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Articles by chris

Smart consumers. stupid voters

2 days ago

What do ordinary folk know about economics? This question has been revived by Simon, who argues that support for a no-deal Brexit is based upon “information failure” caused by our biased and inadequate media. This is in a similar spirit to Jason Brennan and Bryan Caplan, who argue in different ways that voters are irrational and/or misinformed.
My chart offers a corrective to this view. It shows that the ratio of retail sales to share prices has been a fantastic predictor of equity returns since the current vintage of retail sales data began in 1996. The correlation between the ratio of retail sales to the All-share index and subsequent three-year changes in that index has been a whopping 0.76 since 1996.
Ordinary people, then, know something very important. In aggregate, they know

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The dubious logic of commodification

5 days ago

The proposal to raise the pension age to 75 reminds us of an under-appreciated fact – that there is, at least sometimes, a conflict between human flourishing and economic rationality on the one hand and the logic of capitalist accumulation on the other.
We can immediately dispense with the claim that working longer is good for our mental and physical health. If this is the case, it is a reason for banning age discrimination and encouraging lifelong learning so that older people’s skills don’t become obsolete – in short, for giving people the real choice of how long to work. “Forcing people to be free” used to be a very unconservative idea*.
To understand what’s going on here, we need a Marxian notion – that of commodification. This is the process of turning objects and relationships

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The Peterloo paradox

7 days ago

From one perspective, there’s something odd about the commemorations of the 200th anniversary of the Peterloo massacre.
You can be forgiven for thinking that there should be nothing party political about these. The protestors were demanding a wider suffrage. One would expect those Tories who sanctify the “will of the people” to celebrate such demands. And we’d expect lovers of freedom to condemn those who killed the protestors: they were, after all, doing just what Stalin did later – murdering opponents of the regime.
But this is not what we see. It is trades unions and leftists who are marking the day: Mike Leigh made a film of it. Tories, on the other hand, seem much quieter.
For one thing, many Tories have never really been on the side of freedom. Of course they claimed to be

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The trade deal fetish

10 days ago

John Bolton says the UK can strike a quick trade deal with the US. This reminds me of an under-appreciated fact – that it is not trade rules that are significantly holding back UK exports.
Brute facts tell us this. As part of the EU, the UK and Germany have the same trading rules. Last year, however, Germany exported $134bn of goods to the US whereas the UK exported only $65.3bn. Per head of population, Germany’s exports to the US were therefore 60% higher than the UK’s. Much the same is true for other non-EU nations. Last year Germany exported $11.8bn to Australia whilst the UK exported just $5.9bn, a per capita difference of over 50%. German exports to Canada were $12bn whilst the UK’s were $7.3bn, a 28% per capita difference. German exports to Japan, at $24.1bn were 2.2 times as

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Tories against Thatcher

13 days ago

Stephen Bush expresses a widely-held opinion when he writes:

Boris Johnson sees more Thatcherites when he looks at his cabinet than Margaret Thatcher did with any of hers.

In a sense, however, this is very odd – because in one respect this government is fundamentally anti-Thatcherite.
What I mean is that a cornerstone of Thatcherism was the belief that a major role of government was to provide stability so that businesses could plan without having to worry about policy changes. This was the idea behind the medium-term financial strategy – to reduce inflation (hence creating stability) without using price or wage controls, what Nigel Lawson decried as “ever more ad hoc interference with free markets.” As she said:  

An economy will work best when it is built on a framework of

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Economics & identity

15 days ago

Simon says that a no-deal Brexit is pretty much in nobody’s interest and so represents a victory of the “force of ideas rather than interests”. I largely agree, but I wonder whether the distinction between ideas and interests is so clear-cut.
To see my point, consider a different case: young people. These are more left-leaning than others: a recent Ipsos Mori poll (pdf) showed Labour leading the Tories by 34-28% among 25-34 year-olds, and that 46% of this group support either Labour or the Greens. But this is not because younger people are inherently more leftist. In the 1987 general election, the Tories actually had a big lead among 25-34 year-olds.
So, what has changed since then?
Home ownership. That’s what. In the late 80s half of 25-34 year-olds owned their own home. Now, only a

