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Articles by chris

On economic intuitions

2 days ago

Recently on Twitter Will Bott asked: “a piece of string is wrapped tightly around the Earth. In order for the string to be lifted an extra metre in each direction, roughly how much longer would it need to be?”
Less than half of respondents got this right*, and 37% were wrong by a factor of 10,000. Which tells us that our intuitions can be not just wrong, but wrong by orders of magnitude.
This is not the only evidence here. Shane Frederick has devised a cognitive reflection test – three questions in which there is an intuitive but wrong answer and a non-intuitive but right answer. He has found that even at the US’s top universities, less than half of students get all three questions right.
Which poses the question: if our intuitions can be so wrong, might people’s intuitions about

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Full employment, capitalism – and beyond

11 days ago

Is genuinely full employment possible? And if it is, is it compatible with capitalism? These are questions raised by President Biden’s ambition for an economy where “employers have to compete for workers.” This, he hopes, will “give workers more ability to earn a higher wage” and “the power to demand to be treated with dignity and respect in the workplace.” This, he claims, “isn’t just good for individual workers, it also makes our economy a whole lot stronger.”
This might not be a purely American question. James Meadway has argued that a world of ongoing pandemic risk “is one in which the balance of power at work can shift dramatically back in favour of labour.”
Certainly, there’s a precedent for por-worker policies making economies a whole lot stronger. In the 50s and 60s western

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Playing the victim

14 days ago

Here are four recent developments:
 – The University of Leicester is sacking academics because they are doing research in critical management studies. The Tories, however, are silent on this whilst at the same time condemning a handful of students who are unsuccessfully campaigning to get Eric Kaufman sacked from Birkbeck. They tolerate actual violations of academic freedom whilst deploring attempted ones.
 – Laurence Fox calls for the Leicester City players who carried a Palestinian flag after the FA Cup final to be hounded out.
 – Matthew Offord MP demands that the BBC not broadcast an edition of Desert Island Discs because of Alexei Sayle’s ant-Zionism.
 – Several people complained to the police about a tweet from an SNP councillor about the Eurovision song contest.
These are all

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Starmer, skill and luck

23 days ago

Why is Sir Keir Starmer making such a mess of being Labour leader? A good perspective on this comes from a 2006 article (pdf) in the Harvard Business Review by Boris Groysberg and colleagues: I fear most journalists and Labour activists have overlooked this because the HBR is too left-wing for them.
They looked at what happened when senior managers at General Electric became CEOs of other companies. And they found that bosses with similarly impressive CVs had hugely different performances in their new firms. This, they say, is because what matters is not so much the individual boss’s skills but the match between those skills and the job requirements. So if for example a cost-cutter took over a firm whose priority was to grow rapidly, he failed, whereas he succeeded if he took over a

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Markets & the right

27 days ago

Samuel Gregg reminds us of an important fact about rightist thinking – that the right has always been ambivalent about markets.
This is as true in the UK as in the US. We saw this, for example, in the 19th century when the Tories split up over the abolition of the corn laws and when Thomas Carlyle damned economics as the “dismal science” for wanting to abolish slavery. We saw it too in Roger Scruton’s mixed feelings about Thatcher:

She leaned too readily on market economics, and ignored the deeper roots of conservatism in the theory and practice of civil society.

And we see it today in the Tories imposing trade barriers not just between the UK and EU but even within the UK. Perhaps the most spectacular example of this is John Redwood’s seamless move from ardent Thatcherite to

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May 11, 2021

There’s much talk, some sensible and some less so, that the Labour party has lost touch with the working class. Khalid Mahmood for example complains that the party is “doing better among rich urban liberals and young university graduates than it is amongst the most important part of its traditional electoral coalition, the working-class.”
Of course, you can use words to mean whatever you want them to, but to those of us in the Marxian tradition, such a complaint makes no sense because of how we define “working class”.
For us, being working class is not about your lifestyle or background but about economic relationships. If you don’t own (significant) means of production and must sell your labour-power, you are working class. By this definition, young graduates and people drinking fancy

