Stumbling and Mumbling

Maxxed out?

Laura Kuenssberg said yesterday:

“This is the credit card, the national mortgage, everything absolutely maxxed out. Enormous levels of the country basically being in the red.”

This is obviously the most abject drivel. (Hint: how many credit card companies will pay you to borrow when you are at your credit limit?) What interests me, though, is: how can any sentient being utter something so stupid?

Some of you will blame dishonesty and partisanship. But I suspect some more interesting, and insidious, errors are at work.

One is something I’ve complained about before. The BBC is insufficiently aware of emergence – the fact that many social phenomena are the product of human action but not deliberate design.

The public finances are one such phenomenon. It’s true that government borrowing has hit a record high this year. But so too has something else – the household savings ratio. Isn’t it a remarkable coincidence that two records have been broken at exactly the same time?

No, because they are the counterparts of each other. Every pound borrowed must equal a pound lent, so government borrowing is by definition the counterpart to private sector net saving. The lockdown, plus the health risks of going out and the uncertainty about our personal finances, has caused private sector net saving to soar. The counterpart to this is that government borrowing has also soared.

This is why I say government borrowing is emergent. It is an unintended result of countless private sector decisions. Which is why interest rates are so low: the same rise in private sector savings that causes government borrowing to rise also causes interest rates to fall.

If you have a bias against emergence – as the BBC has – you’ll not be alive to this. Instead, Ms Kuenssberg seems to regard government borrowing as the result of government agency, in the same way that an individual has control over her personal borrowing – hence her talk of credit cards. But this is not the case.

This error is compounded by others. 

One is the failure to see that some opinions are more important than others. The opinion that matters about government borrowing isn’t Ms Kuenssberg’s or mine or yours. It is that of the people lending to the government, of gilt investors. And not only are these willing to lend at sharply negative real rates, but also they expect rates to remain negative for years. This fact alone tells us the “credit card” is not maxed out. Unless you are providing strong reasons why clever people with skin in the game are mistaken, your opinion is irrelevant waffle.

A further error is a lack of historic perspective. David Cameron claimed that “our nation’s credit card” was maxed out back in November 2008. Public sector net debt was then £672.2bn. It’s now £2076.8bn (much of which is owed to the Bank of England.) Mr Cameron was, therefore, plain wrong – by a factor of at least three. Anybody with a sense of perspective would ask: if he was so egregiously wrong then, why should the claim be right now? I fear that the obsession with 24-hour news cycles – and with over-dramatising stories - might have distracted Ms Kuenssberg from such a perspective.

Perhaps, though, there’s something else. It’s the valorization of talk over evidence. Ordinarily, somebody claiming that the nation’s credit card was maxed out would ask: what evidence do we have for this claim? In terms of objective fact there is of course none, zero, zip, diddly squat. In terms of talk, however, I suspect there is plenty in the circles in which Ms Kuenssberg moves, as many MPs (perhaps not all of them Tories) and political journalists have imbibed and recycled Cameron’s untruth. If so, Ms Kuenssberg has fallen into the common error of groupthink: as Robert Frank has shown, our views are often influenced by our peers. Ms Kuenssberg’s error is an egregious one, but perhaps not an isolated one.

Whether it is or no, the fact is that it is a costly error. An ONS report this week has found that the public is ill-informed about basic economics – a finding which corroborates other evidence of their lack of knowledge of social facts. As our dominant broadcaster, the BBC must be partly responsible for this ignorance. And I suspect the responsibility is not so much Ms Kuenssberg’s alone as it is the result of biases which are shared by many political journalists.

Full employment, capitalism & regress

The Guardian is reinventing the wheel. Its leader yesterday said:

Nobody but the government can take responsibility for maintaining the total level of spending in the economy at a level that keeps the country as close to full employment as possible.

Like all the best ideas, this is not original. In fact, it’s as new as powdered eggs or Woolton pie. It echoes this from William Beveridge in 1944 (pdf):

It must be a function of the State in future to ensure adequate total outlay and by consequence to protect its citizens against mass unemployment. (Full Employment in a Free Society, p29)

Which poses the question: why has Beveridge’s thought been so forgotten that it must now be rediscovered?