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The missing backlash

21 days ago

Dani Rodrik asked a good question on twitter the other day: why has there been so much backlash against free trade but so little against finance?
In the UK, it’s moot whether there has been a backlash against free trade. But there certainly hasn’t been one against finance, so Dani’s question holds.
Three things make it especially puzzling.
One is that the costs of the financial crisis are vastly greater than any even half-plausible estimate of the cost of being in the EU, and yet there’s much more hostility to the latter.
A second is that scepticism about the financial sector is to some extent non-partisan. In his fine book Adam Smith: What He Thought and Why It Matters, Tory MP Jesse Norman accuses banks of “turbo charged” rent extraction and says: “The banking sector may be

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Johnson’s spending challenge

23 days ago

The old myth of government finances being like household ones is about to hove back into view. Johnson is promising to increase spending on the NHS, as well as on schools and higher public sector pay, as well as offering a big tax cut. To the question, “how can he afford this?”, Tories reply:

It is because we took tough and necessary decisions to cut Labour’s borrowing after 2010 that we can afford to spend more now.

In this way, popular spending rises now can be used to defend past austerity.
Which poses the question: how can the left combat this?  
It’s not good enough to say that it too favours such spending. This risks it looking like an old hipster: “Yeh, I was into fiscal expansion before it was cool.”
Yes, we have lots of other arguments. Austerity was never necessary

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Against adaptation

26 days ago

One under-rated determinant of political debate lies in the fact that we become accustomed to some things but not others.
I’m prompted to say this by reactions on Twitter to my questions about Mark “Herr Juncker in the bunker” Francois: how did this idiot achieve prominence? Why does the BBC think him an acceptable guest on what it considers a serious show? Why have our selection mechanisms & standards gone so badly awry?
Some replied that the BBC is chasing click bait, or that it is human nature for people to cheer on those on their own side, regardless of their competence.
What such replies miss, however, is that these phenomena are more prominent now than they used to be. I might be guilty of selective memory or golden age mythologizing, but I don’t recall John Tusa interviewing as

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Centrists against evidence

29 days ago

In an excellent piece, Martin Sandbu says the state has more power to tax companies than we had thought, and calls for us to move away from “learnt helplessness in the face of inequality and stagnation”. What we need, he says, is “centrist radicalism”:

That requires centrist politicians to move out of their incrementalist comfort zone and pursue policies that measure up to the scale of our problems. The challenges include the overhanging burden of past mismanaged economic crises and looming climate change disruption in the future. Populist snake oil from the right or the left will not solve these. Neither will centrist tweaks.

This is a noble call. But one, I fear, that will fall in deaf ears.
I say this because of a big paradox within centrism – that whilst it claims to be

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The Technology Trap: a review

July 24, 2019

The historian Suetonius wrote that, when approached by a man offering a cheap technology for transporting heavy columns to Rome the emperor Vespasian refused to use the device for fear it would displace workers. “How will it be possible for me to feed the populace?” he asked. The fear that new technology will destroy jobs is, therefore, an ancient one.
This is the theme of Carl Benedikt Frey’s The Technology Trap. Although Dr Frey is best known for his work with Michael Osborne predicting (pdf) that new technologies threaten millions of jobs, his book is not an exercise in futurology. Most of it is a fascinating history of technical change.
There are, he says – echoing Acemoglu and Restrepo – two main types of technical change. Some enable workers to do more, making them more

