Stumbling and Mumbling

The economics-politics divide

Duncan Weldon made a good point recently when he tweeted that the “disconnect between British political discourse and opinion of mainstream economic opinion feels extreme.”

Whilst political discourse talks of balancing the government’s books, most economists (outside the IFS) point to negative borrowing costs and think it more important to look after the economy. Instead, whether left or right, we have other priorities: how might monetary policy better support the economy? How can we end the long stagnation in productivity? Why are house prices so high and what can we do about them? How can we best fight climate change? How might tax or planning policy better promote longer-term growth? How strong is the case for a national wealth fund, basic income or jobs guarantee? How should banks be regulated? Does inequality reduce growth and if so what can be done about it? Etc, etc.

These questions, though, are not reflected in Westminster politics. It’s as if economics doesn’t matter.

From one perspective, this is weird. Historically, politics has been dominated by economic issues: free trade vs protectionism in the early 20^th century; whether to be on the gold standard or not; how to achieve full employment; whether to nationalize or privatize; how much planning; how to control inflation; what to do about productivity; and so on. The low salience of serious economics is unusual in a historic context therefore.

What’s more, twelve years of flatlining real wages should have pushed economics up the agenda. We can afford to ignore the economy when it’s working well, but not when it isn’t.

Which poses the question. Why is there the disconnect Duncan notes? Here are some (non-exclusive possibilities):

 - The transmission mechanism from academic economics to policy is broken. This is partly a supply-side problem. Academics are more concerned with bureaucracy and writing unreadable, unread and unreplicable journal articles than they are with communicating good ideas to the public. And even if they were interested, they’d be ignored by the media.

 - The rise of retail politics. Politicians – with a few exceptions – aren’t much interested in ideas. They need salesmen, not economists (or sociologists or philosophers for that matter). Who needs intellectuals when you have focus groups?

 - Interests. Economic ideas gain political prominence if they promote, or at least don’t retard, the interests of powerful groups. Post-war full employment was feasible in part because Fordist capital needed mass markets of affluent workers. When, however, those affluent workers squeezed profits in the 70s, union-bashing became acceptable. So too did freer markets and lower taxes. Today, though, good economic ideas attack powerful interests. Landlords don’t want a land value tax. Bankers (or at least their bosses if not shareholders) don’t want higher capital requirements. And so on. It’s hard to imagine sensible economic policies which do not attack the interests of landlords or bankers. Sure, there’s still a section of capital whose interests are consonant with growth-promoting policies. But the message of Brexit is that this section is politically weak.

 - Realignment. There’s a widespread view, shared by the Labour party, Matthew Goodwin and Stephen Davies in his book, The Politics and Economics of Brexit, that we’ve seen a realignment of politics. The great divide is no longer about economics but culture: “somewhere” vs nowhere”, cosmopolitans vs nationalists”. Brexit might be the start of this new alignment not the end. If so, economics matters less for politics than it used to.

Which brings me to my beef. Isn’t it remarkable that, of all the times this realignment might have happened, it just happens to have come after years of capitalist stagnation?

Well, not so remarkable. It corroborates the finding made by Ben Friedman in 2006, that hard economic times breed nationalism and intolerance. Many of those who remark upon the new realignment are guilty of a gross incuriosity: the fail to ask: might political preferences be endogenous, the result of socio-economic trends?

Herein lies a massive difference between now and the 70s. Back then, the Tories reacted to economic crisis by developing a new economic agenda. Thatcher could plausibly tell a lot of people: “vote Tory and you’ll get richer”. Enough, anyway, to win general elections. Her epigones, however, cannot do this. They have no ideas for economic regeneration – though whether this is because of their own intellectual shortcomings or economic reality is an open question. Instead, all they have is the fanning of the flames of nationalism. There’s more than one way to achieve hegemony.

Maskphobia: the face of conservativism

Why do some rightists oppose mandatory face-coverings? Tory MP Desmond Swayne has called them a "monstrous imposition", Peter Hitchens says they leave us "muzzled in face-nappies" and of course James Delingtwat and Laurence Fox have jumped on the bandwagon - although Mr Fox has at least the redeeming virtue of possessing some talent.

I don't think the answer lies in the proposition that there's little evidence of masks' effectiveness. For one thing, there is. For another, risk is not merely a matter of facts but of feelings, and common sense says that masks reduce the risk of infection. And for a third, rightists are not always fastidious about following evidence. (Hint - the B-word).

