Stumbling and Mumbling

Tories & Communists

Pointing to the latest episode of the Tories kowtowing to China, Phil notes the absurdity that:

A right wing Conservative government is letting a strategic industry collapse to curry favour with the world's leading communist power.

This is ironic only in Alanis Morissette’s sense of the word – which is to say, not ironic at all. In truth, we shouldn’t be surprised at all by Tories finding common cause with Communists.

This might seem odd to those who remember Conservatives’ attacking Communism for its appalling human right record. But those attacks were always hypocritical. Many right-wing cold warriors variously supported Macathyism; Pinochet’s murder of dissidents; the slavery that was the draft and National Service; the brutal repression of homosexuals; and the denial of the most basic rights of self-ownership to women – marital rape was not criminalized in England until 1991. And they were deplorably silent about apartheid’s denial of basic human rights.

What Tories objected to in Communism was not its denial of freedom generally, but rather the denial of a particular form of freedom – the freedom of a few bosses to make money at the expense of others. Because China grants this freedom, Tories have no gripe with its form of Communism.

From this perspective, Conservatism and Communism have much in common. Both support inequalities of power which deny autonomy and self-determination to workers. As Corey Robin has written (pdf):

Conservatism is the theoretical voice of this animus against the agency of the subordinate classes. It provides the most consistent and profound argument as to why the lower orders should not be allowed to exercise their independent will, why they should not be allowed to govern themselves or the polity. Submission is their first duty, agency, the prerogative of the elite.

Osborne and Hunt’s support for Chinese-style sweatshops, in which millions of drones slave away to enrich others, fits this pattern.

The main difference between Communists and Conservatives is not one of principle but of degree: Conservatives applaud centrally planned economies within companies, but Communists think it should be extended to the whole economy.

Even this difference is narrowing. Like Communists, the Tory government wants power to be centralized. For example, Roger Gough – a Tory member of Kent County Council – says of enforced academization:

Whitehall now clearly believes that it knows those schools’ best interests than they do themselves. School autonomy only counts when it comes up with the ‘right’ answer. Nor are the wishes or choices of parents seen to count for anything, a paternalistic and technocratic approach reflected in the equally unjustified proposal to end the requirement for parent governors.

And Robin Hambleton says of “devo-Manc”:

The Osborne proposals involve Whitehall taking three massive steps to centralise power.  
First, who is going to decide which areas of the country are to have these new governance arrangements? Answer: ministers. Second, who will decide the criteria for devolving power to these lucky localities? Answer: ministers. Third, who will be crawling over the detailed proposals individual cities have for urban development and socio-economic innovation? Answer: ministers.

The big divide in politics and economics isn’t so much left versus right as between those who believe in top-down control versus those who believe in decentralization and empowering all the people. On this divide, Tories and Communists are on the same side.

Austerity vs the free market

One of George Osborne’s great if inadvertent achievements – aided by a complicit media – has been to escape sufficient censure for the consequences of austerity. Few people blamed his cuts for the winter floods, just as savers aren’t blaming him for low interest rates. It’s as if austerity is a mere statistical artefact, rather than something which damages real lives.

So it is with the steel crisis. It is insufficiently remarked that if we had sensible macroeconomic policy – not just in the UK but across Europe – then steel demand would be higher and the crisis less acute.

This isn’t to say there’d be no problem. Even a 10% rise in EU demand for steel would represent (pdf) only 1% of total global output, and the industry of course faces long-term difficulties. But higher demand for steel would at least mitigate the crisis, buy time for the industry to effect a more orderly adjustment, and give displaced steelworkers a greater chance of finding alternative employment.

Yet again, though, macroeconomic policy isn’t getting sufficient blame.

This raises a paradox – that it is supporters of free markets who should be most opposed to irrationally restrictive macroeconomic policy. This is because – as we’re seeing with demands for steel tariffs and other forms of state aid - austerity increases hostility to the free market.

It’s not just in the steel crisis that this is the case. In worsening the wages and job prospects of the worst off – not just in the UK but across Europe – , austerity increases support for minimum wages and immigration controls. As Ben Friedman says “economic growth brings about the advance of freedom”; stagnation and austerity tend to have the opposite effect.

Free marketeers should therefore be saying: “austerity is a menace because it is increasing support for anti-market policies.” I haven’t, however, been deafened by such calls.

Many readers will reply that higher aggregate demand is not a cure-all. I sympathize. But this is because I too am sceptical of the efficacy of the free market. Free marketeers, though, should be more optimistic. It is entirely possible to argue that the free market works in allocating jobs, but fails in determining the level of employment. In fact, this was Keynes’ position:

When 9,000,000 men are employed out of 10,000,000 willing and able to work, there is no evidence that the labour of these 9,000,000 men is misdirected. The complaint against the present system is not that these 9,000,000 men ought to be employed on different tasks, but that tasks should be available for the remaining 1,000,000 men. It is in determining the volume, not the direction, of actual employment that the existing system has broken down.

