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Articles by chris

When reputation misleads

3 days ago

Rebecca Long Bailey inadvertently posed a good question yesterday, when she tweeted:

Rishi Sunak the new Chancellor is a former Goldman Sachs banker who has backed anti trade union regulations; tax cuts for big business; opposing tax avoidance clampdown; cutting tax for wealthiest. The mask is slipping already, this isn’t a different kind of Tory government.

This raises the same question that is being begged by the Labour leadership contest: to what extent does a person’s past behaviour and beliefs predict their future behaviour?
We have countless examples of it not doing so. All of you will have worked with somebody who arrived at your firm with a glittering CV but who turned out to be a dunderhead, and conversely with somebody of no great reputation who turned out to be

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Thatcherism’s death

5 days ago

Thatcherism is dead. Boris Johnson’s love of big infrastructure projects conflicts with her preference for markets and caution about spending public money. His pulling out of the single market contrasts with her hailing it as “a fantastic prospect for our industry and commerce.” His increase in bus subsidies conflicts with her antipathy to public transport. (She never actually said that any man on a bus after the age of 30 should consider himself a failure, but the fact that it is so widely believed that she did so reveals something about her). And, of course, whereas Thatcher chose free market ideology over the wishes of northern (now post-) industrial towns, Johnson is making the opposite choice.
John Harris has quoted a senior minister as saying that “some very prominent strands of

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The dangers in balance

10 days ago

Would balanced and impartial news and current affairs journalism be dangerous, even if it were done with maximum integrity and competence? I ask because of a recent paper by Benjamin Enke and Thomas Graeber.
We’ve known for a long time that, in the words of Glaeser and Sunstein, balanced news can produced unbalanced views. In a famous experiment (pdf) in 1979, for example, Charles Lord, Lee Ross and Mark Lepper showed people mixed reports on the effects of the death penalty and found that people who supported capital punishment became stronger in their support of it after reading them, whilst opponents of the death penalty also became more dogmatic in their opposition. Balance, then, can lead to polarization.
This mechanism, however, works on partisans – those who fancy themselves

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In praise of trade frictions

12 days ago

Are restrictions on free trade a better idea than generally thought? I ask because, despite his lauding of it, it is reported that Johnson will impose customs checks upon goods imported from the EU. This lends credence to the estimate (pdf) by The UK in a Changing Europe that Johnson’s plan might eventually cut UK GDP by over six per cent.
But might this estimate miss an important mechanism and thus over-state the costs of us leaving the single market?
What follows cuts against all my instincts in favour of free trade and EU membership. My gut tells me to agree with Martin Wolf’s claim that Johnson’s proposals mean shooting ourselves in both feet. But we should always question our beliefs. And there is, I suspect, more to be said in favour of trade frictions than we have heard so far.

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On socially influenced preferences

15 days ago

Some ideas are both radical and conservative at the same time. This is a thought triggered by reading Robert Frank’s latest book, Under the Influence.
“Context shapes our choices to a far greater extent than many people realize” he writes. “In virtually every domain, evidence suggests that our consumption patterns tend to mirror those of others in our social circle.” He shows that behaviours such as smoking, becoming obese, committing crime (pdf) or even how many children we have are all heavily shaped by what our peers do.
This, he says, means that much of what we do imposes externalities upon others. The biggest externality of smoking, he says, is not so much the passive smoke that smokers impose upon others but the fact that their smoking encourages some others to take up the

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The bias against social science

19 days ago

We need the social sciences, but the media does not provide them. I say this because of a recent tweet by Frances Coppola:

If there is one thing we should learn from Auschwitz, it is that atrocities are committed by ordinary, nice people with the full support of other ordinary, nice people.