Instead, I suspect something else is going on. Mask-wearing shows that the fulfilment of our preferences is not compossible, to use Leibnitz's word. My preference not to wear them (being a speccy four-eyes they steam up my glasses) conflicts with the shop-worker's preference to feel safer.

Now, in some some just-so stories, such non-compossibility doesn't happen. In Adam Smith's fable of free markets his preference for dinner and the butcher's preference for a shilling are indeed compossible.

Mask-wearing shows us that the world isn't always like this. Preferences conflict. And when they do, we leave the realm of perfect markets and enter politics. Politics is what happens when my neighbour wants a quiet night and I want a party. My initial thought, then, is that what we have here is an example of libertarian rightists being anti-politics. They fail to see that the fairytale libertarian world of compossible preferences is not always feasible, and rather than adapt their thinking they rail against politics.

But this isn't quite right. Some anti-maskers are anti-libertarian. Mr Hitchens is a long-time campaigner against drug legalization, and Mr Swayne has voted to maintain the criminalization of cannabis use. Both therefore fail a litmus test of libertarianism. Conversely, some of the smarter libertarians, such as Ryan Bourne, are pro-mask.

This isn't, then, a matter of libertarianism. Instead, I suspect anti-masking is a continuation of a recent strand of mainstream Toryism - a refusal to see problems of collective action, whereby preferences are not compossible.

Back in 2012 there was a burst of panic-buying of petrol for fear of a strike by fuel drivers. David Cameron responded by saying: "If there is an opportunity to top up your tank if a strike is potentially on the way, then it is a sensible thing if you are able to do that." But this exacerbated the panic. Cameron failed to see that preferences were not compossible. My preference for a full tank just in case of a strike conflicted with yours.

And this was not an isolated example. Quite the opposite. Tory-Lib Dem policy in 2010-15 was founded on just such an error. Preferences for "sound public finances" conflicted with firms' and households desires to save. The upshot was weak growth and a failure of austerity to reduce government borrowing as much as hoped. That was the paradox of thrift. And incentivizing people to want to move off benefits led not so much to higher employment as to tougher times for claimants.

In cases such as these, preferences are not compossible. Sometimes, when we all act on our preferences, we end up collectively worse off. Wearing masks is the flipside of this: by acting against our preference and wearing them, we might end up collectively better off by having fewer infections and escaping lockdowns. I don't often praise him, but Mr Johnson is to be congratulated for seeing what his fellow Etonian did not, that the essence of politics is to solve collective action problems.

Not all rightists, however, do grasp this fact. In failing to do so they are not so much being individually stupid as merely following one of the dafter trends in recent Tory politics.

I stress that word "recent". Tories have not always been blind to the need for some people to make sacrifices for the greater good when preferences conflict. For decades, they've urged tougher conditions for workers and claimants for the "greater good.", When they themselves have to make the sacrifices, some of today's Tories get queasy. For them, sacrifices are for the little people.

It's as if they actually want to prove Corey Robin right, that Conservatism stands for no more that the protection of privilege.

Ideas, interests and capital

One of the problems with being a Marxist is one so rarely gets intelligent criticism. So I was delighted to see Eric Lonergan’s thoughtful reply to my review of Angrynomics.

In many ways. I agree with him. He’s right that there is a “vacuum of thought” about economics – a vacuum filled by snake-oil peddlers of nationalism. But this vacuum is much more evident in politics & the MSM than it is among economics. Angrynomics itself is a treasure trove of policy ideas. If we add the work of people such as Diane Coyle, Ian Mulheirn, Geoff Mulgan, Radix, Stian Westlake and Sam Bowman (among others) we are struck by the almighty chasm between the intellectual heft of centrists outside of politics with the vacuity of centrists within politics. This surely warns us that there are powerful filters which select against good ideas.

Eric’s also right that there is no equivalent today of Keynes or Friedman, men who provoked revolutions in economic policy. But this reflects the general decline of the public intellectual – a decline we can at least partially attribute to the neoliberalization of academia and the media. If there were an equivalent today of Keynes, he would be snowed under by bureaucracy and under pressure to publish journal articles nobody would read except to show that their findings were unreplicable. And he certainly wouldn’t get a multi-part TV series to promote his ideas, as Milton Friedman got.