Opposition to austerity combined with support for free markets is therefore not only a reasonable position, but also one with a decent intellectual pedigree. Which makes it all the more mysterious that it is so rarely heard. I suspect, though, that this mystery is best left unexamined.

The EU as Qwerty keyboard

Is the EU like the Qwerty keyboard?

I ask because back in 1985 Paul David wrote a paper (pdf) in which he claimed that the Qwerty keyboard was inferior to alternatives such as the Dvorak one. However, the Qwerty keyboard was adopted for reasons which aren’t relevant today – for example, in slowing typists down it reduced the frequency with which typewriter keys collided with each other. And it persists because the short-run costs of becoming accustomed to a new keyboard deter us from shifting despite the long-term advantages of doing so.

Although some people quibble with David’s example – it’s unclear whether Dvorak keyboards are actually better – the general story here is plausible. We can become locked into inferior (pdf) technologies which were first adopted by historical accident because the costs of switching to better alternatives are high. Robin Cowan claims (pdf) that this is the case with nuclear power plants in the US*. 

Now, here’s the thing. If Brexit’s intelligent advocates are right, the same thing is true for the EU. They argue that our relationship with the EU is sub-optimal and might become more so and that we’d be better off (pdf) with globally free trade. However, there are short-term costs to shifting: the uncertainty caused by Brexit could dampen investment both directly and, perhaps, by raising borrowing costs.

In this sense, the EU is like the Qwerty keyboard; it’s inefficient, but we’re locked in by historical accident and the short-term costs of changing.

Which poses the question: are those short-term costs worth incurring? My hunch is no (pdf). Even if we achieved good free trade agreements, it would take many years to reap the benefits of them simply because companies would have to invest in export sales efforts in unfamiliar parts of the world, thus overcoming the force of gravity. Dietz Vollrath’s general point – that it takes many years for improvements in potential GDP to feed into actual GDP – applies especially here.

I fear, therefore, that Brexit’s advocates are under-estimating the costs of adjustment.

They’ve got form for doing so. Back in 1984 Patrick Minford argued in favour of pit closures on the grounds that unemployed miners would find work elsewhere – that the adjustment process would be swift enough to more than offset the short-term hardship. He was wrong: ex-mining communities are still depressed.

And here’s my suspicion. Perhaps in supporting Brexit free marketeers are making a mistake they often make: they under-estimate how slow and costly the transitions can be from one equilibrium to another.

* My favourite example is Brian Arthur’s story of how steam-powered cars were hard hit by an outbreak of foot and mouth disease in 1914 which closed the water troughs from which they refuelled, thus locking us into petrol engines.

 

Barriers to equal respect

Noah Smith suggests some ways in which we could achieve a greater equality of respect. Whilst I agree with him that this is a worthwhile project, I fear he’s fighting an uphill battle.

Inequality of respect is probably at least as old as material inequality. As Adam Smith 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. (Theory of Moral Sentiments I.III.29)

Pretty much the entire media business vindicates Smith’s point.

There are at least two powerful reasons why material inequality breeds inequality of respect.

One is that if you regard poverty as due to a moral failure – laziness or fecklessness – then you will of course disrespect the poor as being morally inferior; Bryan Caplan is at least honest on this point.

The other is that managerialist capitalism is a form of totalitarianism. It recognizes and respects only one form of success – the accumulation of what Alasdair MacIntyre called the “external goods” of wealth, celebrity and power. If you regard life as a race in which the winner is the guy who dies with the most goods, you’ll regard the rest as “losers”.

In this context, Noah is absolutely right. Words “need to be backed up with beliefs”: otherwise, talk of respect is like the patronizing drivel of HRwankers. In particular, we need beliefs to change in two ways.

First, we must recognize that differences in wealth are due very largely to luck: to being born in the right place at the right time to a decent family; finding inspiring teachers or mentors; having a decent genetic inheritance; getting a lucky break at work; and so on. As the world’s greatest singer put it:

I traveled to a prison; I saw my share of shattered dreams.
Were the tables slightly tilted I could be bound, they could be free.

Once we recognise the importance of luck – and many people don’t even when it is glaringly obvious – we should no more defer to the rich than we should to lottery winners.

Secondly, we should recognise that there are many virtues – that getting up every day at 5am to clean an office requires as much, if different, merit as more remunerative work does.  Humble diligence is more admirable than the egomaniacal pursuit of wealth and power. This requires a greater acknowledgement of value pluralism than modern capitalism offers.

