Tuesday , May 21 2019
Home / chris


Biography data hidden due GDPR Data Protection. Author consent pending.
(Economic Blogs is not responsible for linked external content)

Articles by chris

How inequality makes us poorer

4 days ago

I welcome the Deaton report into inequality. I especially like its emphasis (pdf) upon the causes of inequality:

To understand whether inequality is a problem, we need to understand the sources of inequality, views of what is fair and the implications of inequality as well as the levels of inequality. Are present levels of inequalities due to well-deserved rewards or to unfair bargaining power, regulatory failure or political capture?

I fear, however, that there might be something missing here – the impact that inequality has upon economic performance.
My chart shows the point. It shows the 20-year annualized rate of growth in GDP per worker-hour. It’s clear that this was much stronger during the relatively egalitarian period from 1945 to the mid-70s than it was before or since,

Read More »

Debating the far right

7 days ago

The far right has been defeated. Andrew Neil’s interview with Ben Shapiro and Andrew Marr’s with Nigel Farage have exposed both men as shifty, vacuous and evasive. Their support will therefore disappear. What took the might of the Red Army in 1941-45 has today been achieved by two ageing Scotchmen.
Or not. For one thing these episodes won’t weaken the far right’s resolve. Farage is playing the victim card. “We are not just fighting the political class, but the BBC too” he says. Sure, his opponents think his interview was a disaster but his sympathizers don’t: Andrew Lilico called it his “best ever.” Such reactions demonstrate the pervasiveness of asymmetric Bayesianism – that we interpret evidence to corroborate our priors.
If we’re being honest with ourselves, many of our political

Read More »

On media influence

12 days ago

Not everything that stinks causes disease. Yes, there is plenty wrong with the press and BBC, but how much influence does it actually have?
I ask because of Simon’s recent post blaming the media for the sheer incompetence of this government. I’m not so sure about this. The press has always had a right-wing bias, but we haven’t always had a government as lousy as this one. This alone tells us that other factors are at work: mechanisms that select for fanatics and against competence have strengthened in recent years.
Equally, it would be stretching things to blame the media for the rise of coarse right-wing populism. The press has been fomenting this for decades: the Sun ran the headline “Up Yours, Delors” way back in 1990. But it is only in recent years that it has become so

Read More »

Yes, ownership matters

18 days ago

I welcome the creation of the Common Wealth think tank, which aims to promote “deep shifts in property relations and ownership.”  There’s one possible preconception about this project which must be debunked, however. This is that it is hippy-dippy yogurt-weaving idealism. It’s not. The question of who should own and control companies is bog-standard mainstream economics: at least three Nobel prizes – to Hart, Williamson and Coase – have gone to economists working on this and related issues.
And in fact, stock markets themselves are calling into question the feasibility of existing ownership structures. In the UK the number of companies listed on the main market has dropped from 1747 to 1156 since the start of the century, a trend which matches those in the US and Europe. And as

Read More »

Against solipsistic politics

21 days ago

Everybody knows the country is divided. What’s not so well appreciated is that there is also an implicit unspoken division about how we conceive the very nature of politics.
The dominant popular conception is that politics is much like ordering something from Amazon. You say what you want, expect it to be delivered, and get the hump when it isn’t. That leads to demands that politicians “just get on with it”, to talk of a betrayal of democracy, or even to demands for a “strong man” to sort things out.
There is, though, another conception. It’s that politics is not just another retail experience. It is about the conflict of interest between people: Robinson Crusoe had no politics until Man Friday pitched up. Such conflicts arise simply because we want different things. The essence of

Read More »

Who’ll defend freedom?

26 days ago

In the last few days we’ve seen rightists attempt to bully Greta Thunberg out of the public sphere rather than engage with her arguments; Tony Blair’s demand for ID cards and that immigrants have a duty to integrate; and rightists (backfiring) efforts to shame Diane Abbott for drinking on a train. These all have something in common. They show that the right and centre are enemies of freedom*.
These are not the only examples, nor the worst. New Labour created thousands of new criminal offences, a trend continued by the Tory government such as in its ban on legal highs, its counterproductive porn block and its "hostile environment" policy. Very many Tories and Cuks voted last year against legalizing cannabis. Chuka Umunna, following the centrist Emmanuel Macron, wants to reintroduce

Read More »

When failure succeeds

April 19, 2019

In politics, failure sometimes works better than success. This is the message of this piece by Janan Ganesh, wherein he argues that it is in Trump’s interest to fail on his promise to control immigration, because if he does so it will remain a big issue which will attract voters to him. Janan says:

It is perverse, I know, that a president could make so little progress on his number-one priority during four years in office, only to be rewarded for it. 