The answer is that, by the mid-70s, full employment was causing inflation, industrial unrest and a squeeze on profit margins, much of which vindicated Kalecki’s famous prophecy (pdf):

Under a regime of permanent full employment, the 'sack' would cease to play its role as a disciplinary measure. The social position of the boss would be undermined, and the self-assurance and class-consciousness of the working class would grow. Strikes for wage increases and improvements in conditions of work would create political tension.

Partly fueled by this, there was an intellectual backlash against Beveridge’s Keynesianism. Insofar as full employment was a policy aim at all, many economists thought it should be pursued by the control of inflation, supply-side reforms of labour markets such as controlling trades unions and curbing welfare benefits, and giving businesses a stable environment in which to invest and grow. Although this general approach took many specific forms - monetary targets were swiftly abandoned for example – New Labour largely continued it, as did the Tories with George Osborne’s idea of “fiscal conservatism and monetary activism”.

This approach, however, has failed. Even at its low-point last year, there were 1.3 million officially unemployed, another 1.9 million out of the workforce wanting a job, and millions more not working the hours they’d like.

Which lends credence to the Guardian’s rediscovery of Beveridge’s claim.

But would this actually work?

In a sense, it’s not really ever been tried. We didn’t see much counter-cyclical fiscal policy in the post-war decades. Full employment probably owed more to the fact that the war had created a huge backlog of demand – although it’s also possible that the mere assurance that governments were committed to full employment helped sustain expectations of demand.

And it might not work this time.

If wage-led growth is to be feasible (pdf) capitalists must continue to invest in the face of incipient wage pressures in the expectation that aggregate demand would stay high.

But this is doubtful. Higher wages might not lead to proportionately higher demand. This would be the case if workers use their pay rises to pay off debt or save more, or if they buy foreign goods and services instead: some researchers have found that wage-led growth is less likely in open economies for this reason.

Also, there are two big differences between now and the immediate post-war period. Back then, capital spending and private sector hiring stayed strong because there was a backlog of innovations and a high profit rate. But as Robert Gordon and Michael Roberts have shown, these factors are now absent.

And then there’s the problem that neoliberalism is partly performative. For decades, industrialists have become accustomed to slack labour markets and a quiescent labour force. Ending this regime could in itself weaken animal spirits.

What’s more, a big section of capital would be ill-served by wage-led growth. Finance capital does well from weak aggregate demand because this cuts the interest rates on which leveraged strategies depend: Ford might have needed full employment; Goldman Sachs does not.

For these reasons, there’ll be strong capitalist opposition to a return to Beveridgeism - objections which I fear will apply just as strongly to a job guarantee. Which matters, because full employment is not merely a matter of technical know-how, but of class power. As Kalecki said:

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

But what inference should we draw from this?

It is NOT that full employment is impossible. Rather, it is that it is incompatible with capitalism.

This, of course, is not a new inference nor even a uniquely Marxist one. The monetarist/new classical backlash against Keynesianism was not the only intellectual response to the crisis of the 70s. There was another one. Some economists showed that full employment could be sustained with worker ownership: Martin Weitzman called this the share economy and James Meade wrote of labour-capital partnerships. Full employment created inflation because it fueled a “battle of the mark-ups”. But if workers and capitalists are the same people, the battle lines disappear.

Beveridge actually anticipated something like this response. In 1944 he wrote:

Whether private ownership of means of production to be operated by others is a good economic device or not, it must be judged as a device. It is not an essential citizen liberty in Britain... If…it should be shown by experience or by argument that abolition of private property in the means of production was necessary for full employment, this abolition would have to be undertaken. (Full Employment in a Free Society, p23)

This approach has, however, been almost totally forgotten – including, it would appear, at the Guardian.

So great and so total has been the intellectual regress of recent decades that our most left-wing newspaper today is far to the right of a man whose mindset was that of a nineteenth-century liberal.

Our priorities

One of the dafter genres of political writing is the offering of unsolicited advice to leaders. Nevertheless, I’d like to suggest what I would do if I were Sir Keir Starmer. You can think of this as advice if you’d like, but I’d rather regard it as a way of contrasting two different types of politics.

What I’d do is to greatly beef up the party’s National Policy Forum, giving it more resources, a much higher profile and emphasising that it is open to all. We need ongoing informal and widespread public inquiries in which experts, the public and interest groups are engaged. These should be exercises in deliberative democracy in which devices such as citizens’ juries are combined with academic research.

Connecting with grassroots is not an alternative to technocracy. The two are complements because good policy requires a detailed knowledge of ground truth.