Now, you might think here that, as a Marxist, I’d stress that a belief system that generates equality of respect requires a material base, of greater material equality. I’m not sure. There are many arguments for greater equality of condition, but I’m not sure that the possibility that it would generate more equality of respect is among them. Material equality could lead to all sorts of status inequalities if narcissistic egomaniacs seek to differentiate themselves through ways other than cash incomes.  The campaign for greater equality is a battle that must be fought on several fronts.

Costs of daylight savings time

Putting the clocks forward tonight might be expensive in terms of health, wealth and happiness, according to three separate pieces of research.

First, Laurence Jin and Nicolas Ziebarth have found “evidence of mild negative health effects when clocks are set forward one hour in spring”: in Germany, hospital admissions increase after the clocks go forward in the spring and fall when they go back in the autumn. This is consistent with the possibility that the extra hour’s sleep in the autumn improves our health whilst the loss thereof in the spring worsens it.

Secondly, there’s this (pdf):

Individuals in both the UK and Germany experience deteriorations in life satisfaction in the first week after the spring transition…We attribute the negative effect of the spring transition to the reduction in the time endowment and the process of adjusting to the disruption in circadian rhythms. The effects are particularly strong for individuals with young children in the household.

Thirdly, Mark Kamstra and colleagues have found that stock markets do badly around the time of daylight savings changes. In the UK, the spring DST weekend has seen the All-share index fall by an average of 0.4%, compared to a drop of less than 0.1% in ordinary weekends. This is consistent with the possibility that disruptions to our sleep patterns increase anxiety.

You might object that these findings suffer from p-value fetishism and publication bias. If you do, you might cite this as support: it finds no evidence that DST affects risk appetite or cognitive performance.

Personally, I have an open mind about these effects. I do suspect, however, that it might be more intelligent to change the hours we work than the clocks.

The death of politics

When I heard that Osborne was planning cuts in disability benefits I assumed that he had taken soundings among Tory MPs so that he had support for the measure. It seems I over-estimated him - which given my low opinion of him is quite a feat. Instead, he's given us a second omnishambles Budget. This, though, is only one of several examples of the government’s incompetence.

By this I don’t mean that I think its policies are wrong. I mean it is technically incompetent, in the sense of being unable to implement its intended policies. In Osborne’s case, this was because of a misreading of his party’s mood. This wasn’t an isolated failure. Even Cameron’s sympathizers have criticized the “chumocracy” which distances him from many MPs; as we saw in his (perhaps lucky) failure to win support for intervention in Syria, he lacks the darker skills of politics, the ability to cajole MPs to support him.

This is not the only sort of failure. Theresa May’s attempts to deport students has been found to be not just illegal but monstrously badly administered. And IDS’s unlamented resignation has reminded us of the serial cock-ups in introducing Universal Credit. In these cases – as in David Cameron’s letter to Oxfordshire Council a few weeks ago – we see a government incapable of grasping detail.

What’s more, the government doesn’t even understand what politics is. Politics is about what happens when individuals’ plans are mutually irreconcilable – when what’s rational for an individual is collectively self-defeating. It is, therefore, the art of solving problems of collective action. However, Cameron’s encouraging of panic-buying of petrol in 2012 and his mindless talk of the “nation’s credit card” show that he has consistently failed to grasp this point.

What we have, therefore, is a government which does doesn’t appreciate what politics is – and one which therefore fails in party management and in administration. This might be because of a form of deformation professionelle:  politics has become so dominated by spin that ministers fail to appreciate that it requires skills other than just PR.

All this poses the question: if the Tories are so technically incompetent, why did they win the election?

Partly, it’s because the game is biased in its favour.

 Also, though, it’s because the things I’m describing aren’t confined to the Tories; New Labour was also guilty of poor administration.

What’s more, the Left too has largely lost the art of politics. Inspired perhaps by the epigones of 1960s feminists misusing the slogan “the personal is political”, a lot of what passes as “political” discourse is in fact the mere narcissistic revelation of personality. The possibility that there is or should be a difference between private and public selves – brilliantly described by Richard Sennett – has been forgotten. Also forgotten is the art of rhetoric; how many political writers start – as they should – with the question: how can I persuade sceptics or opponents to agree with me?

In this sense, politics is a dying, perhaps even dead, art. Most of those who claim to take an interest in it are not really interested in how to govern the public sphere: if they were there’d much more interest in the social sciences. Instead, they're mere spectators in a wrestling match who are booing baddies and cheering goodies.

