggregate demand falls thereby cutting profits. And so on.

But there’s more. Individuals’ personality and preferences are themselves at least partly socially constructed. As Robert Frank shows in his new book, Under the Influence, our behaviour and ideas are shaped by our peers. Such apparently different events as riots or stock market crashes are caused by information cascades - sometimes ones in which the blind lead the blind. We are also shaped by history. And as Ben Friedman showed and subsequent events have proven, economics also matters: hard times, at the margin, dispose people to become more intolerant, anti-democratic and nationalistic.

The task of the social sciences is to illuminate all these effects. But there is a bias against the social sciences in the media – a bias which is not necessarily intended or even conscious. (What was that I was saying about events not being the product of character?) I’m thinking of five separate(ish) things here:

 - The news underplays slow but crucial changes. If you’re anti-capitalist you can cite the productivity stagnation as an example here; if you’re pro-capitalist, the decline in global poverty in recent decades.

 - Journalists prize human interest stories. But this can efface the sociological imagination. And it can lead to a kneejerk response to any event: “whose to blame?” For example, the financial crisis and CEOs’ high pay are blamed on greed. This ignores the fact that almost all of us are greedy much of the time, and yet crises occur only rarely and only a few of us earn millions – a simple fact which tells us to look for other explanations.

 - Journalists, especially perhaps on TV, try to describe what they see. But the essence of the social sciences is that there are countless mechanisms which are unseen, and invisible. To take an example from today, the BBC reports that dissatisfaction with democracy is at a record high. Public opinion can be measured and seen. But the reports tells us little about why this might be, and ignores Friedman’s important point that economic stagnation breeds anti-democratic sentiment (pdf).  

 - The best journalism invokes a distinction between fact and values, encapsulated by C.P. Scott’s maxim, “comment is free, but facts are sacred." This leads to a distinction between factual reporting and opinion – between descriptions of what is happening and of what should happen. This distinction, though, gives too little place to the question: why is this happening? Newspapers employ too many moralists and not enough scientists.

 - A concern with facts can deflect attention from mechanisms. Take, for example, the BBC headline, “Brexit deal means ‘£70bn hit to UK by 2029'”. What matters here is not the precise number; this merely invites the retort: how can they possibly know that?” Instead, what really matters are the mechanisms – that frictions to trade can impede growth and, worse still, gradually slow down productivity growth.

It is in these senses that we can speak of BBC bias. Bias doesn’t arise merely from bad journalism or individual ill-intent. It also does so from the fact that journalism and social science are two different things.

We don't want economic growth

In launching a new 50p coin to mark Brexit, Sajid Javid seems to be interpreting the role of Chancellor in the same spirit that Trigger regarded Del Boy’s request to talk about money: “I saw one of those old £5 notes the other day.” We might have hoped that his energies would be better directed towards improving the UK’s lamentable productivity performance.

In fact, though, we should not snark. Mr Javid has grasped an important point not understood by leftists and economists (two groups which increasingly overlap) – that the public do not want economic growth.

We know this because they have consistently voted against it. The party of austerity won a majority in 2015; the public voted for Brexit in 2016; and they supported Johnson’s hardline Brexit deal last month even though it will reduce (pdf) GDP over time. Philip Hammond – remember him? – claimed that “no-one voted to become poorer”. But he was wrong. They did.

It’s not just votes that tell us that people don’t want economic growth. The ONS has found that well-being has edged up since they started measuring it in 2012 despite (or maybe because of) lacklustre GDP growth.

All this is the flipside of the Easterlin paradox – the finding that, over long periods, rising income doesn’t increase happiness (pdf). If growth doesn’t make us happier, the lack of it shouldn’t trouble people much*.

There are, for my purposes, two things are going on here.

One is that what matters for well-being is not so much absolute income as our income relative (pdf) to our peers: if we are doing better than them, we’re happy and if we are doing worse, we’re miserable. Andrew Clark and Andrew Oswald have found that happiness depends more upon relative (pdf) income than absolute income, whilst Christopher Boyce and colleagues have found that it is a person’s position in the income ranking (pdf) that matters for their well-being, not their absolute income**.

If it is relative income we care about, then stagnation shouldn’t trouble us. We have as much chance of getting ahead of our peers when GDP is flatlining as we do when it is growing.