This contains an unpleasant truth, captured by Hannah Arendt’s phrase “the banality of evil”: at least some of the perpetrators of the greatest crime in history were just very ordinary men.
But this is an extreme manifestation of a general truth, which is the essence of social science – that social events are not the simple product of individual character. History, said Adam Ferguson, “is the result of human action, not of human design.” His contemporary Adam Smith thought that the invisible

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We don’t want economic growth

22 days ago

In launching a new 50p coin to mark Brexit, Sajid Javid seems to be interpreting the role of Chancellor in the same spirit that Trigger regarded Del Boy’s request to talk about money: “I saw one of those old £5 notes the other day.” We might have hoped that his energies would be better directed towards improving the UK’s lamentable productivity performance.
In fact, though, we should not snark. Mr Javid has grasped an important point not understood by leftists and economists (two groups which increasingly overlap) – that the public do not want economic growth.
We know this because they have consistently voted against it. The party of austerity won a majority in 2015; the public voted for Brexit in 2016; and they supported Johnson’s hardline Brexit deal last month even though it will

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The interest rate puzzle

25 days ago

Simon points to the widespread (but not universal) consensus among economists that house prices are high because (pdf) interest rates are low. For me, this raises a puzzle.
On the one hand, this seems not just true, but trivially true. Housing is an asset. And the price of an asset should be equal to the present value of its future cashflows: rent if you’re a landlord or the rent saved if you’re an owner-occupier. Lower interest rates raise the discounted present value of future cashflows and so raise asset prices. Which is consistent with the fact that house price to income ratios have trended up as real interest rates have trended down.
This is just common sense.
But, but, but. There is one significant asset class that has not benefited from the downtrend in real interest rates –

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Inequality under New Labour

27 days ago

Zarah Sultana’s recent claim that we have suffered 40 years of Thatcherism prompted Blairites to point to a big difference between Thatcher and New Labour – that whilst inequality rose a lot under Thatcher it largely levelled off under New Labour.
Measured by the Gini coefficient, this defence is correct. According to IFS data for incomes after housing costs, this coefficient rose from 0.261 to 0.374 from 1979 to 1996-97, but edged up only slightly more (to 0.405) during the New Labour years.
What should we make of this? A bit of me recalls Chris Rock: “you want some credit for some shit you’re supposed to do.”
Also, though, the Gini coefficient is, essentially, an average of all inequalities. It can stay the same if inequality increases in some respects but falls in others. And this

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A case for nationalizing pensions

January 17, 2020

One of the fundamental questions in politics is: what should be done by the state, and what by the private sector? In at least one respect, I suspect that we have the mix wrong because there is a strong case for nationalizing pension provision – stronger, I suspect, than is the case for nationalizing utilities.
I say so because, as I point out in the day job, retirees and those approaching retirement face enormous uncertainties if they are managing their own pension: how long will I live? What will my spending needs be? And what will be investment returns? (Yes, equity returns have been great in recent decades, but we have no assurance whatsoever that the future will resemble the past.)
The state, however, is much better placed than the private sector to bear these risks. It can

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Great economics, bad politics

January 16, 2020

Non-economists (and quite a few trained economists too) often claim that mainstream economics is a simple-minded defence of free markets and inequality. Abhijit Banerjee and Esther Duflo’s Good Economics for Hard Times is a superb refutation of this.
They argue that:

It is unreasonable to expect markets to always deliver outcomes that are just, acceptable or even efficient.

A big reason for this is that the economy is “sticky” and that “resources do not always flow to their best use. Workers who are laid off because of international trade or technical change do not quickly move to decent jobs: instead, job loss has permanent adverse effects on wages. Banks are slow to lend to good new ventures and to cut credit to failing firms. Efficient companies find it hard to displace less

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Two conservatisms

January 14, 2020

The death of Sir Roger Scruton reminds us of an overlooked fact, that there is a massive difference between the sort of conservatism he championed and free market economics.
Scruton defined conservatism as the “instinct to hold on to what we love, to protect it from degradation and violence and to build our lives around it.” The creative destruction of the free market economy, however, often endangers what we love. It is always threatening to destroy traditional communities and industries. Coal miners and steel workers in the 80s, protesting against pit and plant closures, were conservatives on Scruton’s definition but certainly not Thatcherites. And Patrick Minford’s vision of a post-Brexit economy in which manufacturing disappears is surely alien to the Scrutonian love of tradition.