The success of once-fringe characters such as Trump, Farage and even Corbyn are double symptoms of this death. On the one hand, their popularity is due in part to voters wanting people to speak for them, regardless of the question of whether their urges are implementable or practical. But on the other, it is due to the failure of the Establishment and centrists to make their case.

Sadly, though, all sides are so encased in their partisan narcissism that they can’t see this. Fish never know they’re wet.

No friend of the worst off

Danny Finkelstein’s defence of cuts to welfare and taxes has caused a row with Jolyon Maugham:

The government argues that the best thing for less well-off people is that the economy should thrive and jobs be created. Income from work is the most secure foundation for vulnerable families of all types. To ensure this, it is essential to control the costs of spending programmes and to ensure, with low corporate and (though this is slow work) low personal taxation, that Britain is one of the most attractive places to have a job and invest in businesses. And this works. It’s successful. Job creation has been extraordinary.

There’s some truth in this. Getting people into work is a wholly good thing; those in work are better off both financially and psychologically than the unemployed. The Tories have increased (pdf) incentives to work by increasing the gap between in-work and out-of-work incomes. And I’ll even concede that low and simple corporation tax might play a part in generating jobs. I have, however, some quibbles with it.

1. Insofar as welfare changes have increased work incentives, it’s by cutting out-of-work benefits ratherr than increasing in-work incomes. The IFS says (pdf) that changes to tax credits since 2010 have caused “significant losses for low-income working households.”  This is not the action of a government that is deeply concerned for the low-paid.

2. For many, income from work is not as secure as Danny claims. ONS data show that in Q4 – a time of decent overall growth – 893,000 people left employment. Many of these were low-paid workers who lost their jobs. The Joseph Rowntree Foundation has estimated that “more than a third of low-paid workers (38.4 per cent) experience a period of worklessness over a four-year period”. The unskilled suffer a cycle (pdf) of low pay and no pay. This isn’t solely because of bad macroeconomic policy. It’s simply because of normal job creation and destruction; around ten per cent of all businesses cease trading each year.

3. Low paid work is not often a stepping stone to better things. The Resolution Foundation says (pdf) there’s been a “long-term decline in the rate of movement between jobs”. This, they say, implies that prospects for pay growth and career progression for younger workers have deteriorated.

4. The Tories – and in fact the last Labour government too – have not reduced the extent of relative low pay. The Resolution Foundation estimates that 21% of workers earn less than two-thirds of the median wage, a proportion than hasn’t changed over the past 20 years.

5. Although employment has certainly increased remarkably since 2010, it’s not clear how much this is due to benefit changes and sharpened work incentives. In fact, insofar as these have played a part it’s because the increased supply of labour has bid down wages – a mechanism the Tories are surprisingly coy about mentioning. I suspect that a much bigger reason for the growth in jobs is that the slump in productivity growth means that a given growth in aggregate demand now translates into much more jobs growth than it did in the past. As the government is probably not responsible for the productivity slowdown, it shouldn’t claim credit for the jobs growth.

6. There’s something Danny is silent about – macroeconomic policy. If we’d had a less tight fiscal policy since 2010, employment and wages for the low-paid (and everyone else) would very probably be higher now. Danny does not rebut this point.

Let’s take another perspective on this. Imagine that economic policy were governed by a Rawlsian difference principle – that it serves the greatest benefit of the least advantaged members of society. Would this principle really give us Tory welfare and macroeconomic policy? Or would it instead mandate fiscal expansion and a more generous welfare system? I suspect the answer is clear.

On Tory splits

How great are the divisions within the Tory party? There’s a split on this. Andrew Pierce says Iain Duncan Smith’s resignation is the culmination of a personal feud, but Rachel Sylvester in the Times says it embodies an old divide among Tories between free market liberals and patricians who want to protect traditions and the worst off.

I suspect, though, that this division reflects four other dividing lines in the party.

One is liberty vs authority.  Glen Newey points to the paradox that the Conservative state is “ever lustier in its pursuit of a supposedly shrinking remit”. The desire to cut the share of state spending in GDP coexists with Theresa May’s extension of the surveillance state, and the party that gave us gay marriage also gives us a ban on legal highs.

This paradox reflects competing impulses. On the one hand, there’s a love of (negative) freedom. But on the other, as George Lakoff says, Conservatives have a mental model of a strict father – an idea that authority should be strong. At its worst, this conflict can yield pure hypocrisy: freedom for the right people but repression for the wrong ones.  

I suspect that one under-rated reason why Tories support austerity is that they instinctively feel that big borrowing undermines the state’s authority and capacity: just as a strict and disciplined father doesn’t get into debt, nor should the state.

Note too that the belief in authority isn’t confined to the state: it also explains conservatives’ love of traditional families, and their support for bosses: one of Thatcher’s principles was the assertion of management’s “right to manage.”