Also, though, economic growth is associated with some things many of us don’t like – with the creative destruction than runs down some industries and areas. As Banerjee and Duflo show in Good Economics for Hard Times, the economy is “sticky”: people do not or cannot adjust to such disruption. Hence Anand Menon’s heckler’s point: “that’s your bloody GDP. Not ours.” A stagnant economy in which zombie firms preserve jobs and in which we face less threat from foreign competition or new technology is perfectly tolerable for many – and better than the tumultuous, threatening growth of the 80s and 90s.

All this helps explain the Tories’ lurch towards nativism. The problem with any policies to revive growth is that they jeopardize vested interests. This wasn’t just true of Labour policy. Stian Westlake and Sam Bowman’s proposals – the best I’ve seen from outside Labour – envisage tougher competition policy and a tax on land values. Both are threats to the Tory client base.

And why bother rocking the boat? Of course, as Benjamin Friedman showed in 2006 – and as subsequent events have vindicated – economic stagnation breeds intolerance and xenophobia. For many, however, this is not a bug but a feature.

* Yes, there are big doubts about that paradox. For my purposes, however, we don’t need to believe the coefficient of well-being on GDP is zero: a small positive one is consistent with my point.

** This isn’t to say that all income inequalities depress those at the bottom of the pile. They can make younger people happier, if they anticipate getting the high incomes themselves. Graduate trainees, for example, need not get the hump at their bosses' high earnings.

The interest rate puzzle

Simon points to the widespread (but not universal) consensus among economists that house prices are high because (pdf) interest rates are low. For me, this raises a puzzle.

On the one hand, this seems not just true, but trivially true. Housing is an asset. And the price of an asset should be equal to the present value of its future cashflows: rent if you’re a landlord or the rent saved if you’re an owner-occupier. Lower interest rates raise the discounted present value of future cashflows and so raise asset prices. Which is consistent with the fact that house price to income ratios have trended up as real interest rates have trended down.

This is just common sense.

But, but, but. There is one significant asset class that has not benefited from the downtrend in real interest rates – equities. The dividend yield (or earnings yield) on the All-share index is now much the same as it was in the early 90s despite the slump in real interest rates.

Hence my puzzle: why have lower real rates boosted house prices so much but not share prices?

An obvious possibility arises if we remember the old adage, “never reason from a price change.” Why have real interest rates fallen? One obvious possibility is that growth expectations have done so; low rates are the product of actual and expected secular stagnation. To the extent that this is the case, the benefits to shares of lower discount rates have been offset by a drop in expected future dividends, leaving valuations unchanged.

This, however, doesn’t get us far. For one thing, lower expected economic growth should also mean lower rents. Rental yields therefore should not have changed either.

How, then, can we explain the failure of share prices to respond as much as house prices to lower rates?

In theory, this would happen if investors fear a shift in incomes from profits to wages; in the 70s, this caused house prices to rise relative to equities. But this seems more fear than reality: for most of this century, Kaldor’s stylized fact has held for the UK: the profit share hasn’t changed much.

A more promising possibility is that the expected growth of listed companies has fallen. Today, these are older than they used to be and many might have gone ex-growth. Perhaps the best growth companies are to be found among those that aren’t on the market.

All this, though, just raises another problem: the numbers just don’t add up. Since the early 90s, we’ve seen a six percentage point drop in real interest rates. But real GDP growth cannot have fallen that much. And even if we chuck in a bit of expected redistribution away from profits and a drop in growth of quoted companies relative to unquoted ones, we must surely still be shy of six percentage points.

There’s an obvious thing which might fill this gap – risk. One reason why dividend yields haven’t fallen is that the equity risk premium has risen.

There are good reasons why it might have done so – not least being that the financial crisis reminded us that economies and markets are more volatile than we thought during the “great moderation.”

But again, we have a puzzle. Many of the risks to equities are also a risk to house prices – such as the danger of recession or expropriation of exploiters. Why should equities have been more sensitive than house prices to these low-probability/high-impact dangers?

All this leaves us with three possibilities.

One is that housing was grossly under-priced in the 90s whereas equities were not, and falling interest rates have triggered a correction of that misvaluation. 

A second is that both markets are worrying more about distribution risk – a shift from profits to wages – than I think.