Maybe not so perverse. There are other examples.
One, as he says, is Brexit. If Brexiters get their way, voters will see that it is in fact no solution to our problems. And Farage would then lose his schtick of being able to claim that the political class is out of touch with the people. If you are practicing the politics of

Read More »

Broad-spectrum policies

April 17, 2019

Is there a case for the Bank of England to target house prices? The debate, I suspect, highlights a difference in how we think about economic policy – between what might be called a single-issue technocratic approach versus a broad-spectrum approach.
Many of us, I suspect, agree that high and rising house prices are a cultural and economic menace. They encourage high debt which is potentially destabilizing (pdf). They divert spending towards rent and mortgage payments (and sometimes housebuilding) and away from new goods and services, thereby reducing dynamism and innovation. They encourage people to commute long distances, which increases stress and cuts productivity. And they encourage “property development” at the expense of more productive forms of entrepreneurship.

Read More »

Marxism for Tories

April 9, 2019

The Tories have discovered a new boo-word. In the last few days, Iain Duncan Smith, Esther McVey and Suella Braverman have all used “Marxism” to mean a self-evidently Bad Thing. From one perspective, this is odd because in fact Tories should find some aspects of Marxism quite sympathetic.
Not least of these is an admiration for capitalism’s dynamism. Marx wrote that capitalism “has given an immense development to commerce…has accomplished wonders far surpassing Egyptian pyramids, Roman aqueducts, and Gothic cathedrals…draws all, even the most barbarian, nations into civilisation…[and has] rescued a considerable part of the population from the idiocy of rural life.” We don’t deny that capitalism has been a progressive force. We just wonder at what price this has been achieved, and

Read More »

Why rent matters

April 4, 2019

Philip Green doesn’t get much public sympathy, but he deserves our thanks for doing one thing: he is reminding us that economists have wrongly neglected David Ricardo’s theories of rent.
Mr G is fighting landlords to cut rents – as indeed are several other high street names. Which evokes Ricardo. He showed that profits can be squeezed not by worker militancy but by rising rents.
The basic idea here is straightforward. Imagine, said Ricardo, there were an abundance of fertile land. A landlord could not then charge farmers rent: the farmers would just move onto other land. As the economy and population grows, however, the best land becomes fully occupied so farmers must use less fertile land. As they do so, the owners of the best land can demand rent from their farmers. And as worse and

Read More »

The rise of moral simplicity

April 2, 2019

One of my best friends here in Rutland is a keen Brexiter. I fear, though, that our hysterical political times are jeopardizing such cross-divide friendships. Instead, as Dorian Lynskey has said, many people have fallen into a “childlike moral binary: only people who hold the all correct positions merit empathy or respect.”
Dorian is speaking of Momentum telling us not to feel sorry for Nick Boles. But I think the point generalizes. Not only do Remainers and Leavers have little mutual understanding, but much of the left persists in the “evil Tories” meme whilst some on the Right seem to think that anyone to the left of Tom Watson wants to reopen gulags. We see a similar thing in the debate about whether Michael Jackson’s music should still be played: the urge for simplistic moral

Read More »

Decadent Tories

March 29, 2019

The Tory right’s obsession with Brexit might be a symptom of a deeper malaise – the fact that they have nothing else to offer.
To see what I mean, contrast today’s Tories with Thatcher. She could credibly offer material improvement for millions of people. She offered them the chance to own their homes –by selling off council houses and by credit liberalization that made it easier to get mortgages – and to make big profits on them. She offered tax cuts for mid-to-high earners. Professions such as finance and law were opened up to people from previously-excluded backgrounds. The reduction in trade union power was a relief not only to company owners but to thousands of junior managers. And the resumption of growth after the 1981 recession delivered good income growth for those workers who