The second split is between capitalism and populism. Big business, for example, favours EU membership and liberal immigration policy, but many voters don’t.

A third split is between one nationists, who profess a desire to help the poor, and those who stress the power of incentives. The introduction of a living wage, top tax cuts and harsher regime for benefit recipients might look incoherent to ideological purists. But it’s a rough compromise between competing tendencies.

Fourthly, there’s a split between optimists and pessimists. As David Willetts said in Modern Conservatism,   there has always been a melancholy tendency in conservatism. As Oakeshott wrote (pdf), change is regarded as loss. But on the other hand, there are those who are more optimistic.  Such optimism can arise either from faith in free markets, or in the power of that strict father.

In the 70s, this split manifested itself as between those who believed in “managed decline” and an accommodation to strong trades unions, and more optimistic Thatcherites who thought unions could be weakened and the country turned around. We see echoes of that today in the Brexit debate: optimists think Brexit will create a dynamic free trading nation; pessimists fear they’re wrong and that it better to try and cope with the Brussels bureaucracy. Turning schools into academies represents a triumph of the optimists – a belief that different management can transform schools for the better, and a rejection of traditional forms of control.

These splits can co-exist in the same person. For example, when he was Education Secretary Michael Gove was sometimes a libertarian optimist supporting free schools and sometimes the strict father wanting to dictate how to teach.

You might think that in saying all this, I’m sneering at the Tories as being a divided rabble. Not so. All reasonable people experience conflicts between values. Skilled politicians are capable of managing these well. The Tories’ problem is not that the divisions exist, but that they are being ill-managed.  

Salience, & obliquity

Is Jeremy Corbyn leader of the Labour party for the same reason that DFS is always having sales?

I ask because of a new paper by Markus Dertwinkel-Kalt of the University of Cologne and Gerhard Riener of Mannheim University. They show that, when faced with a choice between products with different types of rewards, consumers often focus (pdf) upon one eye-grabbing feature and underweight others – a decision which isn’t always rational. This is closely related to the theory (pdf) that “consumers attach disproportionately high weight to salient attributes.” And it’s consistent with Michael Porter’s advice that companies should offer customers either low prices or high quality but not be stuck in the middle.

This explains a lot of behaviour:

 - DFS always has a sale because “50% off” is a more salient offer to customers than a reasonable settee at a fair price.

 - The cliché for years has been that mid-market supermarkets such as Sainsbury and Tesco have lost out to those offering more salience – either Lidl’s low prices or Waitrose’s quality.

 - Easyjet offer low air fares and then sting travellers for everything because low headline ticket prices are eye-grabbing.

Corbyn’s popularity with Labour members fits this pattern. When faced with two or three candidates who were much of a mushy muchness, they plumped for the more salient option.

I suspect a similar thing might be true for the Brexit referendum.  Voters’ decisions will be swayed by them attaching lots of weight to a particular outstanding feature: for me, this is the short-term uncertainty that Brexit would cause.

You might wonder how all this can be consistent with the compromise effect – our tendency to choose mid-ranged options, such as middlingly-priced items on a restaurant menu.

Simple. The compromise effect works by exploiting the contrast effect, thus making the offered product more salient. The average-priced dish looks good value when contrasted to the expensive one: the modest home looks nice contrasted to the hovel. In this sense, the compromise effect and the focusing effect are compatible: both say that we choose the salient option.

This is true in politics too. An appeal to the “centre ground” succeeds if a party can credibly say: “they are extremists; we are moderates.” But the claim “we are more moderate than them” often fails – as many unemployed Lib Dem ex-MPs would testify.

Herein lies a nice paradox. Corbyn, more than most politicians, is innocent of marketing tricks, behavioural economics and the darker arts of persuasion. And yet he benefited from the focusing and salience effects whilst his supposedly more PR-savvy rivals failed. Perhaps this is one more data-point in favour of John Kay’s theory of obliquity - that our goals are often best achieved when pursued indirectly.

The incumbency advantage

Imagine if, last week, someone had proposed a small short-term fiscal easing followed by a £13.9bn tightening in 2019-20*. Pretty much everyone would have scorned such an idea. Political journalists would point out that unspecified spending cuts at the end of the parliament lack credibility. And economists would say that the threat of higher corporate taxes then would dampen capital spending now – and, they’d add, there’s no point tightening so much merely to achieve a budget surplus that’s pointless anyway.

Nobody for one moment would think this remotely sensible, and nobody would want to entrust its proposer with high office.

However, although Osborne has attracted criticism from sensible (pdf) people across the political spectrum, and – in fairness – lacklustre press coverage, the mainstream does not seem to be giving him the scorn and derision that his buffoonery deserves. I reckon there are at least five reasons for this.