A third is that simply that housing is over-priced.

There is a precedent for an entire asset class to become grossly misvalued when interest rates change. Back in 1979, Franco Modigliani and Richard Cohn argued (pdf) that equities were hugely under-priced because investors were discounting future cashflows by high nominal interest rates; they were taking on board the bad news of high inflation and not the good. The subsequent rebound in the market suggests they might have been right (pdf).

I wonder whether a slightly analogous thing might be happening to house prices. They are pricing in the good news of low interest rates but not the bad.

I don’t say this with huge confidence. But there is, surely, a puzzle here.

Inequality under New Labour

Zarah Sultana’s recent claim that we have suffered 40 years of Thatcherism prompted Blairites to point to a big difference between Thatcher and New Labour – that whilst inequality rose a lot under Thatcher it largely levelled off under New Labour.

Measured by the Gini coefficient, this defence is correct. According to IFS data for incomes after housing costs, this coefficient rose from 0.261 to 0.374 from 1979 to 1996-97, but edged up only slightly more (to 0.405) during the New Labour years.

What should we make of this? A bit of me recalls Chris Rock: “you want some credit for some shit you’re supposed to do.”

Also, though, the Gini coefficient is, essentially, an average of all inequalities. It can stay the same if inequality increases in some respects but falls in others. And this is what happened under New Labour.

My chart, taken from IFS data, shows the growth in real incomes after housing costs, for each fifth percentile of the income distribution. It shows that it was the 20th-30^th percentiles that did best under new Labour – that is, those worse off than three-quarters of people. These are those with incomes after tax and housing costs equivalent to around £280 a week today for a childless couple.  

Inequality tended to fall under New Labour because these got better off relative those on slightly higher than median incomes. This wasn’t just because of market forces. New Labour did genuinely help the moderately badly off with policies such as the minimum wage and tax credits.

Other inequalities, however, increased. One was between the very lowest incomes and this 30^th percentile. Some of these shouldn’t be the object of our sympathy: they are wealthy folk who are living off their capital. Others, though, are those who have fallen through the safety net or are unemployed.

The other inequality that increased was at the top end. The 95^th percentile – equivalent to a weekly income of £1160 in today’s money – got even better off than the median. These IFS data don’t cover the very rich. But HMRC data do. And they show that the top 1% of taxpayers also did well under New Labour, with after tax incomes rising 56% compared to 38% for the median taxpayer. Peter Mandelson was famously “intensely relaxed about people becoming filthy rich”. And they did just that.

The flattish Gini, therefore, disguises the fact that some inequalities fell whilst others rose.

Which poses two questions.

One is: how does the Tory government compare to New Labour?

My second chart helps answer this. It shows a similar pattern in one regard: those slightly below median incomes have done well relative to both the very worst off and those on above-median incomes. But it also shows that the very best off have seen their incomes fall. Egalitarians should welcome the latter at least.

Perhaps the biggest difference with New Labour, though, is that the Tories have presided over little growth in incomes across the board. The group to have done best under the Tories are those around the 35^th percentile (on £340 a week in today’s money). Their incomes rose 5.3 per cent in real terms between 2009-10 and 2017-18. But this percentile saw income growth of 38 per cent under New Labour.

The second question is: which inequalities matter most?  It is here, I suspect that New Labour was at fault.

The equality that it increased was that between those a bit below and those a bit above the median. This, though, is a second-order problem. People on moderately low incomes can live almost as well as those on moderately decent ones, at least with a bit of careful budgeting. Sure, they’ll have smaller houses and worse cars. But their spending on everyday items, and on nights out and even holidays, isn’t very much different.

Instead, what matters more are inequalities at both extremes. Very low incomes mean genuine distress; having to forego essentials; being only one accident away from catastrophe; the uncertainty about wondering how many hours you’ll get to work next week; and the cognition-sapping stress (pdf) of just getting through the week.

And at the other end, it is the increase in very high incomes (and the power that lies behind them) that has contributed to the slump in productivity growth. What’s more, such inequality undermines democracy as the ultra-rich leverage their wealth – and the undue deference they get – to acquire disproportionate political influence.

So, yes, Blairites are right: New Labour did greatly slow down the increase in inequality we saw under Thatcher. But – in hindsight – it did not do enough to tackle the inequalities that most matter.

