Attention, fashion and false consensus

One of the pitfalls of growing old is that one is often befuddled by the modern world.

So it is with the reaction to the Intelligence Select Committee's report on Russian influence on UK politics. This has highlighted the fact that Russian oligarchs are using London to launder their dirty reputations and dirty money.

But, I splutter, we've all known this for ages, even decades: I've been referring to Chelsea "Football" Club as the money launders for years.

In fact, I have a similar reaction to many things. For example, several tenets of MMT - that sectoral balances matter, that its is banks that create money out of nothing, and that there's no financial constraint on government borrowing - strike me as old hat*.

Equally, talk of heterodox economics such as the work of Kalecki, Robinson and Sraffa is for me like hearing Mel & Kim: both provoke happy memories of things I'd half-forgotten from the 80s.

The same's true of behavioural economics. I first came across this back in 1986 when I read Loomes and Sugden's paper on regret theory, published in 1982 (too early to be webbed!). And I read Kahneman and Tversky's collection of papers, Judgment Under Uncertainty in the early 90s - and even then I was late to the party, as it was published in 1982. And yet I'm still surprised when people sometimes treat behavioural economics as something new and radical.

In all these ways, I'm often baffled by folks telling me what I thought I've known for years.

What's going on here?

One possibility is that it corroborates Max Planck's saying: science advances one funeral at a time. Heterodox and behavioural economics might be old but they've been resisted by the neoclassical economic establishment for years - an establishment which (re)gained dominance from the 1980s onwards. It's only as its influence has waned that alternative ideas have begun to blossom (again). Economic ideas are prone to fashions, which come and go.

Another possibility, is that attention, like most other things, is a scarce resource. We therefore conserve it by not paying attention to some things.

In the case of Russian money-laundering, this lack of attention was of course incentivized - by sticks as well as carrots.

But our attention ebbs and flows without external incentives. From the early 90s until 2010 we didn't need to think much about fiscal policy because it wasn't egregiously terrible, at least in the UK. It's only when the disaster of austerity began that we needed to think again about fiscal policy, which led some to discover and rehash the ideas of Keynes, Kalecki, Lerner and Beveridge.

Similarly, neoclassical DSGE models were tolerable during the "Great Moderation" but came into question after the 2008 crisis - especially as that crisis came just five years after Robert Lucas (the father of the new neoclassicism) declared (pdf) that "the central problem of depression prevention has been solved, for all practical purposes."

Maybe, though, there's something else. I've been stupid. I have systematically committed an error of judgement. This is the false consensus effect, a tendency to over-estimate the extent to which other people think like ourselves. My surprise at people discovering Russian money-laundering, MMT, or behavioural economics is like Remainers being surprised by the Brexit vote because nobody they knew supported Leave**.
Which. I suspect, contains two messages.

One is that there is a danger that the behavioural economics and cognitive biases project makes the same error as Homer Simpson: "everyone is stupid except me". (In the case of the nudge agenda, this isn't a danger but a reality.) In truth, though, the projects should warn us that we are all prone to errors of judgement.

Mere knowledge of cognitive biases, however, is not sufficient guard against them: I've known about the false consensus effect for years, but that hasn't stopped me falling into the trap. Bill Shankly had a brilliant insight when he told a young player: "the trouble with you son is that your brains are all in your head." Mere head-knowledge is sometimes not enough. Rational thinking requires habits and, failing that, institutions that promote good thinking and select against bad - institutions we don't possess.

* I've no big issue with most of MMT's ideas. Many of its advocates, however, remind me of Sellars and Yeatman's view of the roundheads - right but repulsive: longwinded fanatical sectarians.

* It's also for this reason that people feel an urge to confess their crimes: they suspect that others know they've done it and want to unburden themselves. The Catholic Church hasn't survived 2000 years without a keen grasp of psychology.

Comments

[Postkey]

"Well, surprise, left wing academics decide that international Capitalism is bad."

Play the wo/man, not the ball?

Typical of a shill for the plutocrats and the M.I.C..

[Paulc156]

@Dipper. "My point is firstly that they are actually laundering their money elsewhere and bringing their laundered money to London,"

Sure they are but you studiously avoid the earlier information regarding vast swathes of the UK that are not subject to KYC...namely PR companies, educational establishments, architects etc etc.

Now for example we have a former KGB spy by the name of Lebedev who swapped intelligence duties for banking...then media from whence he employed former chancellor Osborne and ultimately endorsed Johnson for leadership role while adopting role as Tory party benefactor all the while still supporting Putin's Crimean snatchback.