But, but, but. Whilst I welcome new thinking such as Eric’s, this under-rates the utility of good old ideas, many of which are excluded by political forces. Take four examples:

 - The case for higher bank capital ratios (supported by Eric) was made convincingly by Anat Admati and Martin Hellwig. It’s not been adopted because of lobbying by bank executives.

 - Even mainstream economists (most obviously Simon Wren-Lewis) knew that post-2010 fiscal austerity was a stinking idea. Their thought did not gain sufficient political traction, in part because of the influence of what Simon calls mediamacro.

 - You can’t walk out of your house without tripping over somebody advocating a universal basic income. But we’re stuck with the cruel and inadequate Universal Credit.

 - We have strong evidence that greater worker ownership and control can often raise productivity. But – despite the efforts of John McDonnell – this remains marginalized by the MSM.

There is one point where I think Eric hits the nail of the head. It’s that “the specific interests of ‘capital’ at the current juncture of history are very unclear.”

This is right in two senses, on top of the fact that (as Eric says) there can be a conflict between the interests of bosses and shareholders.

First, what policies and institutions best increase profit rates?

From 1945 to the 1970s, the answer was full employment and wage-led growth. The promise of high demand encouraged investment in capital and innovation. But this broke down in the 70s, to be replaced by profit-led growth, characterised by efforts to raise profit margins by weakening labour. But as Michael Roberts shows, this did little to restore aggregate profit rates.

So what’s the answer? Fordist mass-market capital might require wage-led growth. But extractive financialized capital would prefer low interest rates. What’s the balance of influence between the two? Does capital require low taxes and small government, or does it need bigger investment in infrastructure? Does it require deficit financing to produce high and stable growth, or does it (as Kalecki thought (pdf)) require “sound finance” to ensure that governments are dependent upon business confidence?

Secondly, to what extent does capital need greater legitimacy? One reason for high top taxes and full employment after 1945 was that governments thought they needed to inoculate capitalism against the threat of revolution – a threat that faded as the USSR weakened and collapsed.

It is now, though, an open question how much legitimacy now needs shoring up. (You can read Brexit as a project of legitimation at the expense of accumulation.) The fact that some companies are keen to greenwash or to pay lip-service to the BLM movement suggest many feel the need to appease their critics. But how much further does capital need to grow? Would more redistributive taxes raise legitimacy and help stabilize demand, or would they reduce incentives to invest and capitalists’ sense of their own entitlements? Does a big state help stabilize demand and provide legitimacy, or does the need for profits require privatization – what David Harvey has called “accumulation by dispossession”?

This are all open questions. Which is where there might be reasons for optimism. It might be possible to build an alliance of social democracy with the more progressive elements of capital to advance the sort of agenda Eric and I would both support. And I’d add that this would be something the left should also support, as the transition to socialism will come via social democracy. But that’s another argument…

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.

Angrynomics: a review

Picture the typical angry voter. If you’re like me, your image will not be a twentysomething saddled with huge student debt, extortionate rent and a dull job but rather some russet-trousered gammon with no real complaint.

Much as I liked it, this is one issue I have with Mark Blyth’s and Eric Lonergan’s Angrynomics. “People have every right to be pissed off” they write, “but please, be pissed off about the right things.” For me, though, our politics is characterized by too little of what Eric calls “legitimate public anger” and too much tribal anger. (The book is written as a dialogue between Eric and Mark, which is nothing like as annoyingly twee as you might expect).

This, I suspect, reflects some important cognitive biases. One the one hand, several of these cause people to accept injustice: a status quo bias, resignation, the just world illusion and so on. But on the other, as Ben Friedman showed, recessions make us more intolerant of outsiders and cause increased solidarity with “our own” – hence the rise in tribal anger since the financial crisis.

Whilst I’m disappointed with their failure to explain why we have the wrong sort of anger, Blyth and Lonergan are surely bang right to see that many western economies have suffered a massive political failure:

We have an abject failure of policy. Rather than presenting a major programme of economic reform, the global political elite has offered nothing substantive, instead choosing either to jump on the bandwagon of nationalism or insist that nothing fundamental is wrong…The political classes - bereft of ideas – are now desperately peddling old ideologies and instincts, or pursuing bizarre distractions like Brexit.