One is deference. People respect power and overconfidence – even if unmerited – more than they should.

Another obvious one is plain vested interests. There’s a noisy client group that benefits from cuts to capital gains tax, the raising of the higher rate threshold and a £1000 a year handout – which is what the Lifetime Isa is. Nobody complains about being given free money.

Thirdly, Budgets are what Rodney Barker calls rituals of self-legitimation. They come surrounded with their own rhetoric of “judgment”,“prudence” and “long-term”. People infer that a 150-page report must be sensible, even if much of it is drivel. And there’s a tendency for folk to assume that if a man is wearing a suit and talking about money, he must be serious and trustworthy – a habit which financial advisers have exploited royally for years.

Fourthly, the “gimmicks” of which Martin Wolf complains serve a purpose – they throw up smoke. The tax on sugary drinks might be silly, but it distracts from the Lifetime Isa, which in turn distracts us from the dubious claims to be closing tax loopholes, which distract us from the macroeconomic judgement, and so on.

Finally, there’s a form of the status quo bias; existing policies are more tolerable than proposed ones. As the old saying goes, it is easier to ask forgiveness than permission. Some neat research by Christoph Merkle has established this. He shows that, after losing money, investors are less unhappy than they thought they would be: the fear of a loss is worse than the reality. I suspect that this translates into politics: policies that seem unconscionable when they are proposed become bearable after they have been enacted.

My point here is a simple and depressing one. It’s that, as I’ve said, Osborne has huge advantages over the Labour party, regardless of the merits of their arguments.

* Table 2.1 here is the Budget: the speech was a different thing.  

How to write a Budget

When he takes office, every Chancellor is given a letter from a colleague of Screwtape which tells him how to write Budgets. I’ve got a copy of this, which I reproduce below.

Dear Chancellor.

Some new Chancellors believe that Budgets are a chance from them to earn a reputation as the man who transforms the economy. Cleanse yourself of such childish nonsense. A sensible tax system, along the lines suggested by the Mirrlees review, would not need to be tinkered with every few months; taxes should be predictable. The Budget is not about the economy. It’s about something much more important than that. It’s about YOU.

A Budget is a pantomime in which you are the star. Like all pantomimes, it must follow a rigid structure.  

Your preamble will discuss the general economic background. If you’ve taken over from the opposing party, you say what a mess they’ve left. If you’ve been in the job a few years, cherry-pick a few facts to make it look as if you’ve been a success. If the economy’s weak, for example, celebrate low inflation and low mortgage rates. If it’s strong, talk about jobs.

Waffle about prudence, stability and tough choices is always advised here.  Make your job seem more difficult than it is.

You then discuss economic forecasts. Under no circumstances must you say that these are usually wrong. Nor must you discuss margins of error. A Budget is no place for serious economics. Instead, the forecasts allow you to talk about the global economy. This gives you gravitas. If the outlook is good, you can claim credit for your past policies. If the outlook is bad, blame your predecessor or the challenging world environment and say you must make tough choices: it’s much better to look tough than mean.  

You then announce a long list of measures intended to help charities, small businesses, science and new industries. These measures shouldn’t involve more than a few million and won’t make a lick of difference. But associating yourself with science and good causes whilst appearing generous will make you look good.

Also, announce a few infrastructure projects. Journalists are wise now to the Yes Minister theory of infrastructure spending, so you can’t do anything about the A34/M40 junction. Broadband and something called “the North” are popular, however.

Oh, and don’t forget to bugger about with North Sea oil taxation. It’s an annual tradition.

Promise to raise a few billions by making efficiency savings and by clamping down on tax avoidance and loopholes. Skimp on the details, though. And if you’ve been in office a few years, never explain why you didn’t make these “savings” earlier. You can probably also get away with raising money by taxing banks or utilities. Nobody likes them.

You might also want to raise money in other ways, such as by welfare cuts. Ensure that you do so in the most complicated way you can. And never mention the sums involved. The great thing about a Budget is that you can get away with a complete lack of proportion. If you announce a litany of tiny giveaways followed by a complicated change to tax credits or welfare benefits you can appear generous even if you’re not.

Of course, policy wonks will spot this. But by the time they do so, the public will have gotten tired of Budget coverage so they won’t care. It’s the initial headlines that matter, and these are provided by gullible political journalists who only hear the speech and don’t understand numbers.

Next, take a penny off a pint. It makes Radio 5 Live listeners happy.

Then it’s time for personal taxes. Raise the personal allowance. This allows you to boast of taking low-paid people out of tax. The main beneficiaries will of course be higher earners. So you can look as if you’re helping the worst off whilst in fact benefiting the median voter. It’s a double win.