Blithely asserting "the money comes through banks" even though it has been pointed out that both the banking sector is itself a hotbed of illegality and corruption (long list of misdemeanours and massive fines widely available) and as has been noted here more than once, the regime tasked with enforcing rules is deliberately fragmented and at cross purposes. ie. Not fit for purpose.

"...there are no impartial neutral observers, everyone has an angle, everyone is looking for more money and power..."

That applies equally to capital and nowhere more so than finance capital. It sucks the lifeblood out of the non financial economy, it extracts huge subsidy (As BofE's Haldane has pointed out) in the form of too big to fail insurance (e.g.post subprime-CDO debacle when much of it should have been left to perish) and diverts funds into speculative enterprise from which it knows it can't lose.

Top that with pensions rip offs. The only reason there is any real aggregate gain for pension holders is due to tax relief. Any other profits are largely creamed off by charges, dealing costs and spreads.

As for foreign aid.More money flows from the global South to the advanced economies than the other way round. Just how the city likes it. :)

[Dipper]

@ Paulc156

'that are not subject to KYC...namely PR companies, educational establishments, architects etc etc.'

No. KYC takes place at the bank level. Companies that accept money from bank accounts are implicitly having their KYC done for them by the banks. Handling cash for large transactions is now regarded as suspicious behaviour.

The banking sector has undergone significant reform both in structure and behaviour. The requirements for clearing, for instance, make banks isolated entities that can fail without posing systemic risk. And as you can tell I'm getting fed up with the constant stuff about banking corruption in the absence of any actual evidence.

And what pension rip off is this? Tax relief is effectively a means of deferring taking income until a later date when tax is then paid. All those surveys stating how much tax is being missed this year due to pensions tax relief fail to mention how much tax is being taken this year from income payments made from pension funds.

[Blissex]

"Mali based banks,although they have very familiar names, eg Santander."

«Once the money is in the account of a bank which is internationally recognised it has been laundered. So, as I said, the money is being laundered elsewhere. The idea that London is the nexus of money laundering isn't supported by these reports. If a cleaning company is taking money from dodgy 'businessmen' with Mali bank accounts and depositing it in the Esher branch of the Coop Bank I'm not sure what that has to do with the 'City of London'.»

It is tiring to deal with prevaricating and disingenuous arguments like this, as if Mali had a flourishing financial sector skimming the cream off international dirty money flows to enable the speculative buying of malian property by foreign oligarchs resident in Bamako or Tombouctu.

Obviously instead the City of London is full of banks, consultancies, lawyers, tax advisors, accountants that use the pretence of foreign transactions in corrupt (or sometimes just inept) jurisdictions to which they send some crumbs, while the people running the schemes are all in London, working for clients (partially) resident in London, to speculate on London assets, for the benefits of a large caste of english spivs and promoters.

Only thorough hypocrites can argue that those spivs and promoters have clean hands because they are merely the instigators, the actual dirty deeds are performed by their minions in another country in which they are legal or "forgiven".

One of the great potentials of Brexit is that it will enable Dubai style regulations under which the whole chain of skimming cream will be legal in London, and even those crumbs currently sent all the way to the shores of the Niger will remain instead for the greater benefit of tory donors on the shores of the Thames.

[Paulc156]

@Blissex
It is indeed disingenuous. Our estate agents can match the international crook with the residence of their choice and the private educational establishments to whom said crooks may wish to contribute and PR firms to manage their public 'profile' and so on and so forth because the funds are routed via Baltic, Mali, Jersey banks etc etc.

All courtesy of a system in which the kleptomaniac banking fraternity are entrusted to police and where regulatory oversight is delivered by (amongst others) a fractured and uncoordinated medley of accounting companies who themselves are not averse to the odd game of smoke and mirrors.

@Dipper
"And as you can tell I'm getting fed up with the constant stuff about banking corruption in the absence of any actual evidence."
Oh what delicious irony. In the very same week that Goldman Sachs is forced to settle with Malaysia to the tune of some $4bn for defrauding the state...so avoiding criminal charges.
Even leading Tory and ally of BoJo, Nicky Morgan is "shocked" at the poor levels of oversight deployed by those tasked with the job. Why aren't you?

"Professional bodies representing the accountancy and legal sectors are riven with conflicts of interest and loath to publish money laundering penalties, if they take action at all, a damning report by their supervisor has revealed.

Accountancy associations, in particular, are resisting taking enforcement action against their members for money laundering failings out of fear that they might go to rival bodies, the maiden report by the Office for Professional Body Anti-Money Laundering Supervision, (OPBAS), found on Tuesday.

It underscores the scale of the fight against the UK’s dirty money problem, officially estimated to run into the hundreds of billions of pounds."

https://www.google.com/amp/s/amp.ft.com/content/318490a0-44ad-11e9-a965-23d669740bfb