This problem is not confined to the UK and US. Blyth and Lonergan are rightly scathing about the response to the euro crisis.

Another thing I really like are their policy proposals. These are usually the weakest sections of many economics books, but not here. Tougher bank regulation, a National Wealth Fund (using low government borrowing costs to buy equities from which to pay dividends for all), dual interest rates and the option of central banks writing (pdf) everybody a cheque are all fine ideas well advocated.

But, but, but. If there’s one thing we’ve learned from recent years it is that the quality of an idea and the chances of it being adopted by politicians are two different things.

Our problem is not a lack of good policy ideas. We’ve plenty of these: to Blyth and Lonergan’s list we might add a green new deal, citizens income, universal basic services, job guarantee and worker coops among others.

Instead, our problem is that our political-media system functions as a device for selecting against good ideas and in favour of charlatans and grifters. Like Blyth and Lonergan, politics and the media distinguish between righteous anger and tribal atavism – but they do so to favour the latter. And too many in the Labour party connive in this: it’s strange how “legitimate concerns” are always about immigration rather than poverty wages.

I’m not sure, then, that the problem of anger in politics can be solved merely by economic policy ideas. These have little chance of adoption without a political revolution to establish institutions and modes of debate which select for good ideas rather than against them. We need, therefore, forms of deliberative democracy. These – and I fear only these – would enable the sensible policy ideas of Lonergan and Blyth.

But this raises a question. What chance do we have of such reform, given that our existing institutions serve extractive capitalism so well by diverting anger away from its proper target?

Experts: the Caprice challenge

What do experts know? This question arises from the reposting the other day of an exchange between Caprice and Dr Sarah Jarvis, wherein Caprice argued for an early lockdown and mask-wearing, only to be opposed by the doctor. In hindsight, it looks as if Caprice might have been more correct. Which poses the question, for economists as much as other scientists: how should we talk to lay-people? Here are some suggestions.

First, know what you know and what you don’t. As Charlie Munger said, “it’s not a competency if you don’t know the edge of it.” Economists, for example, do not know how to forecast recessions. We should admit this fact.

In particular, we should know the difference between the map and the terrain. The doctor told Caprice: “Unless you have read every…statistical modelling paper that’s come out you cannot argue with me.”

One problem here is that you should not close down debate by appealing to expertise or credentials. The only expertise that matters is that you can demonstrate.

Another problem is that it poses the question rightly raised (pdf) by Dani Rodrik: how do we choose which model to apply to which bit of reality? Even today, there is much that’s not known about Covid-19. The question of which model to chose to describe its progress was therefore one on which scientists should have been humble  - certainly more so than Dr Jarvis. When you don’t know what to do, erring on the side of caution – an early lockdown in this case – is not unreasonable.

One example of this problem in economics is that we had a good model of how globalization creates gains from trade and hence potential Pareto improvements. This model, however, over-estimated the ability of resources to shift to new occupations. Instead, as Banerjee and Duflo wrote:

When bad news arrives in the form of greater competition from outside, instead of embracing it and moving resources to their best possible use, there is a tendency to hunker down and hope the problem will go away on its own. Workers are laid off, retiring workers are not replaced, and wages start to drift down. (Good Economics for Hard Times, p65)

Economists therefore under-weighted the prevalence (and anger) of the “left-behind” – which gave us Trump and Brexit. Our talk of GDP growth invited the reply: “That’s your bloody GDP. Not ours.”

Expertise, especially in the sense of a command of theoretical models, can blind us to ground truth. And lay-people sometimes know this better.

It can also cause us to under-estimate the importance of tacit knowledge. Sure, Caprice has no book-learning of epistemology, but she had a hunch that something big was needed. And tacit knowledge is important. Entrepreneurship rests upon hunches that new processes are possible or that new products are wanted.

This mix of ground truth and gut feel means we should listen to lay people. This is especially true of the totality of them when the conditions are fulfilled for there to be wisdom in crowds. Consumer spending relative to wealth can help predict equity returns, for example, because aggregate spending embodies the dispersed ground truth and gut feels people have about the future. Experts lack such knowledge.

In saying all this, I’m echoing a point made by William Easterly:

The experts are as prone to cognitive biases as the rest of us. Those at the top will be overly confident in their ability to predict the system-wide effects of paternalistic policy-making – and the combination of democratic politics and market economics is precisely the kind of complex and spontaneous order that does not lend itself to expert intuition.