I stress here that these are not focus groups: the party must ask not “what do you think?” but “what do you know?” And the results of this research must form policy, and not be over-ridden by the instincts of party leadership or by the search for quick headlines. Phil says that:

Labourist politics relies on mass passivity, it's an elite project where the masses vote in the politicians, and they make the changes by passing legislation.

This must change.

Here are some examples of what I mean:

 - What is global best practice? Why have some countries such as South Korea and New Zealand handled Covid much better? Why is French childcare so good and cheap? Why has Finland (until recently) had better education outcomes? Can we learn from these, or are there cultural factors that prevent us importing their success? And so on with respect to public transport, infrastructure, vocational training etc. In contrast to Tory waffle about a “world beating” test and trace scheme, Labour should have detailed empirical evidence on best practice in public services from around the world.

 - How do we put in place the right policy infrastructure for fighting recessions? This year’s events have reminded us that recessions are unpredictable. And the government’s response has been patchy, with many (especially the self-employed) not getting the financial help they need. Which poses the question of how to ensure the government or Bank of England can get support quickly to everybody in the next downturn. The means of delivering helicopter money or people’s QE must be in place.  

 - How do we reform the tax and benefit system? Yes, there’s a case for land value tax. But the details are key: how to value land, what to do about people who are asset-rich but cash-poor and so on? Ditto lots of other tax changes, such as ending the bias towards corporate debt. The same’s true of benefit reform. Whilst a basic income is appealing, can we reconcile it with wide variations in personal needs and housing costs? In these questions, the experience of benefit users is crucial: how can we make the system as simple and quick as possible, so users do not face weeks without cash, or uncertainty and harassment, and how can we ensure that the transition from benefits to work is as smooth as possible?

 - Why have real wages stagnated since the mid-00s, and how might this be reversed? The main reason is stagnant productivity rather than increased exploitation. And there are many likely causes of that stagnation. But how can we get productivity going again? Increased aggregate demand is part of the answer. So too is better training and management, stronger competition (included from overseas), more innovation and R&D and - yes- greater equality. But how to achieve these?

 - What are the links between economic growth, institutions and values? We know from Ben Friedman’s work that economic growth increases tolerance and liberalism, so we need it to reduce the right’s ability to exploit culture wars; the left will win these by economic growth, not by being dragged onto the right’s terrain. Necessary as growth is, though, this does not suffice to get us to socialism. Some believe that this requires a change in values, towards more reciprocal altruism. But what institutions might promote such values? Failing that, how might we harness self-interest to promote socialism? How far can or should we promote decommodification, for example?

 - How can we empower working people? We know that union membership and more autonomy improve worker’s well-being – which is great not only in itself but also because happier workers are more productive. But how can these be extended? Is a shorter working week also feasible? How else might job satisfaction improve?

 - What corporate forms should government encourage? We’ve evidence that coops can raise productivity, and that a stock market listing can reduce efficient investment. Which poses the questions: how far can cooperatives be rolled out? What form should worker control take? What are the relative merits of regulation and nationalization in dysfunctional industries (I suspect there’s a stronger case for nationalizing banks than utilities)? How can nationalized industries be put under effective and democratic control? How far should outsourcing go, and should it be dominated by the usual suspects? Can procurement policy be used to encourage coops? I’m not sure there are general answers here. Context is everything.

 - How might we best achieve value for money in the public sector? We all know that the only binding economic constraint upon fiscal policy is inflation. But there might come a time when this constraint bites. So efficient public spending matters. But how can we ensure that government procurement isn’t dominated by cronyism? How can we empower public sector workers to identify waste and improve efficiency?

 - How can we best promote green growth? We know we need it. But what are the mechanisms? How do we best encourage green R&D and innovation? What’s the role of taxes and subsidies?

You might reply here that we know some of these answers. Maybe. But politics isn’t only about ideas. It’s about what ideas get mobilized and which side-lined. The point of such an exercise is to increase the salience of these policy areas – to ensure that they, and not the passing faff of newspaper headlines, form the agenda. This requires a form of message discipline from Labour MPs - to stick to issue that matter and not respond to media froth. 

What’s more, abstract centralized knowledge of principles is not enough. We need detail and ground truth. And this comes from mobilizing not just academic experts, but local experts – those with hard experience of getting benefits, working in the NHS, setting up a small firm and so on. Hence the need for widespread, bottom-up deliberation.

