Stumbling and Mumbling

Centrist utopianism

When I was a young leftist, older Tories would tell me that I would lose my idealism as I got older. Now I am old, I see that they were right. The problem is, though, that it is now the right and centre who are now the dreamy idealists and not me.

Take, for example, criticisms of the Bank of England for failing to prevent inflation. What these insufficiently appreciate is that policy errors are inevitable. This is simply because it takes two or three years for interest rates to have their full effect upon inflation, which means that rates must be set on the basis of a forecast of inflation. But forecasts will often be wrong. Which in turn means that, with hindsight, policy will be wrong - either too tight when inflation proves to be lower than expected or too loose when it proves to be higher.

The problem here is not a particular failing of the Bank of England, although it might well be the case that more cognitive diversity on the MPC would help. Instead, everybody gets forecasts wrong. My chart shows the point. It plots average private sector forecasts for CPI inflation made in December for Q4 the following year (for example, in December 2005 for Q4 2006). You can see that forecasters have generally failed to foresee big moves in inflation - such as the rises in 2008, 2011 and 2021-22 or the falls in 2014-15. Between 2004 and 2019 (that is, before the pandemic) the average error regardless of sign was 0.8 percentage points.

What's true of inflation is also true of economic growth. As Prakash Loungani has shown, forecasters have - on average - an almost unblemished record of failing to foresee recessions (pdf).

These errors* don't happen because forecasters are daft or under-incentivized. They occur because economies are complex and emergent and because shocks (such as Russia's invasion of Ukraine) happen. Economic outcomes are unpredictable, so the Bank of England is bound to make policy errors sometimes even with the best possible policy-makers. Saying that the Bank made a policy error is as insightful as saying that MPC members are human. 

The notion that we can have stable inflation is idealistic, utopian.

This, however, is not the only example of how the centre and right are too optimistic about what policy can do. Here are others:

 - NHS reform. History tells us that this is a difficult job: the last two big attempts (of many) to reform the NHS - internal markets and the Lansley reforms - were such failures that they have since been scrapped. Every addict knows that the definition of insanity is doing the same thing over and over and expecting different results. Wes Streeting, on the other hand, does not know this.

 - Benefit reform. This is motivated by an attempt to distinguish between deserving cases and the workshy. But such a distinction is very hard to make with limited information and finite administrative resources and any attempt to do so risks hurting the genuinely ill, especially those with mental health problems such as anxiety; criminals can game the system but the genuinely vulnerable cannot. The belief reform is possible without hurting the worst-off is another example of centre-right idealism**.

 - Immigration. Reducing immigration entails a loss of liberty, not just of the migrants themselves but of employers and those who want to bring a partner into the country. It also means higher taxes to attract domestic workers into public sector jobs such as care work. All these are costs we must pay to placate those who feel discomfort at social change. Which just illustrates Isaiah Berlin's point (pdf):

Some among the Great Goods cannot live together. That is a conceptual truth. We are doomed to choose, and every choice may entail an irreparable loss.

MPs - be they Labour or Tory - who promise lower immigration don't however frame it this way, as the tragic choice it is. Which is idealistic and unrealistic. As Berlin wrote:

Those who rest on such comfortable beds of dogma are victims of forms of self-induced myopia, blinkers that may make for contentment, but not for understanding of what it is to be human.

 - Boosting economic growth. The economy is large (£2.7 trillion) and complex and therefore difficult to significantly improve. Unsurprisingly, therefore, scholars such as Dietz Vollrath and John Landon-Lane and Peter Robertson have shown that reforms rarely do greatly raise GDP.

You might think this too pessimistic. Given that the UK is poorer than many of its comparators it should be easy to catch up. But this brings me to another example of centrist naivete - a failure to appreciate that politics is about power, not intellect.

Certainly, there are many policies we could try that might raise growth: tax reform; rejoining the single market; better competition policy; better vocational education; better planning policy; better financing for new and expanding businesses; and so on. Talk of these, however, omits the important fact - that boosting economic growth isn't so much an intellectual challenge as a political one. How do we face down the forces of conservatism that block growth: nimbys, landlords, financiers, incumbent monopolies and their mouthpieces in the media?

There's a common theme to many of these examples of centrist idealism - an over-optimism about how much management skill the country has, and how much top-down decision-makers can know (pdf). It is such optimism that has given us things as otherwise diverse as the Iraq war and cost over-runs on infrastructure projects.

Just as fish don't know they're wet, so centrist ideologues don't realize they have an ideology. Which is why their supporters set so much store by the "competence" of Starmer, Reeves and Cooper. True, they seem to be compared to the Tories, but that's a low bar. Instead, the actual bar is much higher: are they sufficiently competent to improve large complex structures? Just as "hire a genius" is not an effective strategy in business, nor is it in politics.