Experts must guard against over-confidence. Just because you know more than the lay person does not mean you know it all, or even that you know enough. They must also be aware of groupthink and deformation professionelle.

So what do experts know that lay people don’t?

Connections. That’s what. Zeev Kril and David Leiser show that lay people are terrible at making connections and identifying causal links. People didn’t blame fiscal austerity for low returns on their savings for example; wrongly believe the effects of “fiscal prudence” are similar to an individual’s prudence; and wrongly blame immigrants for a weak jobs market.

It’s the job of experts, then, to show that social science is often not common sense: for example, behaviour that’s sensible for an individual might be bad for us collectively.

What I’m proposing here is a sort of (loose) division of labour. Experts know explanations and (sometimes) useful aggregate facts. But they often don’t know the future or ground truth. We should respect the division of labour. Whether we have the political and media institutions that do so is, however, another matter.

On cancel culture

In the lively debate about “cancel culture” provoked by that letter to Harper’s magazine, there’s one point which I fear is underplayed. This is that there are understandable reasons why reasonably educated middle-aged people should be surprised and discomforted by what the Harper’s signatories call “moral certainty” and what Janice Turner calls an “angry throng.” It’s because several strands of the western liberal tradition simply don’t prepare them  for this, and have left some of us – including me – befuddled by da yoot.

One thing I’m thinking of here is Rawlsian liberalism. This rests upon the concept of a veil of ignorance, which requires that we slough off any knowledge of our identity – our race, gender, religion or intellectual abilities and beliefs – and build an idea of a just society independent of our own identities. This invites us to perform a psychological trick, to distance “ourselves” from who we are and what we believe.

Such a trick is reinforced by some readings of Richard Rorty’s liberal irony. the idea that we cannot find a “God's-eye point of view” which frees us “from the contingency of having been acculturated as we were.”

Now, one interpretation of this is that it rejects gender (and racial) essentialism. But it also warns us to beware of the limits of that acculturation and of how our identity constrains our thinking. Hence the need, said Rorty, for free speech:

Our best chance for transcending our acculturation is to be brought up in a culture which prides itself on not being monolithic – on its tolerance for a plurality of subcultures and its willingness to listen to neighbouring cultures. (Objectivity, Relativism and Truth, p14)

A further, separate, influence here is the cognitive biases research inspired by Daniel Kahneman. In its worse interpretations (and I might have been guilty of these!) this invites us to see other people as a mass of errors of judgment. But it has a better reading – that we ourselves are also easily mistaken.

These traditions are – or should be – a massive influence upon educated people of my age. Taken together, they are antithetical to what Helen Lewis called the desire for a simple world, or what Richard Sennett called “purified identities”.  Instead, these traditions encourage a cool-headed scepticism in which we are alive to the possibility that we are mistaken, and can distance ourselves from who we are and what we believe. A.J.P. Taylor expressed this tradition when he said he had “extreme views, weakly held.” This blog’s tagline – an extremist not a fanatic – is in the same tradition.

If you come from this background – as liberal centrists do – you will be discomforted by anger, moral certainty and attempts to close down debate. It’s the product of their acculturation.

But is it justified? There has always been scepticism about whether we really can pull off the Rawlsian trick of separating “ourselves” from our identity: this was expressed by Michael Sandel’s Liberalism and the Limits of Justice. It is easier to be a liberal ironist if you are a white man than if you are somebody whose gender and race defines their oppression and marginalization. In this sense, it’s a lovely irony that those influenced by the liberal tradition are failing to do what Rorty encouraged us to do and are not transcending the limits of their acculturation. It’s also of course the case that ironic self-reflection has not always been prominent in the writings of all those who are opposed to “cancel culture.”

Indeed, we can level more serious charges at some opponents of “cancel culture”. One is hypocrisy. Some of them have been happy to overlook the marginalization (cancellation) of BAME or trans people (or Marxists) in the media for years. Some, as Andrew Gelman says, “want to maintain their power by suppressing dissent”. And others are quicker to whine about disobliging comments on Twitter than they are to condemn genuinely disgraceful attempts at cancellation such as the death threats against Dawn Butler. And there is an under-appreciation of the power of corporations to limit the free speech of their workers or critics; to read some complaints about cancel culture you'd imagine that the only threats to freedom come from the little people. There's some force, therefore, in the old saying: when you are accustomed to privilege, equality feels like oppression.”