This might seem technocratic stuff. And God knows we need that. But it’s a different sort of technocracy. It’s not the bullshit managerialism of New Labour, but a genuine drive to harness local expertise. Ground truth is everything.

But it’s more than that. What all this amounts to is a different way of doing politics. It sets the agenda. It says: our focus is upon real, material living standards, and we must resist distractions from this. It also says that policy is to be developed not with regard to fleeting newspaper headlines but to hard empirical evidence. Policy is not something to be pulled out of your arse or a newspaper column.

The aim of this exercise should be to marginalize the likes of Kuenssberg and Peston, as well as all those centrists and right-wingers who think that politics is about the voices in your head rather than the ground truth of living standards. The message to these should be: you are irrelevant.

Now, it should be obvious that my point in saying all this is not to offer advice to Starmer but rather to highlight how a different politics is possible, and how Westminster-centric politics is a trivial distraction from material truths. In an age of stupidity, the pursuit of expertise becomes a revolutionary act.

Farage's dangerous appeal

Nigel Farage’s effort to rebrand the Brexit party as an anti-lockdown faction poses the question: what’s the link between being pro-Brexit and anti-lockdown?

It might seem there’s none. Sure, anti-lockdowners are proclaiming the virtues of freedom. But the anti-migrant sentiment Farage stirred up during the Brexit referendum is the antithesis of libertarianism. If we put it nicely, Reform UK is an unstable coalition between cultural conservatives and libertarians. Less nicely, it’s just another toxic grift.

Perhaps, though, there is a common theme between hostility to migrants and the lockdown. It lies in something Richard Sennett wrote fifty years ago in The Uses of Disorder. Social life, he said, is a process of awkward encounters not just with other people but with a reality that is other than we’d like it to be. Many people cope with this by developing a “purified identity” that denies dissonances and discomfort:

The threat of being overwhelmed by difficult social interactions is dealt with by fixing a self-image in advance, by making oneself a fixed object rather than an open person liable to be touched by a social situation.

Such a self-identity, said Sennett, is “a fearful defence against the unknown future” which arises from “a fear of the sources of human diversity that create history.”

Farage’s reaction to feeling “awkward” on hearing foreign languages on a train exemplifies this. It was not to celebrate the freedom that people have to come to the UK, nor to wonder what benefits diversity brings. Instead, it is to resist such migration. His fixed identity must have priority over dissonant reality. (We might add that this fits Perry Anderson’s idea of “imagined communities.” As Sennett says, “the myth of community solidarity is a purification ritual.”)

In the same way, rather than see the lockdown and mask-wearing as the price we must pay to combat the virus, Farage resists it. He wants to screen out dissonance and assert the priority of his preferences over the imperfect solution to a collective action problem. This is the attitude of a narcissistic toddler throwing a tantrum because he is unable to accept that the world is not as he wants it to be.

To put this point into sharper focus, we can contrast this to two other attitudes. One is expressed in Dar Williams’ astounding song After All. “Once upon a time I had control and reined my soul in tight” she sings. This purified identity however led her to the brink of suicide. But, she continues:

Cause when you live in a world
Well it gets in to who you thought you'd be
And now I laugh at how the world changed me

Our fixed identity can jeopardize our mental health. Throwing it off and embracing dissonance enables personal change and growth – and survival.

But the hatred caused by dissonance need not always be channeled inwards. It can also be directed outwards. Noreena Hertz, following Hannah Arendt, argues that loneliness and isolation, and an inability to engage with the world as it is, fuels populism. Farage is tapping into this, and not in its most toxic form: think also of “incels” and perhaps Islamist terrorists.

My second point of contrast is with Friedrich Hayek. The thing about freedom, he said, is that we cannot foresee its benefits:

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. (Law Legislation and Liberty Vol I, p56-57.)

If we are to truly embrace freedom, with the benefits it brings (many of which are non-economic) we must therefore be prepared to tolerate some disorder, sights and sounds that some fixed identities would resist – be it foreign languages on a train or same-sex couples dancing on Strictly.

Which brings me to a paradox. The right sometimes accuse students and the left of being “snowflakes” – of having a Sennettian fixed identity which seeks safe spaces against uncomfortable interactions. Maybe this is right, maybe not - though as I am past the age of 21 student politics no longer interests me. Such an accusation, however, applies just as much to many on the right. And perhaps it does more social damage there.