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On centrist vacuousness

May 8, 2021

What would you think of a political party that promised to: cut unemployment by one million over two years; increase public investment; borrow more to finance extra welfare benefits and NHS staffing; increase foreign aid; promote worker coops; and aim for “a major extension of profit sharing and worker share-ownership to give people a real stake where they work”?
It’s pure Corbynism isn’t it?
Well, no. All these were in the 1983 Liberal-SDP manifesto. Back then, they were centrist policies.
Not that this was unusual. In 1924 – the year of picture opposite – Liberals called not just for workers to get a share of profits but also for the compulsory purchase of land for housing development and came close to advocating a land value tax.
By contrast, today’s centrists show no such

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Capital’s political power

April 29, 2021

The Tories are corrupt. That’s the message of handing out PPE contracts to government cronies; Cameron’s lobbying for Greensill; the murky financing of Johnson’s home “improvements”; and Robert Jenrick’s doing the bidding of Tory donors. All this, says Grace Blakeley, highlights the problem of “politicians and business people being in each others’ pockets.”
All this, however, is only part of the story. Even if our politicians were honest and even if the media were unbiased capitalists would still have disproportionate (pdf) power over government. Grace is right to say that “our ‘democracy’ works for the powerful, not the people.” But this is due not to the shortcomings of particular individuals, but to systemic forces.
One of these was pointed out by that great left-wing economist Adam

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On selection mechanisms

April 25, 2021

Market research is vital. Had the breakaway six done some, they’d have known it was an unpopular idea and so wouldn’t have destroyed their bargaining power with UEFA and their (in some cases tiny anyway) popularity with fans.  
Market research is a menace. Sir Keir Starmer’s concern with focus groups is creating timidity and a lack of direction. It’s causing him to reject Wayne Gretzky’s advice to skate to where the puck is going to be rather than to where it has been. Henry Ford never actually said “if I had asked people what they wanted, they would have said faster horses.” But it captures a limitation to how much we should listen to market research.
Which of these paragraphs is correct?
Both. What we have here is an example of Niels Bohr’s saying: the opposite of a great truth is

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Capitalists against competition

April 19, 2021

Capitalists hate competition. That’s the message of plans by several big clubs – as well as Sp*rs – to form a “super” league in which they’ll be protected from the danger of relegation or from competition from emerging teams.
The smarter capitalists have of course long known that profits come from avoiding competition. Warren Buffett advises shareholders to look for companies with “economic moats” – things that protect them from competition. And Peter Thiel says start-ups should aim to become monopolies. “Competition is for losers” he says.
But here’s the thing. Striving for monopoly is by no means always a bad thing. The pursuit of brand power – one of Buffett’s moats – causes firms to try to make high-quality products consumers can trust. The urge for more market share causes them to

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On generational difference

April 16, 2021

There’s been a little pushback to this claim by Ezra Klein, but I suspect there’s a lot in it:

I’ve been struck by the generational divide within the Democratic Party. Washington is run by 20- and 30-somethings who run the numbers, draft the bills, brief the principals. And there is a marked difference between the staffers and even the politicians whose formative years were defined by stagflation, the rise of Reaganism and the relief of the Clinton boom, and those who came of age during financial crises, skyrocketing personal debt, racial reckonings and the climate emergency. There are exceptions to every rule, of course — see Sanders, Bernie — but in general, the younger generation has sharply different views on the role of government, the worth of markets and the risks worth taking

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Prince Philip & the communist ideal

April 14, 2021

One unintended and unremarked effect of the eulogies to Prince Philip is that they have reminded us of Marx’s vision of communism.
What I mean is that several of his admirers describe him as a “renaissance man” on account of his wide range of interests.
This, however, is an example of a common error – of ascribing to agency what is in fact the result of economic forces.
Prince Philip could afford to pursue so many different passions because the day he married the Queen he was freed from what Marx called “the dull compulsion of economic relations.” For most of the rest of us, however, this compulsion forces us to specialize, to develop just one skill to the detriment of other interests. Capitalism rests upon the division of labour. But as Adam Smith saw, this can destroy us:

The man

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The need for institutional brains