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The strange death of libertarian England

January 8, 2020

It wasn’t just the Labour party that took a beating in last month’s general election. So too, but much less remarked, did right-libertarianism.
The Tories won on policies that repudiated many of their professed beliefs: a higher minimum wage; increased public spending; and the manpower planning that is a points-based immigration policy. And the manifesto (pdf) promise to “ensure that there is a proper balance between the rights of individuals, our vital national security and effective government” should also alarm libertarians. John Harris quotes an anonymous minister as saying that the libertarianism of Britannia Unchained is “all off the agenda” and that “some of the things we’ve celebrated have led us astray.”
Tories are not out of step with public opinion here. If anything, it is

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Labour’s public opinion dilemma

January 4, 2020

To what extent should Labour accommodate itself to public opinion, and to what extent should it try to change it? This fundamental question is posed, perhaps inadvertently, by Jess Phillips in an interview with the Times.
She says that people didn’t trust Labour to deliver the many promises in its manifesto:

People in working class communities know that you can’t always have everything. They know that this week you’ll put the money away for your holiday, next week you’ll put the money away for Christmas.

Now, I’m willing to accept that this is a fair description of many people’s attitudes to Labour’s borrowing plans. But it is, of course, a wholly wrong assessment of the economics.
For one thing, government borrowing is not like household borrowing. When the government borrows, it

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Conservative arguments for radical ideas

January 3, 2020

In my previous post, I used a rhetorical device which I think leftists should copy. This is that we should use conventional, orthodox economics to reach radical conclusions.
The point here is that we don’t persuade people by telling them that their worldview is wrong and by demanding that they change the ideas of a lifetime. We are more likely to succeed by showing them that their ideas are consistent with things they might not have considered.
Here are some examples of what I mean.
 – Fiscal policy. We don’t need MMT to argue for a significant fiscal loosening. Simple maths tells us that we can run big deficits and still see government debt fall as a share of GDP when real interest rates are negative, as they now are. And as Simon has said for years, the idea that we should use fiscal

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Wages vs social value

January 1, 2020

Today is the 23rd anniversary of the death of Townes Van Zandt, who is now universally regarded as one of the greatest songwriters ever.
And yet during his lifetime he made very little money. Even in his best years he got less than $100,000 from song-writing royalties, and for much of his life he might well have earned more from the oil drilling rights bequeathed by his rich family than from his music.
Which vindicates a recent tweet from Cameron Murray:

Actions that have social value only rarely coincide with actions that are monetarily compensated.

In Van Zandt’s case, this was partly because his genius was not fully recognised during his lifetime. But there are other reasons why Cameron point is correct in many more cases – reasons which are in fact entirely consistent with

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Yes, the BBC is biased

December 31, 2019

Over the weekend we saw two related examples of BBC bias. One came from Emily Maitlis, who said:

So often people read conspiracy into a thing when it’s really a confluence of cock-ups.

Sensible people, however, do not allege any conspiracy at the BBC. Instead, we have other concerns. Some are about incentive structures: which mistakes does it regard as mere cock-ups, and which as more serious offences? Another is that journalists, like all professionals, are prone to deformation professionelle – the fact that our training inculcates into us particular, and partial, ways of seeing things – which entails missing other things.
It is factors such as these that lead the BBC into error. Tom Mills, for example, says the corporation is too deferential to business and the state. It was

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A case for collective leadership

December 17, 2019

The debate about who should be the next Labour leader begs the question: should there be a single leader at all rather than a leadership team?
There’s much to be said for the latter*. For one thing, a good leader must do several jobs. They must develop policy; unite and inspire the PLP; win the votes of older Northerners without alienating metropolitan liberals; and motivate and recruit activists and organize an effective ground campaign. (The latter is important: Labour cannot win a top-down campaign and needs a strong mass membership to combat media lies.) There’s no reason to believe that the candidate best able to do one or two of these jobs an do them all. That’s a case for collective leadership.
Nor is there any reason to suppose that Labour members are well-equipped to choose a

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The failed marketplace in ideas