Read More »

The consistency illusion

March 26, 2019

The British Social Attitudes survey reports a fall in the proportion of people saying they voted Leave in the 2016 referendum and a rise in the numbers saying they didn’t vote. This is probably due to panel attrition. But it draws our attention to what is certainly a real phenomenon – a tendency to misremember our past preferences in a systematic way.
This was pointed out (pdf) by Gregory Markus back in 1986. He showed that when people were asked about their views on political issues such as gender equality or drug legalization nine years earlier their recall was poor. Their beliefs as they remembered them was much closer to their current ones than was in fact the case. They understated the extent to which they had changed their mind.
What was going on here is a desire for consistency.

Read More »

Against retail politics

March 21, 2019

How did we get into this mess? The story is of course a long one, in which I would argue that austerity plays a big part. But there’s another strand I want to pick out. It’s the rise of a conception of politics as being just another consumer service and the eclipsing of Burke’s notion that MPs should place their judgment above the opinion of voters.
It was this “customer is king” idea of democracy that led Cameron to call the referendum and which allowed May last night to pose as being on the side of voters against MPs. And it lays behind the anger of some Leavers at not getting what they’ve voted for: they see it as being like Amazon not delivering the items they’ve ordered.
Quite why this idea emerged is another story. Some of you might blame “neoliberalism” for promoting the idea

Read More »

Beliefs and interests

March 19, 2019

“It is difficult to get a man to understand something, when his job depends upon not understanding it.” The spectacle of rightist and centrist journalists trying to absolve the MSM of blame for the rise of Islamophobia reminds me of Upton Sinclair’s famous quip.
They, of course, are by no means the only people at whom one might direct this accusation. Many of you us might also point it at: fund managers who deny the efficient market hypothesis; mainstream economists who reject some heterodox approaches; managerialists who stick to using crude targets; or centrist MPs who fail to see the need for new economic policies. And so on.
But I wonder: what exactly is the mechanism that Sinclair and those who quote him have in mind?
I doubt that many of us deliberately and consciously adapt our

Read More »

On class difference

March 17, 2019

A friend tells me that when I started my first job in an investment bank I did not speak for the first three weeks. He exaggerates, but not much. What I was doing was working out the unwritten rules of how to behave in an alien environment.
I was reminded of this by reading Tony Connelly’s description* of Geoffrey Cox’s behaviour last week in Brussels: he boasted of not having visited the city for 40 years and angered Sabine Weyand by calling her "my dear." Mr Cox did not do what I did –  shut up until you’ve learned what to do.
Herein, I think, lies a class difference. If you are upwardly mobile from a poor background, you have to learn how to fit in. If you are posh, you don’t. You glide from school to Oxbridge to the city or bar all the time surrounded by like-minded people so you

Read More »

The need for class politics

March 15, 2019

We need to talk about class. Since Jess Phillips’ interview with the Times there’s been a lot of talk about whether she is authentically working class. This is, as Suzanne Moore says, mostly guff.
We need a Marxist perspective here. To us Marxists, class is not just another identity or another lifestyle – a matter of whether you drink in Wetherspoons or wine bars or shop at Waitrose rather than Lidl. Instead, it is an objective fact about your relationship (pdf) to the means of production. If you lack ownership or control of these, then you are working class – in a position of exploitation or domination. If you do have ownership or control then you are capitalist, or bourgeois.
There are of course nuances here. You can be an exploiter without dominating someone: we can, for example

Read More »

Why government borrowing has fallen

March 14, 2019

Phillip Hammond said yesterday that the public finances “continue to improve” “thanks to the difficult decisions we have taken in the last nine years.” This is not quite correct.
To see why, imagine that people and companies were to save a constant fraction of their disposable income, come what may, in the face of fiscal austerity. As their incomes fall in the face of that austerity their spending would therefore fall one-for-one. That would further reduce aggregate demand which would in turn cut the government’s tax receipts and add to government borrowing. We’d then suffer a severe paradox of thrift, in which everybody’s efforts to save more would lead to weaker incomes for all and hence to lower savings.
This tells us that governments can borrow less if and only if somebody else

Read More »