And it is, of course, quite reasonable to question privilege. It’s as reasonable to ask whether somebody deserves the big platform of a newspaper column as it is to ask whether Joe Denly deserves to be in the England side.

Even those who aren’t guilty of hypocrisy, however, are failing to see that a well-functioning marketplace in ideas requires that bad ideas be driven out - be cancelled. Reasonable people surely think it a good idea that David Irving’s holocaust denial has been cancelled, and that we don’t waste time debating defences of slavery or of denying women the vote. A healthy public realm must have some element of cancel culture: the issue is how much.

But, but but. Even narrow-minded privileged hypocrites can be right sometimes. There is a point – which is hard to define, especially when passions are high – when robust opposition shades into bullying and harassment. Bari Weiss might not deserve the privilege of a platform in the New York Times, but she is entitled to not being bullied.  

Mill surely had a point when he warned that the tyranny of the majority (or even of a fanatical minority) could have a chilling effect upon legitimate debate. One person’s legitimate elimination of bad ideas is another’s unreasonable silencing.

All of which leads me to agree with Dorian Lynskey. He points out that the issues here are ancient ones – Socrates was cancelled – precisely because they are tricky. If you think there’s a simple answer here, you don’t understand the problem.

The Deficit Myth: a review

One common objection to neoclassical economics is that it underweights the importance of history and class. It is therefore paradoxical that Stephanie Kelton's The Deficit Myth, which claims to challenge orthodox economics, should be guilty of just these vices.

Let's start by saying that I wholly agree with the main claims she makes - that a government which enjoys monetary sovereignty can always finance its borrowing. Asking how we will pay for public spending is therefore daft. Instead, the question, as Dr Kelton says, is: can the extra spending be resourced? The constraint on raising health spending for example - if there is one - is a lack of doctors and nurses, not a lack of finance. Where there are resources lying idle, governments should raise spending to employ them. Dr Kelton explain these ideas wonderfully clearly, so I recommend this book to all non-economists interested in government finances.

For this economist, though, it poses a problem. I remember writing a research note for Nomura back in the early 90s arguing that increased government borrowing would not increase gilt yields because the same increased private saving that was the counterpart of government borrowing would easily finance that borrowing. Nominal gilt yields, I said, were determined much more by inflation than by government borrowing. But nobody accused me of originality. And rightly so. I was simply channelling Kalecki, Beveridge, Lerner and Keynes, who famously said back in 1933:

Look after the unemployment, and the Budget will look after itself.

For me, Kelton is - albeit very lucidly - reinventing the wheel. Reading her, I felt like Mr Jourdain in Moliere's The Bourgeois Gentleman, who was surprised to discover that he had been speaking prose all his life.

Here, Dr Kelton is more ambiguous than I would like. At one stage she claims that MMT "didn't exist" before the late 90s. But whilst the phrase did not exist, the ideas certainly did. Randall Wray is right to say (pdf) that "the main principles of functional finance were relatively widely held in the immediate postwar period."

And indeed Kelton does occasionally see this. There is passing reference to Lerner and to Keynes' How to Pay for the War, though not to Kalecki. And she cites JFK agreeing with James Tobin saying that "the only limit [on government borrowing] really is inflation."

Which is why I say she underplays history. I agree with Gavin Jackson that MMT is not new, and with Hans Despain that she neglects the ontology of MMT. We must ask, as she doesn't: why did these old truths get forgotten*?

I'm not sure about Wray's explanation, that it was because of the inflation of the 1970s. In principle, we might have interpreted that as consistent with functional finance, except that the inflation constraint on borrowing had tightened since the 50s.

Instead, I suspect the answer lies in Kalecki's great paper (pdf), "Political Aspects of Full Employment", written in 1942. He starts by saying "we are all 'MMTers' now":

A solid majority of economists is now of the opinion that, even in a capitalist system, full employment may be secured by a Government spending programme, provided there is in existence adequate plant to employ all existing labour power, and provided adequate supplies of necessary foreign raw materials may be obtained in exchange for exports.

What's not to like, he asks? His answer lay in something else Kelton neglects: class.