December 10, 2019

The “marketplace of ideas” is failing. That is the message of Stefan Stern’s complaint that, in this election even more than others, lies seem to be winning.
Of course, Stefan is right to say that politicians have always been economical with the actualite. But there is, surely, a big difference between Johnson and, say, Thatcher. Whilst we lefties hated much of what Thatcher did, we only rarely thought she was lying. Being a liar was the least of Thatcher’s sins. But it is the essence of Johnson’s identity.
This was not supposed to happen. Liberals used to think that the marketplace of ideas was like other markets – that good products would drive out bad, that, as Mill said, “wrong opinions and practices gradually yield to fact and argument.
But they don’t. A big reason for this is

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The Tories shrinking class base

December 4, 2019

One of the great changes in public opinion during my adult lifetime has been the collapse in Tory support from younger people and the ABC1s. For example, a recent YouGov poll (pdf) found that whilst the Tories have an overall lead of nine percentage points, they trail Labour by 57%-21% among 18-24 year-olds and lead by only 39%-36% among ABC1s*. By contrast, in 1992 – when their overall lead was very similar – they led 54%-22% among ABC1s and trailed Labour by only three points among 18-24 year-olds.
To see the reason for this, you need only look as far as the universities’ strike. This draws our attention to another great development of recent years – the degradation of erstwhile middle-class work. Academics are protesting about the loss of pension rights, increased workloads,

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The power of recall

November 29, 2019

The other day, I heard the Stranglers’ Strange Little Girl for the first time in ages, prompting me to recall having an Indian takeaway in a friend’s Morris Oxford somewhere off the Clarendon Road on a sunny evening in 1982. I wonder: does this help explain why older people are more hostile to the Labour party than younger ones?
My response to that particular song was of course idiosyncratic. But it is nevertheless typical. All of us have Proustian madeleines – cues that prompt us to recall some memories. We all, I suspect, have songs which we associate with specific people and places. This is why “trigger warnings” are sometimes necessary: traumatic memories can indeed be triggered. As Daniel Levitin writes:

The brain is not like a warehouse; rather, memories are encoded in groups

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Challenging rightist illiteracy

November 26, 2019

Grace Blakeley raises an important issue, of how the Labour party can best answer the question: “how are you going to pay for it?” I fear that her answers, though, are a mix of the good and bad.
First, the bad. In saying that “the arbiters of economic credibility” claim that borrowing to invest doesn’t work, Grace is constructing a straw man. All sensible economists know, as Simon has said for years, that fiscal austerity at zero interest rates is a terrible idea.
For this reason, I disagree with Grace’s claim that mainstream economic theory “is designed to prop up the status quo.” Yes, this is the case in some respects, one of which I’ll come to. But not in others. You can argue for fiscal expansion, liberal immigration policy, progressive taxation and even worker ownership without

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Labour’s corporate tax plans: a half-defence

November 24, 2019

Who really pays corporate taxes? This is the question posed by Labour’s plan to raise £30bn (pdf) from extra taxes on companies.
These plans run into the problem that several studies have found that, ultimately, it is workers who pay a hefty chunk of such taxes. Michael Devereaux and colleagues have found that, in European countries, workers pay 92% of extra corporate taxes. A study of Germany alone has found that they pay around half (pdf) of them. And a US study (pdf) has found that they pay around one-third. A literature survey (pdf) by Ben Southwood finds that, on average, workers pay more than half of extra corporate taxes. But, he says, “each study gives such a wide range of results over such varying sets of circumstances.”
To see why the results vary, just remember how it is

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Ownership and productivity

November 20, 2019

In last night’s leaders’ debate, the audience laughed when Jeremy Corbyn said that productivity gains could pay for a four-day week. This is an example of what I said recently – that we cannot have nice things because voters have resigned themselves to the inadequacy of British capitalism.
And inadequate it is. The ONS estimates that UK productivity is one-fifth lower than that of the US, Germany or France and one-tenth lower than Italy’s. Closing some of this gap would allow for a cut in the working week with no loss of pay.
In this context, Labour’s plans (pdf) to reform corporate governance, including putting workers on boards, are crucial. John McDonnell is bang right to say that giving workers a stake in companies raises productivity: there is a ton (pdf) of evidence for this.