So, what's the alternative?

I'd suggest - more as a way of highlighting what I've said rather than as a concrete proposal - the need for policies and institutions that are resilient to failures of judgment. This means having strong automatic stabilizers rather than relying so much upon macroeconomic policy: I'm thinking here of a high welfare safety net, progressive taxation, a sovereign wealth fund or Shiller-style macro markets (pdf). Similarly, one argument for a universal basic income is that is removes the need and administrative burden of deciding who is deserving and who not.

By now, some of you might be shouting "tu quoque": isn't it hypocritical of a Marxist to accuse others of utopianism?

No. Marx was much more of an analyst and critic of capitalism than he was a writer of blueprints, and he was critical of those utopian socialists who tried to build "castles in the air." Instead, he said, "the emancipation of the working classes must be conquered by the working classes themselves”, in part because he didn't trust top-down plans. James Scott's Seeing Like A State is quite compatible with this strand of Marxism.

Of course, some Marxists have been idealistic utopians. But this has less to do with Marx than the human condition. Human kind cannot bear very much reality, so we retreat into dreams. Centrists and rightists are just as prone to do this as the left. The problem is that they get to inflict their dreams onto the rest of us.

 * I don't like the word "error" in this context. It carries implications that one could do better, when the point in this context is precisely that one cannot.

** I'm assuming that such reforms are motivated by good faith. In at least some cases, this is not so and hurting the unwell is a feature not a bug.

The class base of bad government

Everybody from the centre-right leftwards agrees that we have been unusually badly governed for the last few years. As Ian Dunt tweeted.

Quite a thing, isn't it. Reading about someone of the stature of Alistair Darling while watching someone as minuscule as Matt Hancock. A testament to how far we've fallen.

But why have we so fallen?

There's a tendency among some centrists to attribute it merely to bad people doing stupid things; the word "cockwomble" occurs with worrying frequency. This is too superficial. It's what I've called schoolteacher politics, the notion that bad policy is mere intellectual or moral error that could be avoided if only we had better people in charge (where, of course, "better" means more like us).

Instead, bad government is endogenous. It's the product of dysfunctional capitalism allied to our unusually toxic class system.

Let's start with the rise of illiberal reaction and the Tories' perceived need to appeal to the far-right. This hasn't occurred because the British people had a bang on the head, or were fooled by media barons, or succumbed to the elegant wit Tommy Robinson. Instead, it's yet another example of what Ben Friedman pointed out in 2006:

The history of each of the large Western democracies – America, Britain, France and Germany – is replete with instances in which [a] turn away from openness and tolerance, and often the weakening of democratic political institutions, followed in the wake of economic stagnation.

His point has since been corroborated by many others. Thiemo Fezmer has shown that - at the margin - austerity caused Brexit. Markus Brueckner and Hans Peter Gruener have shown that "lower growth rates are associated with a significant increase in right-wing extremism." And Ana Sofia Pessoa and colleagues have shown how "fiscal consolidations lead to a significant increase in extreme parties' vote share." This could be because a weak economy breeds discontent with the incumbent parties; or because people look for somebody to blame and that somebody is often the outsiders and marginalized; or because bad times generate a yearning for a past, one in which minorities were quieter. Whatever the reason, Marx was right:

The mode of production of material life conditions the general process of social, political and intellectual life. It is not the consciousness of men that determines their existence, but their social existence that determines their consciousness.

The far-right has tapped into this richer seam of reaction and illiberalism.

But why have we got stagnation? Austerity is part of the story. But austerity was endogenous - a reaction to the increased public debt caused by the financial crisis. As the late Nick Crafts said, "Brexit is a legacy of the banking crisis."

And that crisis was also endogenous.

To see why, imagine that there had been an abundance of profit-making opportunities in the early 00s. The fall in real interest rates we saw then would then have led to rising capital spending and R&D and to greater productive capacity. We'd have had faster GDP growth.

Which didn't happen. Growth was actually slowing even before the crisis. There was, as Ben Bernanke said, a "dearth" of such opportunities. That meant that lower rates fuelled not faster sustainable growth but rather a boom in housing and in illiquid mortgage derivatives and stretched bank balance sheets, which led to the crash. In this sense, that crash was a symptom (pdf) of a stagnant economy, not (just) a cause.