Capitalists, he wrote, disliked what we now call MMT because it weakened their power. If governments can use fiscal policy to maintain full employment, they don't need to maintain business confidence and so "this powerful controlling device loses its effectiveness":

The social function of the doctrine of "sound finance" is to make the level of employment dependent on the "state of confidence...[Capitalists'] class instinct tells them that lasting full employment is unsound from their point of view and that unemployment is an integral part of the " normal " capitalist system.

It is surely no accident that the backlash against functional finance came at a time when capitalists re-asserted their power over governments. Nor is it an accident that it's happened when capitalism has shifted away from mass-market Fordism to extractive finance capital: the former requires full employment and a mass market, the latter requires cheap money instead.

The analogy between government and household finances is of course a fiction - as we've known for almost a century - but it is a useful fiction for maintaining capitalists power.

Which is a big gap in Kelton's analysis. In treating public finances as merely a technocratic matter, she is ignoring the fact that capitalist power sometimes precludes good policy. She is making the error Kalecki warned us against:

The assumption that a government will maintain full employment in a capitalist economy if it only knows how to do it is fallacious.

Kelton is right. To implement her ideas (and those of Kalecki, Keynes, Lerner, Beveridge and Minskly!) however requires more than an intellectual (counter-)revolution. It requires a dismantling of capitalist power. And that's a tougher job.

* She neglects another historical question: if monetary sovereignty is as good as she claims, why were European nations (with the support of both public and economists) so keen to abandon it in the 1990s? One answer, I suspect, is that countries lacking the US's "exorbitant privilege" had less effective sovereignty. Whereas demand for Treasuries and dollars is so great as to give the US room to borrow, demand for drachmas, escudos and lira was not so great - and the dumping of such currencies meant their governments faced a tighter inflation constraint than the US.

Reclaiming freedom

We might be seeing a significant political change, with the left reclaiming freedom and anti-statism from the right.

I'm prompted to say this by the Black Lives Matter slogan, "defund the police" which invites us to see the state as an oppressor. As Grace Blakeley recently tweeted:

People know that the state is fucking them over just as much as their boss or landlord - in fact, it’s helping their boss and landlord fuck them over even more...Rather than saying ‘just give more state power to the goodies (us)’ we need to start saying ‘put power where it belongs - in the hands of working people’.

If we read this alongside the disappearance of right-libertarians (some of whom discovered that they like racism and inequality more than small government) and emergence of big government Toryism, we see a big change from a few years ago. Back then, it was the right who called for a smaller state and much of the left that wanted a bigger one. Now it is, if anything, the opposite*.

In one sense this is a return to normality. Historically, advocates of freedom were opponents of the existing order, such as Tom Paine, John Stuart Mill and - yes - Adam Smith**. And, of course, Marxists have long regarded the state as "a committee for managing the common affairs of the whole bourgeoisie" and looked forward to it withering away.

Which poses the question: why are things now changing (back)?

One reason is that the left has learned that states are indeed often repressive. I'm thinking here not just of police killings but of the social murder that is austerity and tough benefit sanctions, and the forced deportations of black Britons (something still going on).

Secondly, they've learned that, as Grace says, it is not good enough to "give more state power to the goodies". Yes, New Labour did make significant achievements in tax credits, Sure Start and better funding of schools and the NHS. But many of these have been reversed by the Tories in the subsequent decade. The left cannot pin its hopes merely on winning temporary (and partial) control of the state.

Thirdly, changes within capitalism have changed the state. Of course, capital (pdf) has always wielded power over governments. But there was a time when this was relatively benign. In the post-war war mass production Fordist capitalists needed a mass market and hence an affluent working class. Extractive finance capital, though, doesn't. It needs cheap and plentiful money which fiscal austerity helps provide. General Motors needed a large well-paid working class; Goldman Sachs, not so much. This means there is now more tension between the needs of working people and the function of the state than there used to be.

All of which poses the question. What would anti-statist leftism look like?

Many of you might think the slogan "defund the police" goes too far. No matter: we don't know what's right unless we know what's too much. And what is right - as Elinor Ostrom showed - is that the police should be small and locally accountable. Also, there's a strong case for decriminalizing drugs, in part because it removes a pretext for the police to harass black people.