A case for nationalizing pensions

One of the fundamental questions in politics is: what should be done by the state, and what by the private sector? In at least one respect, I suspect that we have the mix wrong because there is a strong case for nationalizing pension provision – stronger, I suspect, than is the case for nationalizing utilities.

I say so because, as I point out in the day job, retirees and those approaching retirement face enormous uncertainties if they are managing their own pension: how long will I live? What will my spending needs be? And what will be investment returns? (Yes, equity returns have been great in recent decades, but we have no assurance whatsoever that the future will resemble the past.)

The state, however, is much better placed than the private sector to bear these risks. It can obviously pool longevity risk. And tax revenues are more stable than investment returns: in the financial crisis they fell only 3.4 per cent peak-to trough whereas MSCI’s world index in sterling terms fell eight times as much*. In particular, there is one source of risk to equity returns that the state can pool whereas retirees cannot – distribution risk, the danger of a shift in incomes from profits to wages. This would clobber (pdf) share prices, but not tax revenues.

And then, of course, there are deadweight costs. A private pension fund manager might easily charge a management fee of 0.5 per cent per year. On a £100,000 pension pot invested over 20 years, that can add up to over £20,000. State pensions are cheaper to administer. Fund managers are rich, civil servants are not, That’s a clue.

A common objection to a higher state pension is that it is unaffordable. This is nonsense in both fact and theory.

It’s nonsense in fact because spending on the UK state pension is projected to stay low. The OBR estimates that spending on pensions and other old-age benefits will rise from around six per cent of GDP now to 7.9 per cent in 2057-58. This would mean the state will spend less then than many European countries do today - among them Germany, which is not noted for fiscal profligacy.

It’s nonsense in theory too because, in a closed economy, all pensioners’ incomes must come from value-added created by current workers. The question is whether they pay pensioners via the tax system, or via the dividends and interest their employers pay**. For a given level of pensions, the burden is the same – only the name changes.

Granted, private pensions change this calculation by investing overseas and so extracting pensioners’ incomes from foreign workers. But the state can do this too. As Eric Lonergan has argued, we could set up a sovereign wealth fund which borrows at current gilt yields (almost minus 2% real) to buy higher yielding assets. Over time, this should give us all a big pension pot.

Even without that, however, we can achieve a sort of creeping nationalization over time by slightly strengthening the triple lock, one of George Osborne’s few laudable achievements in office. If we could look forward to a more generous state pension, we’d have less need to buy a private one so the latter would gradually wither.

We should regard the privatization of pensions as an example of how technocratic economic rationality can conflict with the logic of capitalism. Technocratic rationality says there’s a case for high state pensions. The logic of capitalism, however, requires that capitalist firms have sources of profits.

Another issue here is of course political risk: can we trust future governments to continue to raise pensions? Doing so requires there to be strong public demand for such a rise so that governments will fear a backlash if they do backslide. In this respect, the British can learn a lot from French protesters against pension cuts. We must regard a high and rising state pension not as a benefit but as an entitlement.

Which brings me to an under-appreciated point. The problem here is not merely one of economic privatization. A feature of modern British capitalism – neoliberalism if you like – has been a form of psychological privatization. What should be regarded as social problems have become individual ones. We see this with a lot of discussion of personal debt and mental health – an insufficient awareness of the social pressures which generate these. The same has happened with pensions. The question: “how can we as a society provide a decent income for older people?” has become: “how can I provide for my pension?” For too many – even the well-informed and affluent – this is too difficult a question.

* Of course, returns on more balanced portfolios were far more stable than equities – especially if they held decent quantities of non-sterling cash. But there are huge uncertainties about future risks and returns to balanced portfolios as well.

** OK, so taxes might deter investment, if they are badly designed. But so too do dividends and interest: high equity returns and bond yields mean a high cost of capital, by definition.

Great economics, bad politics

Non-economists (and quite a few trained economists too) often claim that mainstream economics is a simple-minded defence of free markets and inequality. Abhijit Banerjee and Esther Duflo’s Good Economics for Hard Times is a superb refutation of this.

They argue that:

It is unreasonable to expect markets to always deliver outcomes that are just, acceptable or even efficient.