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Why we can’t have nice things

November 17, 2019

We can’t have nice things. That’s the message of Ed Davey’s speech yesterday, in which he called for a structural current budget surplus and denounced Labour’s spending plans as “fantasy economics”. Voters seem to agree. Although many individual Labour policies are popular, the majority think Labour’s plans are unaffordable, and very few trust Corbyn on the economy.
From one perspective, all this is wrong. Over the last 25 years, two big things have changed.
One is that real risk-free interest rates have slumped. This means government borrowing and investment is much more affordable than it used to be. Governments should therefore be investing more, especially where (as with fibre broadband) the private sector is not doing so sufficiently. The failure of private sector capex to

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Bad faith arguments

November 14, 2019

One feature of this election campaign is that we are seeing more bad faith arguments. By this, I mean arguments which their advocates cannot sincerely believe, at least not without humungous inconsistency with their other beliefs.
One egregious recent example of this was John Redwood’s claim that Brexit is an opportunity for us to “develop policies to rebuild our self-sufficiency in temperate food.” It is obviously absurd that someone who claims to support free markets – the essence of which is the division of labour – should suddenly favour North Korean-style Juche. But Redwood doesn’t sincerely believe this. He’s looking for an upside to Brexit and is clutching at straws (literally?). It’s a bad faith argument.
Here are some other examples.
“Labour’s call to abolish hospital car park

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Mass under-employment

November 12, 2019

Today’s figures showed that unemployment fell slightly in the third quarter, pushing the unemployment rate down to 3.8%, its lowest since 1974. This, however, vastly under-estimates the amount of slack in the labour market.
My chart shows the point. It shows that, in addition to the 1.3m officially unemployed there are also almost 1.9m who are out of the labour force who would like a job. We know this is no idle preference; labour market flows data show that, in Q3, 547,000 people moved from inactivity into employment (and 574,000 in the opposite direction).
But there’s much more. Other data today show that, in addition to these, there are 3.3m people who are under-employed – who are working fewer hours than they’d like.
Put together, this adds up to 6.45 million people – 695,000 more

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Seeing what we expect

November 10, 2019

Read the words in the triangles.
Now read them again.
If you are like most people unprepared for the task, you’ll have read even these very simple sentences wrongly. You’ll have committed the mistake of seeing what you expect rather than what is there; you are so used to seeing such familiar phrases that you expect to see them even when what is actually there is a slight variation on them.
This is why it is impossible for most of us to proofread our own writing.
Not that this is always a handicap. Filling in gaps and overlooking small errors is why we can make sense of what people are saying when we can’t easily hear them because of background noise. And it’s why you all understand sentences such as “Boris Johnson is a c*** who is talking s***”.
Sometimes, though, this can lead us

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Resilience and selection

November 8, 2019

If truth is the first casualty of war, social science is the first casualty of election campaigns. So it was with Sajid Javid’s speech yesterday. He claimed that Labour will tax everybody more, “saddle the next generation with debt”, “ruin your finances” and would be “letting prices run wild in the shops.”
All this is silly hyperbole.
I say so not just because, as Simon says. Labour’s spending plans are more sustainable than the Tories because it will not inflict a damaging Brexit upon the economy.
Instead, there are two other reasons why Javid is wrong.
One is that developed economies are resilient. They just don’t tip swiftly from prosperity to ruin. For one thing, high debt (even if we get it) is no barrier (pdf) to decent economic growth. Also, as Eric Lonergan says, “inflation is

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Shoring up capitalism

November 6, 2019

They are not talking about it explicitly, but one of the interesting divisions on the centre and right in this election concerns the question: how best to sustain British capitalism?
Here, there are two related issues.
The first is: are we in a wage-led or profit-led regime? Sometimes (pdf), profit rates can be raised by policies and institutions that promote (pdf) full employment and high wages, as these boost aggregate demand. At other times, though, restoring profits requires policies to depress wages and rebuild profit margins. Tory governments in the 50s and 60s pursued wage-led policies, but Thatcher pursued profit-led ones.
Whether wage- or profit-led policies work varies from time to time and place to place, as Marglin and Bhaduri (pdf) and Onaran and Galanis (pdf) have shown.

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