A high universal basic income would also expand freedom, not just by removing the harsh conditionality of Universal Credit, but also by giving us the freedom to reject exploitative labour or to drop out of the labour market to care for others or to train for better work. As Guy Standing says (pdf), "basic Income’s emancipatory value exceeds its monetary value."

Also, left-libertarianism must empower local communities, and embrace the community wealth-building advocated by Martin O'Neil and Joe Guinan and pioneered by Preston council. In weakening the power of central government, localization mitigates the damage done by Tory austerity. And it also gives local people more republican freedom - the freedom to collectively control more of their own lives.

There's something else, which the Black Lives Matter movement is also highlighting. It's that slavery teaches us something about economics. As Peter Doyle shows in a brilliant paper (pdf), markets produce incentives to undermine others' agency. Although slavery is the most extreme example of this we also see it in everyday capitalist labour markets. As Marx said, when we they start work workers leave behind the realm of equality and freedom and become mere factors of production. Left-libertarianism would put in place institutions to resist this and expand the realm of genuine agency. This would comprise worker coops and more local say over public services.

I say all this not to offer detailed blueprints: Marx was right to be sceptical of these. Instead, the point is that the left can and should pick up the cause of freedom now that the right has abandoned it.

* We mustn't be misled by the right's loud assertion of a right to free speech. What they are really proclaiming is the "right" to spout rubbish without any comeback, which is an altogether different matter.

** If you think the Adam Smith Institute is a representative guide to Smith's thinking, the wallet inspectors would like to meet you.

Profits before jobs

We live in a capitalist economy. It's this trivial fact that must determine how we view the Chancellor's so-called plan for jobs.

The point is that much of what he's doing is a lot like corporate welfare. For example:

 - The Job Retention Bonus - £1000 to an employer for every employee who remains continuously employed to January - will hand out cash to firms that would have retained staff anyway. At the margin, it will encourage firms to retain employees insofar as it reduces the cost of doing so. But the margin might not be very extensive.

 - The Kickstart scheme pays bosses the cost of hiring onto a minimum wage job a young worker who is currently on Universal Credit. This risks encouraging firms to hire such workers, at the expense of those who are not on UC - such as those leaving school or college. And again, it give money to firms who would have done this anyway. Again, it's a handout.

 - Paying employers to take on apprenticeships and trainees encourages them to do so at the margin, but again also pays some for doing what they would have done anyway.

 - Some people are objecting that the VAT cut for the hospitality trade will not be passed onto customers. But this is the point: it will raise profit margins instead.

 - The Eat Out to Help Out scheme will boost demand for restaurants. Yes, insofar as it does so it will encourage diners and staff to take risks with their health. But as Marx wrote, "Capital is reckless of the health or length of life of the labourer."

The point here is that capitalists only hire or retain workers if it is profitable to do so. Wage subsidies increase those profits. In this sense, the fact that so much of today's plan is corporate welfare is a feature, not a bug.

From this perspective, complaining about the deadweight cost of the plan - that it will pay firms to do what they'd have done anyway - misses the point. For one thing, there's a knowledge problem here: the government cannot distinguish between firms that need incentivizing to retain or workers and those who don't. Given that fine targeting is impossible, some deadweight cost is inevitable.

And, in fact, desirable. Whereas those of us who have kept our jobs have seen our finances improve - the Bank of England reports a £41bn rise in households bank deposits in the last two months - the lockdown has been terrible for many firms' cashflow.

Sure, in normal times it would be reasonable to complain that such costs distort allocative efficiency. Right now, though, a big Okun gap is more important than a lot of Harberger triangles. These are not normal times, and Sunak woudn't be introducing such measures if they were.

As it is, Sunak at least has the wit to see that in a capitalist economy it is imperative to maintain profits. This outweighs any consideration of allocative efficiency.

This also helps explain why support for freelancers - and indeed the arts until very recently - has been so patchy and late. A loss of freelancers is not an existential threat to capitalism but a slump in profitability is.

In theory, there is an alternative here. A Job Guarantee would protect and create jobs without corporate welfare. And it could, in theory, do so by providing jobs that are socially useful but not highly valued by capital, such as care work or improving local environments. This, though,was not an option for Sunak. We lack the policy infrastructure to identify good jobs; this task can only be done locally, and yet local government has been almost destroyed.

In the real world of capitalism, then, corporate welfare and cronyism are the only options - for now.