A big reason for this is that the economy is “sticky” and that “resources do not always flow to their best use. Workers who are laid off because of international trade or technical change do not quickly move to decent jobs: instead, job loss has permanent adverse effects on wages. Banks are slow to lend to good new ventures and to cut credit to failing firms. Efficient companies find it hard to displace less efficient incumbents. And so on.

In this respect, much of their book is a repudiation of rightists’ belief in a flexible market economy. Though they don’t say so explicitly, all this gives ample reason to doubt that firms will be able to seamlessly adapt to take advantage of post-Brexit trading opportunities (even assuming them to emerge.)

It’s not just the far-right they challenge. They question even conventional economists’ attachment to free trade. In the US, they write:

Those zones more affected (pdf) by the China shock experienced substantially larger reductions in manufacturing employment. More strikingly, there was no reallocation of labour to new kinds of jobs. The total number of jobs lost was often larger than merely the number of jobs lost in the industries that were hit (P81).

A similar thing, they say, was true in other countries (pdf).

Because of this, they show, the gains to an economy from international trade are small:

If the US were to go back to complete autarky, not trading with anybody, it would be poorer. But not that much poorer (p86)*.

They stress, however, that this is not to endorse Trump’s trade war. This, they say, causes a new set of economic disruptions which people struggle to adapt to.

Banerjee and Duflo also flatly reject rightist arguments against redistribution. High top tax rates, they say, “are a perfectly sensible way to limit the explosion of top income inequality” as there is no evidence they deter work effort or growth. And they add, “there is no evidence” that cash transfers to the poor make then work less.

Banerjee and Duflo never use the word neoliberalism. But in all these respects, Good Economics for Hard Times is a refutation of it. And as you would expect from them, it is magnificently evidence-based. All economists, I suspect, would learn a lot from it.

But but, but. Whilst the economics is wonderful, the politics is not. They write:

Bad economics underpinned the grand giveaways of to the rich and the squeezing of welfare programs, sold the idea that the state is impotent and corrupt and the poor are lazy, and paved the way to the current stalemate of exploding inequality and angry inertia. Blinkered economics told us trade is good for everyone. (p326)

Any they plead with us to “set ideology aside”.

But Diane is right to reply to this that “good economics is about more than technical expertise.”

Brexit give us one example of this. Economics clearly says this was a bad idea. But voters chose it anyway. This wasn’t only because the corrupt media prevented economists’ voices being sufficiently heard. It was also because voters had other priorities. Banerjee and Duflo rightly champion the economic benefits of immigration, but some voters looked instead at what they perceived to be the adverse cultural impact of it.

Worse still, Banerjee and Duflo over-rate the importance of ideas and under-rate the sheer power, material and ideological, of the rich. Martin Gilens and Benjamin I. Page (pdf) and Pablo Torija Jimenez show that western democracies favour their interests over those of the median voter. It requires much more than abundant economic evidence to fight this power. Banerjee and Duflo have given us lots of bullets to fire in the class war. But are they sufficient?

* Even I’m a bit queasy about this. I’m not sure it takes sufficient account of the fact that exposure to international trade raises productivity.

Two conservatisms

The death of Sir Roger Scruton reminds us of an overlooked fact, that there is a massive difference between the sort of conservatism he championed and free market economics.

Scruton defined conservatism as the “instinct to hold on to what we love, to protect it from degradation and violence and to build our lives around it.” The creative destruction of the free market economy, however, often endangers what we love. It is always threatening to destroy traditional communities and industries. Coal miners and steel workers in the 80s, protesting against pit and plant closures, were conservatives on Scruton’s definition but certainly not Thatcherites. And Patrick Minford’s vision of a post-Brexit economy in which manufacturing disappears is surely alien to the Scrutonian love of tradition.

Scruton himself was of course awake to this. The Times obituary quotes him as saying that “Thatcher was completely indifferent to our kind of conservative philosophy.” And at many points, he opposed modern-day capitalism: in his antipathy to big housebuilders with their ugly and shoddily-built boxes; in his defence of high culture against marketized “pop” music; in his claim that supermarkets are “not only poisoning the world with packaging, they’re also destroying the ability of communities to survive without central distribution”; and in his critique of “absentee capitalism.”