April 10, 2021

“The trouble with you, son” said Bill Shankly to a young player “is that your brains are all in your head.” I was reminded of this line from the great man by reading Ian Leslie’s Conflicted, on how to have more productive arguments.
His advice is good: define exactly what the disagreement is about; make your interlocutor feel good and secure; acknowledge your own uncertainties; be less tribal; and so on.
In the heat of argument and when the teacups are flying, however, it is easy to forget these principles. We then have what the ancient Greeks called the problem of akrasia, of lack of self-control. Just because we know the right thing to do does not ensure that we’ll actually do it; even self-confessed “moderates” are apt to forget their own advice on how to argue well.
This is what

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Complicated motives

March 27, 2021

This week Boris Johnson claimed that the roll-out of the vaccine was the result of capitalism and greed; Goldman Sachs workers complained about long hours; and I got my jab. There’s a link here. All three episodes shed light on the role of motivations.
Johnson is of course wrong. The Oxford vaccine was discovered by academics and is being produced by AstraZeneca at cost, and the Biontech vaccine was discovered by people who were already billionaires. It’s nearer the truth to say that the vaccines’ discovers were motivated less by greed and more by intellectual curiosity. And this, of course, is only one of countless motives, which include pride, ego, loyalty to colleagues, force of habit, fear of failure, peer pressure, altruism, and so on.
And these non-financial motives are powerful

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The paradox of financial innovation

March 18, 2021

Back in 1964 Kenneth Arrow showed that, in theory, competitive markets could produce optimal allocations as long as there were state-contingent securities which allowed people to trade risks and so insure against them. The problem is, he said, that: 

Many of the economic institutions which would be needed to carry out the competitive allocation in the case of uncertainty are in fact lacking.

Almost thirty years later, Robert Shiller showed that this remained the case. “The insurance industry has not devised policies that insure against many…causes of fluctuations in incomes” he wrote in Macro Markets in 1993.
He proposed creating GDP-linked securities which people who were optimistic about economic growth could buy whilst those worried about recession could go short. This would

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On Hans in Luck effects

March 10, 2021

In the Brothers Grimm fairy tale, Hans in Luck, the protagonist starts with a lump of gold but ends up with nothing after a number of trades each of which seems reasonable on its own. This is a metaphor for a lot of behaviour in politics and economics.
The point is that you cannot always judge an outcome by the individual actions that lead to it. Each action Hans takes is understandable in itself but their cumulative effect is to impoverish him*. Which is an example of the Sorites paradox. If you take a grain of wheat you’ve got next to nothing but if you do so often enough you’ll eventually have a silo full of the stuff.
The fund management business operates on this principle. A modest annual management charge looks like a single grain of wheat, not worth noticing. But if you take it

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The left after the Budget

March 5, 2021

Labour’s reaction to this week’s Budget has been widely criticised. James Meadway accuses it of not offering an adequate alternative. He’s right. But there are in fact profound flaws in the Budget which Labour should be pointing out.
One is the failure to address acute poverty. Sunak is planning to cut universal credit payments later this year. That, says (pdf) the Resolution Foundation, will be “disastrous for family incomes” and “bad macroeconomics” as it is taking cash out of the economy at a time when unemployment is likely to be high. This isn’t an isolated error. In delaying the extension to the furlough scheme last autumn Sunak needlessly destroyed jobs. His failure to ensure adequate sick pay has not only impoverished people but jeopardised their health by compelling

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A defence of maths in economics

March 2, 2021

What’s the point of maths in economics? I ask because of this:

Much of the mathematics used in economics is simply performance. Despite the sometimes undue attention given to mathematical methods, the actual mathematics economists use often contradicts their economic conclusions. The mathematics in economics is simply a tool to keep out outsiders: economists themselves do not take it that seriously.