Exactly why the economy has been stagnating since the early 2000s is a matter of debate: an ageing population; difficulty in adapting to the rise of India and China; lack of innovation; falling profit rates; and so on. For my purposes now, however, this debate doesn't much matter. The fact is that capitalism is not working as well as it once did, and this is shaping the political climate by fuelling antipathy to migrants and benefit claimants and by stoking up culture wars.

Of course, in theory such reactionary politics could be led by politicians of substance rather than the charlatans and inadequates we've actually had. But the low calibre of politicians isn't mere bad luck. It's another effect of our class system.

One reason for this is simply that high pay in the financial sector attracts talent away from politics. If we're lucky, this leaves the profession open to those with a sense of public service. If not, it attracts second-rate egomaniacs. Also, private schools inculcate more confidence than ability - people who, in the American phrase, were born on third base but think they've hit a triple. David Cameron, for example, wanted to become PM because he thought he’d be “rather good” at it - an opinion not shared by posterity. And the Covid inquiry has heard how Johnson was "bamboozled" and "confused" by statistics. Sir Patrick Valance wrote:

Watching the PM get his head around stats is awful. He finds relative and absolute risk almost impossible to understand.

Such ignorance matters. Being Prime Minister isn't like being a newspaper columnist. It's about taking decisions under uncertainty. To do that doesn't require one to be a great statistician. But it does require that one be awake to the most common ways of misunderstanding numbers, which requires a basic statistical literacy.

That Johnson thought he could be PM without such habits of mind shows his arrogant overconfidence. And that other people thought he could is another effect of class. Like attracts like. To a media dominated by public schoolboys, Johnson seemed a familiar jovial figure ("Boris") rather than someone with profound intellectual and moral defects.

Of course, this is not to say that class is the only explanation for our bad politicians. Our mechanisms for selecting them are also dysfunctional; politicians must now appeal more to a handful of cranks be they party members or journalists; the disappearance of public intellectuals has deprived us a a benign influence on the political class; our narcissistic age demands that politicians echo our own prejudices rather than display competence or independence of mind; and so on.

Even if politicians weren't overconfident inadequates, however, there'd still be a problem. The Tories have no economic offer to make to voters because to do so requires them to address difficult questions: how do we kickstart the economy when doing so requires more than the state stepping back? What if inequality is itself a barrier to growth? How do you increase growth when so many of your supporters (financiers, nimbys, monopolists, Brexiters) are opposed to it? Faced with these questions, even the ablest of Tory politicians would struggle.

That last question brings us to a further problem. A lot of powerful people have an interest in sustaining bad and corrupt government, and the power to do so. I'm not thinking only of the media here, or those who exchange for party donations for government money. Businesses also buy MPs (and regulators) through donations or the prospect of cushy jobs after leaving office. And as Michal Kalecki noted, "everything which may shake the state of confidence must be carefully avoided because it would cause an economic crisis”: one (albeit bad) justification for fiscal austerity was the fear of a bond market sell-off if debt were not being seen to be reduced.

We can put this another way. In the post-war decades government achieved some worthwhile things: full employment; a better welfare state; and decent economic growth. This wasn't merely because politicians were of greater moral and intellectual calibre back then. It was because full employment was in the interests of much of capital - mass producers needed a market for their goods whereas financial capital require low interest rates - and because capital's more rapacious instincts were constrained by powerful trades unions. In the absence of these conditions, we have what we have now.

And as if all this were not enough, Tories have also sustained in office by simple deference - the habit of mind which leads people to atrribute merit to those in power. You don't need Marxian theories of ideology to believe this (though they help!). It was Adam Smith who wrote:

We frequently see the respectful attentions of the world more strongly directed towards the rich and the great, than towards the wise and the virtuous. We see frequently the vices and follies of the powerful much less despised than the poverty and weakness of the innocent…The great mob of mankind are the admirers and worshippers, and, what may seem more extraordinary, most frequently the disinterested admirers and worshippers, of wealth and greatness.

All these things mean that the feedback mechanisms whereby bad governments are kicked out and bad policies reversed are not as strong as they might be.

My point here is simple. There's more to politics than the mere assertion of one's own moral and intellectual superiority. We must also understand why we are badly governed, and this requires us to appreciate that politics does not exist in a vacuum but instead is shaped by socio-economic conditions. You can't understand politics without understanding capitalism.

Of course, it's likely that we have only a few more months of this awful government: there are limits to how far reactionary rentiers can sustain an egregiously incompetent government in office. But many of the pressures that gave it us will still be in place: economic stagnation and the power of the media, finance, and other regressive sections of capital. And they will constrain even the most competent and best-intentioned Labour government. The idea that we can have good government if only good people were in charge is too hopeful. Centrists, at least as much as leftists, are prone to utopian fantasies.