All of this, though, raises a question. Why is there not more hostility between Scrutonian and free market conservatives? Why is there not the vicious bitterness we see in the Labour party between Corbynites and their critics?

One reason, I suspect, is that disputes about thought are often less rancorous than those about power or personality. This is especially true for people who are wise enough, as many Tories are, to know that politics isn’t everything.

Also, Scrutonian and free market rightists have much in common. They share a scepticism of top-down state intervention and reverence for unplanned emergence – for what arises from the market in one case, and from tradition in another. Both believe, with some justification, there’s more unstated wisdom in emergent orders than there can be in conscious top-down direction.

Some of you might add a corollary to this, that both wings of Tory thought are united by a love of freedom. I’m not so sure. Whilst Scruton undoubtedly incurred cost and jeopardy in supporting dissidents in the old Soviet bloc, many Tories have been less enthusiastic about freedom and much more selective in whose liberty they have championed: that of Chileans and South Africans (and for many years women and gays in the UK)  had a lower priority than east Europeans’.

But perhaps there’s something else. A while back, Bryan Caplan coined the phrase “the libertarian penumbra” to mean a set of beliefs which, whilst strictly not constitutive of libertarianism are in fact widely shared by libertarians. There is perhaps also a Tory penumbra, at least for those Tories who never bought into Cameronism. Things like a love of fox-hunting, a search for a genetic basis for inequality, hostility to climate change activists, hatred of the EU, or a perceived victimhood in the face of “wokeness” are perhaps not essential features of Toryism. But plenty of Tories share them – enough to create sufficient fellow-feeling as to compensate for what would otherwise be a large ideological gulf between conservatives and free-marketeers.

The flip-side of homophily, though, is exclusion. A love of “home” (a key element of Scruton's thinking) can easily spill into animosity towards immigrants; a defence of Christianity can tip into Islamophobia; and support of “high” culture can become a poncy snobbery.

Herein, I think, lies the reason why so many leftists hated him. Many – especially immigrants, ethnic minorities and even (despite Scruton’s own humble origins) those of us from working class backgrounds - sense that we don’t just belong among Scrutonian Tories. We fear that what also unites free market and Scrutonian Tories is, as Corey Robin said, a love of hierarchies – ones in which people like us are at the bottom.

Which raises a paradox. If we take Scruton’s definition at face value, almost all of us are conservative (just as almost all of us are working class on Marx’s definition!) The difference between us and Tories lies in what we love. People who value UK membership of the EU, or fear that VAR is ruining football are all Scrutonian conservatives. So too was the Communist Ewan MacColl when he tried to defend and revive English folk music in the face of commercial pressures for its decline. One of my favourite blogs, Jonathan Calder’s Liberal England, combines a reverence for English countryside and culture with Lib Dem politics. And one can argue – as Hilary Wainwright does – that Jeremy Corbyn is heir to an English tradition of radical dissent.

England has many traditions and customs, loved across the political spectrum. Tories who claim a monopoly on the love of tradition are adopting a very partial and reified notion of Englishness. Scruton himself saw this. In England: An Elegy (a book whose very title is anti-Thatcherite) he describes how his father blamed the Tories for the “desecrated townscape of High Wycombe.” Scruton pere was a conservative, not a Conservative. As are many of us. Which makes it all the sadder that Scruton himself was so sectarian and divisive a figure.

The strange death of libertarian England

It wasn’t just the Labour party that took a beating in last month’s general election. So too, but much less remarked, did right-libertarianism.

The Tories won on policies that repudiated many of their professed beliefs: a higher minimum wage; increased public spending; and the manpower planning that is a points-based immigration policy. And the manifesto (pdf) promise to “ensure that there is a proper balance between the rights of individuals, our vital national security and effective government” should also alarm libertarians. John Harris quotes an anonymous minister as saying that the libertarianism of Britannia Unchained is “all off the agenda” and that “some of the things we’ve celebrated have led us astray.”

Tories are not out of step with public opinion here. If anything, it is even more antipathetic to right-libertarianism than are Tories. Most voters support higher income taxes on the rich, a wealth tax, and nationalizing the railways, for example. Rick was right months ago to say:

British voters don’t share the free-marketers’ vision…The important thing to understand about right-wing libertarianism is that it is a very eccentric viewpoint. It looks mainstream because it has a number of well-funded think-tanks pushing its agenda and its adherents are over-represented in politics and the media. The public, though, have never swallowed it.