I suspect this is sometimes (often?) true. But I want to give a counter-example. It comes from a source some of you don’t like, John Cochrane. It’s this equation (pdf) for predicting long-run returns on assets relative to returns on cash:

ER = RA x SDa x SDbg x corr (a, bg)

Where RA is a coefficient of risk aversion, SDa is the standard deviation of asset returns, SDbg is the

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Noise, interests & democracy

February 25, 2021

Tim Fenton writes here about Tracy Ann Oberman’s “faux victimhood”. I don’t want to get into this particular case, but the concept of faux victimhood is surely a useful one. And it highlights a problem with actually-existing liberal democracy.
The problem is that what gets heard is not necessarily a guide to what really matters.
People with a sense of faux victimhood make a lot of noise. The old saying is true: “when you’re accustomed to privilege, equality feels like oppression." This is why some white people feel victimized by Black Lives Matter, or why some men feel victimized by feminists. And it’s what gives us complaints about people being “cancelled” when in fact their only fate is to be reduced to writing for the Telegraph. It’s the stone in the show that gets noticed. And gets

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Why Labour should talk about productivity

February 19, 2021

If you buy a goldfish, you shouldn’t be disappointed that it doesn’t catch mice. It is therefore pointless to criticize Starmer’s speech yesterday for being insufficiently critical of capitalism. There is however one curious but important omission from his speech – one which is odd for a technocratic social democrat.
I’m referring to the lack of any discussion of, or remedy for, our productivity problem.
Just before the pandemic, real wages were actually lower than they were in 2007. The average worker has gone 13 years without a pay rise. This is not because capitalists have taken a bigger share of the pie: the share of non-financial profits in GDP was much the same at the start of 2020 as it was in the mid-00s. Instead, it’s because productivity has stagnated: in the 12 years to the

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It’s not the 90s any more

February 17, 2021

Sir Keir Starmer wants to party like it’s 1999. That seems to be his motive for seeking the advice of Peter Mandelson. There is, however, a big problem with this. It’s not the 1990s any more. There have been huge socio-economic changes since then, which require very different policy responses.
One of these is that the economy is now stagnating. In the 20 years to May 1997 labour productivity grew by an average of 2.3 per cent. In the 12 years before the pandemic, however, it grew by only 0.2 per cent per year. Back in the 90s, therefore, it was reasonable to believe that the economy would grow well if governments could only provide the right framework such as stable macroeconomic policy. Today, though, we know that whilst policy stability might be necessary, it is not sufficient.

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Choosing charlatans

February 13, 2021

People choose to listen to charlatans even when it is against their interest to do so. That’s the message of some recent experiments.
Aristotelis Boukouras and colleagues got subjects to take a multiple choice exam during which they could choose to take help from one of two computerized advisors. One of these was an expert, who gave the answers that a panel of economists would. The other gave the answers that had been most popular with other people who had taken the test. They found that most people chose to take advice from the latter – even after they had been told that it was only giving the popular answers and even when they were paid for getting answers right. What’s more, even when people had the option of switching to the expert when they could see that the populist advisor was

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Labour’s patriotism problem

February 6, 2021

Patriotism might be the last refuge of the scoundrel but it is the first refuge for a politician wanting to avoid the reality of the need for radical change. That seem to be the message of the call by some “branding agency” that Labour should appear more patriotic.
Which poses a question. How is it that Labour’s patriotism has come into doubt? For reasonable definitions, it is Labour that is the patriotic party more than the Tories.
Let’s define patriotism as love of one’s country, and let’s define love as wanting what is best for someone whilst valuing them as themselves, and the country as its inhabitants, past present and future.
By these definitions, Labour is patriotic. It wants what’s best for people. Of course voters rejected Labour’s conception of what’s best for them, but

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Hedge fund humbugs

February 3, 2021

At the end of the Wizard of Oz the wizard is revealed not to be somebody of superhuman powers but “just a common man”, “a humbug”. Hedge fund managers are like that. Whereas their enemies, such as some of the posters on Wall Street Bets and indeed many on the left generally, sometimes pretend that they are evil geniuses the truth is much more mundane.
 Data from Hedge Fund Research tell us this. They show that the average hedge fund has made 5.6% a year in the last five years. That might sound OK. But you could have made twice as much by just leaving your money in a fund that tracks MSCI’s world index; over 10 per cent in gold; and 3.8% in US Treasuries. Which means reasonably balanced funds which any investor could create for themselves have done as well as the hedge fund; in recent