Then move onto savings. You want to “encourage savings”, so cut taxes on these: your civil servants might have spoken about income and substitution effects, but if you’re wise you’ll have ignored them.

Finally, there’s the rabbit from the hat. Always end your speech with a surprise giveaway.

Above all, remember what the Budget is all about. It’s about how you appear in newspaper headlines the following day. Nothing else matters.

Labour's credibility problem

Simon points out that John McDonnell’s proposed fiscal rule is much better than Osborne’s. This poses the question: why, then, should Labour be struggling so hard to establish “credibility” with the electorate about its approach to the public finances?

It’s certainly not because Osborne’s policy has been a success. OBR data show that, in the last five years, the government has borrowed £183bn more than the OBR expected (pdf) in 2010. This is strong evidence that austerity has been counter-productive, as any schoolboy Keynesian would have predicted.

Instead, I fear that there are less good reasons why Labour is struggling. One reason is that voters have bought the story that Labour “over-borrowed” in the 00s. I’ve argued that this story is false - its borrowing was a reasonable reaction to the savings glut and investment dearth – but its plausibility has been enhanced by some Labour figures’ self-abasing desire to apologize anyway.

There is, though, something else. The fact that Osborne is wrong is, paradoxically, an advantage for him. The reason for this has been pointed out in a new paper by Peter Schwardmann and Joel van der Weele. They show that people who deceive themselves are better able to deceive others. This corroborates research by Cameron Anderson and Sebastien Brion, which has found that the over-confident are more likely to be hired than more rational candidates, because they send out more “competence cues”, and so their irrational overconfidence is mistaken for actual competence. As Matthew Hutson says, “to be a good salesman, you have to buy your own pitch.”

Osborne’s talk about cutting borrowing fits this pattern: his overconfidence that he can cut borrowing has been mistaken by voters for an ability to actually cut borrowing – an ability he has not, thus far, possessed to the extent that he claimed.

In this, he has been helped by other factors. One, of course, is media bias. As Simon says, fiscal policy is reported not so much by economists – most of whom are opposed to Osborne’s policy – but by political reporters.

This matters in two ways, even leaving aside partisan bias. One, as David Leiser and Ronen Aroch have argued (pdf), is that laypeople’s thinking about economics relies upon a “good begets good” heuristic. They believe that good things have good effects. The desire to cut government borrowing is seen as “good”, so people think it must have good effects – thus ignoring the paradox of thrift.

The other is plain deference. As Adam Smith 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. (Theory of Moral Sentiments, I.III.29)

Whatever John McDonnell does, therefore, he will struggle to achieve “credibility”. As a wise man asked, “what chance have you got against a tie and a crest?”

 

 

Skill vs morality

There’s a trade-off between skill and moral behaviour, according to new research.

Armin Falk and colleagues got people to sit a form of IQ test, except that some subjects were explicitly told it was an IQ test whereas others were told it was just a questionnaire. Some were then told that for each question they got right, the probability would increase of a mouse being gassed to death. They found that the subjects sitting the IQ test were more likely to answer questions correctly – at the possible expense of the mouse’s life – than those only filling in the questionnaire. They conclude:

Striving for pleasures of skill can have negative moral consequences and causally reduce moral values.

This is not the only paper to establish a link between technical skills and bad behaviour.  Francesca Gino and Dan Ariely have found that creative people tend to be more (pdf) dishonest than others.

There is, I fear, no lack of external validity here. To take a few diverse examples:

 - Scientists sometimes work on projects with potentially dangerous effects, such as enhancing viruses. Falk quotes Sir Mark Oliphant, a member of the Manhattan Project: “if the work’s exciting, they’ll work on anything.”

 - Soldiers can fight well even if a war is unjust.

 - Civil servants can work diligently to implement policies we might find repellent (though it’s questionable how often this is happening at the DWP).

 - Bank traders rarely worry that their work might be socially useless.

 - Accountants and lawyers can be untroubled by – or even take pleasure in – devising tax-dodging wheezes.

 - Even the best footballers, as well as Diego Costa, sometimes dive.

Readers might object that I fall into this category. If I do well in my day job – a matter which I leave others to judge – the best that happens is that already-wealthy people get even richer. I honestly confess to being untroubled by this.

Herein, though, lies a paradox. All this seems to imply that societies with large numbers of skilled workers will have lower ethical standards than others. But this is not the case. There’s little evidence that wealthier nations, which have higher human capital, are in aggregate less moral than poor ones. In fact, I strongly suspect the opposite: richer nations are more tolerant and less crime-ridden than poorer ones. I’d rather walk through the streets of Zurich at night than those of Lagos. This tells us that some other mechanisms offset the tendency for skills to diminish moral conduct. Ben Friedman and Deirdre McCloskey have described these.  