 A bit of me sympathizes with right-libertarians here. I suspect that one reason for public antipathy to free markets is that people under-appreciate the virtue of spontaneous order – that emergent processes can sometimes deliver better outcomes than state direction.

Nevertheless, all this raises a question: why are we not seeing more opposition to Johnsonian Toryism from right-libertarians?

You might think its because right-libertarianism has morphed into support for Brexit. Whilst I don’t wish to deny there is some link between the two, many Brexiter MPs have failed a basic test of libertarianism. In 2018 the likes of Bridgen, Cash, Duncan-Smith, Rees-Mogg and Francois all voted against legalizing cannabis.

One possibility is that they regard him as the lesser of two evils – they are supporting him with a heavy heart.

A second possibility has been described by Tyler Cowen. Intelligent right-libs have realized that free markets are not the panacea they thought and have shifted their priorities towards improving state capacity. Examples of this might – in different ways – be Dominic Cummings or Sam Bowman.

Perhaps relatedly, right-libertarianism has lost its material constituency. It once appealed to people by offering tax cuts. Today, however, many of the sort of businessmen who in the 80s wanted lower taxes now want other things, such as better infrastructure.

If these are respectable reasons for the decline of right-libertarianism, I suspect there are less reputable ones.

One is that we have lost the cast of mind which underpins right-libertarianism – that of an awareness of the limits of one’s knowledge. We need freedom, thought Hayek, because we cannot fully understand or predict society:

Since the value of freedom rests on the opportunities it provides for unforeseeable and unpredictable actions, we will rarely know what we lose through a particular restriction of freedom. Any such restriction, any coercion other than the enforcement of general rules, will aim at the achievement of some foreseeable particular result, but what is prevented by it will usually not be known....And so, when we decide each issue solely on what appear to be its individual merits, we always over-estimate the advantages of central direction. (Law Legislation and Liberty Vol I, p56-57.)

We live, however, in an age of narcissistic blowhards who are overconfident about everything. This is a climate which undervalues freedom.

Worse still, I suspect that some right-libertarians were never really sincere anyway. They professed a love of freedom only as a stick with which to beat the old Soviet Union. Liberty was only ever a poor second to shilling for the rich. And their antipathy to Gordon Brown was founded not upon a rightful distaste for the authoritarian streak in his thinking but upon simple tribalism. Maybe Corey Robin was right:

The priority of conservative political argument has been the maintenance of private regimes of power.

This isn't just a UK phenomenon, illustrated by Paul Staines: some (not all) US libertarians found it easy to throw in their lot with Trump. 

Whatever the reason for the demise of right-libertarianism, however, there is perhaps another lesson to be taken from it – that you cannot nowadays achieve much political change via thinktanks alone.

Labour's public opinion dilemma

To what extent should Labour accommodate itself to public opinion, and to what extent should it try to change it? This fundamental question is posed, perhaps inadvertently, by Jess Phillips in an interview with the Times.

She says that people didn’t trust Labour to deliver the many promises in its manifesto:

People in working class communities know that you can’t always have everything. They know that this week you’ll put the money away for your holiday, next week you’ll put the money away for Christmas.

Now, I’m willing to accept that this is a fair description of many people’s attitudes to Labour’s borrowing plans. But it is, of course, a wholly wrong assessment of the economics.

For one thing, government borrowing is not like household borrowing. When the government borrows, it raises other people’s incomes and so increases its own tax revenues. And for another, governments can borrow on much better terms than working class households. Whereas they face interest rates of hundreds of percent, and have insecure incomes and so cannot be confident of being able to repay, government tax receipts are more stable and it can borrow for the long-term at a real rate of minus two per cent. This means that for every £100 it borrows, it must repay only £67 in today’s money over the next 20 years. Bond markets are paying the state to borrow. And if people are paying you well to do something, you should do it.

Voters can be forgiven for not knowing this, just as I hope I can be forgiven for not knowing the first things about dentistry or plumbing: civilization depends upon the division of labour. This is especially true because they have been ill-served by the media. One of the BBC’s many failings has been its near-total absence of any reporting of one of the most remarkable developments of recent years – that government borrowing costs have repeatedly hit record lows and stayed low.