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On attitudes to risk

January 31, 2021

There’s a nice juxtaposition between two of the biggest stories of recent days: retail investors piling into Game Stop; and the reluctance of ethnic minorities to take Covid vaccines and the slowness of the European Medicines Agency to approve them.
The thing is that these are all stories about extreme attitudes to risk. Small investors buying a dodgy company looks like risk-loving behaviour, whilst refusing to approve or take the vaccine looks like high risk aversion.
What explains such a big contrast?
Conventional neoclassical economics has no answer. It sees them as mere differences in tastes, which it regards as exogenous.
This won’t do. It’s just shrugging your shoulders. Not that this is the only problem they have. As Thaler and Rabin have shown, the standard approach to

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The death of economic policy

January 29, 2021

One of the great and under-appreciated changes of recent years has been the disappearance of serious economic debate from Westminster politics.
For decades the big political divide was about economics: the causes and cures for the UK’s relative economic decline; the precise mix of state and private sector; what to do about industrial relations; monetarism vs Keynesianism; how to achieve macroeconomic stability; how to redefine social democracy in the 90s; and austerity after 2010.
Today, though, mainline politics is largely innocent of economics. The Tories, Stian Westlake has said, “seem to have stopped talking and thinking about economics.” We see this, for example, in the decline of John Redwood from being a serious Thatcherite to a sub-North Korean driveller about juche. More

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Endogenous policy

January 24, 2021

In a justly criticised piece in the FT, Morgan Stanley’s Ruchir Sharma says:

My team also found a statistically significant link between periods of rising government debt and slow GDP growth. These studies cannot show causation, but the consistent link between growing deficits and weakening growth is unlikely to be coincidence. 

True, it’s unlikely to be coincidence. What is likely, though, is that the causality runs from a weak economy to rising government debt. Slow growth causes rising government debt not just because it depresses tax revenues and raises welfare payments but also because it causes governments to loosen policy.
Sharma’s failure to give due weight to this obvious possibility is an egregious example of a widespread error – an inability to appreciate that policy is

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Character, context and work

January 20, 2021

It is fitting that Donald Trump should leave office in the same week that Phil Spector died, because both remind us that the quality of a man’s character is not the same as the quality of his work.
As a human being, Mr Trump recalls the words of the great Fred Thursday: he’s worth nowt a pound, and shit’s tuppence. As a president, however, his performance wasn’t quite as disastrous as his character. He didn’t start any new wars (though he did continue old ones); broke the confines of fiscal orthodoxy; (marginally) reformed the awful criminal justice system; and showed an awareness that millions of Americans were let down and alienated from conventional politics. Of course, there’s huge downsides too – on immigration policy and climate change not to mention the mishandling of Covid

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Debates, fake and genuine

January 17, 2021

There might not be any general purpose experts, but there are general purposes idiots. That’s one inference from Ipso’s ruling that one of Toby Young’s Covid denialism columns was “significantly misleading.”
In fact, though, this episode tells us something more general about the nature of capitalist power.
The thing is that Young is not an isolated fool. There is a small industry of Covid-deniers, as Neil O’Brien (one of the few Tory MPs brave enough to make a pubic display of intelligence) reminds us. Which poses the question: why do people with no knowledge of medicine or epidemiology feel the need to jump in with silly takes?
It’s because they have an incentive to do so: there’s a demand for gobshites. And it doesn’t come only from trash media such as talkRADIO or the Telegraph. It

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On forecasting

January 13, 2021

What’s the point of forecasting? This is the question posed for me by Michael Story’s account of superforecasters’ predictions for the course of the pandemic.
Take this:

Our central estimate that the death toll will peak at 1,278 with an 80% confidence interval of 892 to 5,750.

So what? It’s not all clear how this affects the debate about how tight the lockdown should be. That depends upon how the virus is transmitted; the trade-off between mental and physical health; how far the economic effects of the lockdown can be mitigated; and so on. Yes, that claim that the daily death toll could be 5750 is alarming, and speaks to the need for a tight lockdown. But you don’t need any precise number to make that case. The mere chance of a high death toll does as well.
Similarly the

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