Jarvis's poverty of ambition

In the Westminster bubble, Dan Jarvis’s speech this morning is being seen as a leadership bid. To me, however, his speech seems to embody the same “poverty of ambition” which he deplores.

One reason for this is that whilst he is entirely correct to point out that living standards were stagnating even before the crisis, he misdiagnoses the problem in perhaps two ways.

First, I fear he overstates the problem of corporate short-termism. Historically, stock markets investors have overpaid for "growth" stocks, which implies they have if anything been irrationally long-termist. And insofar as some companies are "focusing on the short-term buck rather than long-term value" this might be a rational response to immense uncertainty. I applaud Jarvis's call for a rejigging of corporate taxes to remove the incentive (pdf) to take on debt rather than equity, but it's not a solution to our fundamental problem.

My second problem is this:

New Labour didn’t see – with sufficient clarity – the downsides of globalization.
They knew it meant cheap consumer goods. But, they didn’t recognize that too often, it meant cheap labour too.

If "globalization" is intended to be a euphemism for "immigration", we can dismiss Jarvis immediately as a Daily Mail-pandering ignoramus. At worst, immigration has had only a slight impact upon the wages of the low-paid.

But let's give him the benefit of the doubt. Let's assume he is speaking in the intelligent sense, and referring to the factor price equalization theorem. This tells us that - for a country like the UK - globalization can reduce unskilled wages even without a single immigrant: this is because when we import those cheap consumer goods we are in effect importing cheap labour.

The question is: what to do about this. The answer isn't restrictions on free trade: Jarvis is right not to mention these.

But nor is it to increase skills and education. Even the most highly educated of our young people -doctors and investment bankers - are unhappy. This tells us that education is not sufficient.And if Frey and Osborne are right, even "good" jobs will become increasingly scarce.

Instead, the solution is for the state to raise the demand for less skilled work through expansionary macro policy to create genuine full employment and a serious jobs guarantee. However, whilst Jarvis talks, reasonably, about infrastructure spending and regional policy, he stops well short of these more radical options.

Jarvis claims that capitalism "should work as servant, not as master." But this fails to acknowledge Kalecki's point - that if the task of job creation is entrusted to capitalism, it will continue to be the master.

I fear, therefore, that Jarvis's speech is yet another example of centrist utopianism - the delusion that smallish tweaks to capitalism can transform the lives of the worst off.

Expertise in politics

Does the UK have the intellectual resources to take big policy decisions? I ask because of the reaction to Mark Carney’s evidence on Brexit to the TSC yesterday. Although his claim that Brexit would increase uncertainty is shared by most economists, Peter Bone (1’21” in) and – more coherently – Tony Yates say he should wind his neck in.

This, though, runs into a problem. The Bank has the biggest collection of macroeconomic experts in the country. The Brexit debate – which is of pitifully low quality anyway – could only be improved by their involvement.

This is especially worrying because there are so few other informed voices. Many academic economists are too busy wrestling with managerialism and publication targets to play a role. Many of the better think tanks have a low profile. The state of Britain’s “public intellectuals” was summed up by Prospect magazine’s survey revealing that Russell Brand was voted the UK’s top “world thinker”. And as for the media…

Worse still, the government is doing nothing to change this. If it wanted an informed debate about Brexit, it could have followed the example of Gordon Brown in the early 00s who commissioned weighty academic papers on whether the UK should join the euro*. But it hasn’t. Worse still, the absurd proposal to ban academics from lobbying might already be having a silencing effect.

Now, none of this is to say that Brexit necessarily should be judged on solely technocratic grounds. Steve is right to say that technocrats have their limits:

Wonks are the help. The role of the democratic process is to adjudicate interests and values. Wonks get a vote just like everyone else, but expertise on technocratic matters ought not translate to any deference on interests and values. If your theory of democracy is that informed citizens ought to cast votes based on the best social science, you have no theory of democracy at all.

But I fear that, in this case, we have the opposite problem: an under-use of wonks, rather than an over-use. This poses the risk that, whichever way the Brexit referendum goes, voters might be unpleasantly and unnecessarily surprised by what they get.

Luckily, I suspect that this risk is small: the stakes might – ultimately – be lower than people think. But if I’m right, this owes nothing to our political culture.

Underling the Brexit debate, therefore, is what might be a more important set of issues: what role should expertise play in politics? How best can that expertise be used? These issues, though, are being ignored. Which, of course, suits charlatans and third-raters perfectly well.

 * Yes, he did so for support rather than illumination – but my point holds.