Matches matter

March 10, 2019

Jess Phillips thinks she’d be a good PM. I tweeted this morning that this is more a sign of her overconfidence than it is of her ability. I did so for two reasons.
First overconfidence, whilst not universal (pdf), is widespread among those in prominent positions. Underconfident people don’t apply for such jobs, unless pushed, and so are filtered out whilst there is no similar filter against the overconfident. Quite the opposite. Hirers tend to mistake overconfidence for actual ability and so hire the overconfident: one can easily imagine Ms Phillips fluent confidence making a good impression at her CLP.
My base rate probability, therefore, is that Ms Phillips is expressing an opinion typical of MPs – or at least those who court publicity – rather than giving us a diagnosis of her

Read More »

Postmodern politics

March 9, 2019

In an interview with the Times Jess Phillips says of May and Corbyn:

There is an old-fashionedness about both of them. They are of a bygone era. It’s a bit like The Good Life – she’s Margo and he’s Tom. Their politics are so seventies. It’s hate migrants, love miners. They’re both in this terrible situation where they’re very traditional, very stubborn, bloody difficult people.

This is a false equivalence. There’s a massive difference between the two. May’s hatred of migrants has ruined lives: caused the deportation of British citizens, forced people out of work and denied them healthcare. Corbyn’s 70s politics has had done much less damage*.
What we have here is an example of a dominant but under-appreciated feature of our age – a postmodern politics in which words and appearances

Read More »

Against the output gap

March 7, 2019

“We should throw out all self-contradictory propositions, unmeasurable quantities and indefinable concepts” said Joan Robinson. I’m not sure if this is universally true. But there’s one place I would like to start – with the output gap.
The idea here is that there is a difference between actual and unobservable potential GDP, such that inflation falls when actual GDP is below its potential but rises when it is above it.
My first beef with this is an empirical one. As Eric has said, “the striking property of inflation of the last 20 years has been its complete invariance to shocks and policy changes.” UK inflation hasn’t varied much since the early 90s – compared to its variance in the 70s and 80s – despite significant cyclical swings. And insofar as it has moved, it has been largely

Read More »

Growth & mobility

March 6, 2019

Everybody knows we live in an era of secular stagnation. Everybody also knows that social mobility has stalled not just in the UK but around the world. For example, a recent OECD report found that:

Since the 1990s there is a general trend towards more persistence of income positions at the bottom and at the top of the distribution. This translates into both lower chances to move upward for those at the bottom, and into even lower risks to fall down from the top.

I wonder, though: are these two facts related?
It’s obvious that economic growth provides room at the top – more good jobs which can be filled by people from poor backgrounds. And it also makes us better off than our parents: even 2% growth per year compounds to an 80% gain over 30 years. I’m thinking, though, of another

Read More »

The 1% vs the 0.1%

March 3, 2019

Many of you might react to the FT’s story about the “squeezed 1%” by getting out the world’s smallest violin. I think this is a mistake. It reminds us that the damage done by inequality extends beyond the general social and economic harm. It hurts even those who are a long way up the income ladder.
First, some statistical context. Someone at the bottom of the top percentile of incomes is on about £120,000 a year. The top 0.1%, however, gets over £500,000. A very well-paid head-teacher, professor or NHS consultant might just get into the top 1%, but the top 0.1% comprises bankers, very successful entrepreneurs or bosses of big firms. As the IFS’s Paul Johnson says, “someone ‘only’ at the top 1% is much more like the average person than they are like someone at top 0.1%.”
This gulf

Read More »

Why we need Analytical Marxism

February 28, 2019

I tweeted yesterday that the biggest failing of the left is that it is insufficiently influenced by analytical Marxism. I should expand on this.
Analytical Marxism (pdf) was an academic movement in the 80s which tried to reconcile Marxism with conventional “bourgeois” philosophy and social science. It sometimes called itself “Marxism without bullshit”, which many took to mean Marxism without Hegelianism. Its key members included Adam Przeworski, Philippe van Parijs, Jerry Cohen, Erik Olin Wright, Jon Elster and John Roemer.
A big part of this project was the attempt to base Marxism upon methodological individualism: the basic unit of analysis is the individual, not classes – although of course individuals are members of classes.
This was not wholly a success. Rational choice Marxism

Read More »