All this leaves Labour with a dilemma. Should it base its manifesto upon reality, which is that increased borrowing makes sense? Or should it instead defer to public opinion and adopt a milder manifesto which appears “credible”?

There is something to be said for the latter. You cannot change many people’s minds by snatched conversations on doorsteps during election campaigns. The job takes years, and requires resources (such as a benevolent mass media) which we do not possess. And in many cases, it’s a good idea to under-promise and over-deliver. Effective political parties should campaign in lies but govern in truth.

On the other hand, though, there are dangers here. One of Labour’s few advantages over the Tories is its mass membership. A centrist (and wrong) manifesto risks demotivating these supporters. And there’s the big risk that party leaders get high on their supply: if they prate about moderation and credibility long enough, they might come to believe such nonsense.

I’m not sure there is a correct answer to this dilemma. I would, however, hope that the next Labour leader at least appreciates that there is a difference between what’s true and what wins votes. I would also hope that he or she does not wrestle with it publicly. 

Conservative arguments for radical ideas

In my previous post, I used a rhetorical device which I think leftists should copy. This is that we should use conventional, orthodox economics to reach radical conclusions.

The point here is that we don’t persuade people by telling them that their worldview is wrong and by demanding that they change the ideas of a lifetime. We are more likely to succeed by showing them that their ideas are consistent with things they might not have considered.

Here are some examples of what I mean.

 - Fiscal policy. We don’t need MMT to argue for a significant fiscal loosening. Simple maths tells us that we can run big deficits and still see government debt fall as a share of GDP when real interest rates are negative, as they now are. And as Simon has said for years, the idea that we should use fiscal expansion when nominal interest rates are near zero is orthodox economics.

 - The efficient market hypothesis. You don’t need heterodox economics to show that this is wrong. Instead, you can point out that the first test of the EMH’s corollary, the CAPM, found it to be false. That was conducted by those high priests of orthodoxy, Myron Scholes, Fischer Black and Michael Jensen. Their finding that defensive stocks do better than they should has been corroborated many times. And the other great challenge to the EMH – the out-performance of momentum (pdf) stocks – was first noted in that most conventional of publications, the Journal of Finance.

 - Worker ownership. This sounds like a radical idea. But it’s not – and not just because law and accountancy practices are routinely owned by their workers. One inspiration for it comes from Hayek’s important point, that central planning is impossible because economic knowledge is fragmentary and dispersed. Worker control, more than hierarchy, can mobilize such knowledge. Hayek’s key insight – “you don’t know what you are doing” – is a challenge to top-down managers.

 - Rents. The idea that landlords’ high rents are killing high streets and choking off economic growth might seem radical. But it’s not. It was one of the many brilliant insights of David Ricardo, the man revered by orthodox economists for discovering, among other things, the theory of comparative advantage.

 - The falling rate of profit. This idea (which is true) is of course associated with Marx, because it predicts that capitalism will become increasingly stagnant and crisis-prone. But again, it’s not uniquely Marxian. The idea that diminishing returns would lead to a stationary state was, again, Ricardo’s.

What I’m suggesting here is, of course, nothing new: I pray each night that I will never have an original idea. All these are versions of an immanent critique – showing that existing conventional ideas aren’t necessarily as internally consistent as one might think, and might instead have radical implications.

This, I suspect was what Marx was doing when he argued that whilst the labour market looked like “a very Eden of the innate rights of man” things change when we go behind the factory door:

The can perceive a change in the physiognomy of our dramatis personae. He, who before was the money-owner, now strides in front as capitalist; the possessor of labour-power follows as his labourer. The one with an air of importance, smirking, intent on business; the other, timid and holding back, like one who is bringing his own hide to market and has nothing to expect but — a hiding.

Enlightenment ideas such as “Freedom, Equality, Property and Bentham”, Marx showed,  were not as compatible with capitalism as their advocates thought – something which remains true today.

Now, you might object that we need to do more than show merely that radical ideas are in fact quite compatible with conventional economics, and that we need to challenge it more. I agree: in particular, mainstream economics does a poor job of explaining inequality and exploitation.

However, if there is one thing we have learned in recent years, surely, it is that telling the truth does not always win arguments.