Brexit as symptom

February 26, 2019

Simon says that Brexit is a “symptom of a deeper malaise” – of a dysfunctional political-media system that gave us economically illiterate austerity.
I agree that austerity caused Brexit, not least because as Ben Friedman has shown, stagnant incomes make people more hostile to immigrants. But I wonder: is there an even deeper malaise here – namely, a fundamental failure of capitalism?
What I mean is that capitalism was faltering even before the banking crisis. For example:
 – The real income of the median UK household, after housing costs, rose only 1.6% per year in the five years to 2007, well down from the 2.4% growth of the previous thirty. This wasn’t merely because growth was captured by the rich: GDP per head in that period grew only 2.1% per year, which was weak by the standards

Read More »

Missing the elephant in the room

February 23, 2019

Giles Fraser’s now-notorious piece has copped a ton of stick. This is justified, but nobody has articulated my own discontent with it.
Fraser does raise some important questions. His assertion that care work should be done within the family (I’ll gloss over his sexism) echoes a point made by Michael Sandel and before him Michael Walzer, that some activities should not be monetized, that to do so drains them of their essential meaning, of love and intimacy.
In itself, this is a reasonable claim. But Fraser misses two things. One is that there’s another value here – efficiency. The division of labour can benefit everyone: employing carers can free up children to do other things, and allow older people with special needs to get specialist help. The other thing Fraser misses is the

Read More »

Structure vs agency in economics

February 21, 2019

Will Davies made a typically good point yesterday when he tweeted that the “impoverishment of the ‘sociological imagination’ over decades” has left people “people unable to speak critically of systemic problems, without personifying them”.
What we have today is a crude moralistic tribalism in which people divide simply into goodies and baddies. We see this in the “two minutes hate” against Shamima Begum – which is oblivious to the fact that one’s rights do not depend solely upon one’s moral character. We saw it in the silly debate about whether Churchill was a hero or villain, much of which effaced the fact that he was a complex character who happened to be exactly the type we needed in 1940. And we see it when lefties blame low pay upon greedy bosses and the financial crisis upon

Read More »

The irrelevant Independent Group

February 19, 2019

The Independent Group claims to value an “open, tolerant and respectful democratic society” and to oppose Brexit. It wills the ends, but not the means. It fails to see that Brexit and intolerance are the product of economic conditions, and is silent on what to do about those conditions. It looks therefore like a bunch of narcissists complaining that people are not like them whilst offering no real solutions.
As I’ve said many times, the key to understanding politics today is Ben Friedman’s book, The Moral Consequences of Economic Growth, published in 2005. He shows that economic growth begets liberal attitudes and that stagnation breeds intolerance. Subsequent events vindicate him perfectly. As Thiemo Fetzer has shown, pro-Brexit attitudes are “strongly and causally associated with an

Read More »

Non-expiring information

February 15, 2019

I liked this line from this piece at Farnam Street:

A lot of us are on the treadmill of consuming expiring information.

Expiring information is not the same as trivia, which can be useful and interesting. It is instead knowledge which has a short shelf-life.
A lot of talk about Brexit has been expiring information. We are no nearer today to knowing what type of Brexit we’ll get (or even if or when we’ll get it) than we were on June 24th 2016. All the effort expended over the last 32 months on wondering what will happen has therefore been largely wasted. News which looked useful at the time turned out not to be. It was more noise than signal.
Much the same is true in stock markets. It’s very easy to spend your life accumulating lots of detailed factoids about individual companies

Read More »

The pawn mistake

February 13, 2019

The ridiculous Digby Jones has tweeted:

Hey Mr Tusk. Those who pushed for Brexit did have a plan but it required your lot not to bully the UK, for Remoaners & the Establishment not to sabotage the wish of the majority & for Jezza’s mob not to play tribal party politics with a major National issue.

Many have pointed out that this is imbecilic: a plan that only works if people behave exactly as you’d wish them to rather than how they are likely to is no plan at all: it is merely a voice in your head.
When somebody is saying something very stupid, however, it’s a fair bet that ideology is involved. The ideology here is not just the fanatical Brexitism that induced wishful thinking but perhaps something else. It’s an aspect of managerialism – a belief that other people are pawns to be

Read More »