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Centrists’ failure

July 21, 2019

Mine and Simon’s claim that Corbyn is the lesser of two evils has had a lot of pushback. Some say Corbyn is more antisemitic than we think, others that we do indeed have other choices*. All this, however, raises the question: how have we gotten into the position where the choices of future Prime Minster are so poor? The worse you think Corbyn is, the more force this question has.
The answer, to a large extent, is that centrists have failed. They had the ball – New Labour and the LibDems were in office for 18 years – and they dropped it. Johnson and Corbyn have risen as centrism has fallen. Centrists show an astounding lack of self-awareness about their own abject failure.
Corbyn is popular – insofar as he is – not because he is a political genius (he’s not) nor because many of us have

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Labour’s antisemitism problem

July 19, 2019

Simon Wren-Lewis says that, faced with the prospect of a Johnson-led government, Jeremy Corbyn is the lesser of two evils and should therefore be supported. I tend to agree, but with two caveats.
One is that we cannot dismiss Labour’s problem with antisemitism. True, nothing Corbyn has ever said is as overtly obnoxious as Johnson’s talk of “picaninnies” or that Irishmen are all called Murphy. The evidence for his antisemitism consists in a deafness to anti-semitic tropes; a failure to call it out when he should; and a closeness to the sort of moralizing conspiracy theory that can spill over into antisemitism.
Mild as they are compared to Johnson’s racism, however, these are genuine failures. For obvious reasons, Jews are rightly awake to tail risk – the tiny chance of genuine

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Costs of recession

July 17, 2019

The Resolution Foundation’s James Smith has written a nice paper on the likelihood of recession and the fact that, with monetary less able to support the economy, we need to think about alternative ways of tackling recessions. I just want to amplify what he says in two ways.
First, there’s increasing evidence that recessions can do long-term damage, even if the economy appears to bounce back in the short-term. There are at least three mechanisms here:
 – Education. Bryan Stuart shows that the 1980-82 recession in the US “generated sizable long-run reductions in education and income.” Parents who suffer a drop in income spend less on children’s books and educational trips, and this makes them less likely to go to college a few years later. Such effects are magnified if bad macro policy

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Don’t abolish private schools

July 11, 2019

Should we abolish private schools, as some Labour activists are advocating? For me, this is a tricky issue.
The case for not doing so is simple – freedom. My instinct is that folk should be free to spend their money how they want. (I know nobody values freedom these days but I’m an old man, so indulge me.)
As with many other activities, however, this freedom imposes negative externalities onto others.
One is that it creates unequal opportunities. Fees at Oakham School – to take my neighbour – are more than three times as great as average spending (pdf) per pupil in the state sector. Such massive inequality in spending is bound to cause some inequality in results. It’s no surprise, therefore, that the privately-schooled are over-represented at Oxbridge and in top jobs.
The second is

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Disaster capitalism: some doubts

July 10, 2019

Could “disaster capitalism” actually work? This is the question posed by Grace Blakeley, who writes:

A no-deal Brexit is to Johnson and Hunt what the financial crisis was to Cameron and Osborne – an opportunity to rebalance power and wealth in society away from labour and towards capital.

Here, some distinctions are necessary.
One is between effects and intentions. A precedent for successful disaster capitalism was the 1981 recession. It greatly weakened workers’ bargaining power and caused capital scrapping, both of which helped to restore profitability. This, however, was not Thatcher’s stated intention: she did not expect her policies to cause a recession. And it might not have been her actual intention either.
Similarly, I don’t know whether Johnson really believes a no-deal

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Simplicity: smart & stupid

July 5, 2019

David Gauke has been rightly praised for this:

Rather than recognising the challenges of a fast-changing society require sometimes complex responses, that we live in a world of trade-offs, that easy answers are usually false answers, we have seen the rise of the simplifiers.

This echoes a fine piece by Ian Leslie who says:

The disease of politics today is not populism, so much, as simplism: the oversimplification of complex problems.

I want to quibble, though. There are – to simplify! – two different types of simplicity, the stupid and the smart.
Stupid simplicity is the sort that Gauke and Leslie are rightly decrying – the sort that denies the reality of complexity. This is the sort of simplicity that thinks there is a simple cause of our problems – be it immigrants, Joos or

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How not to be an arrogant prat

July 4, 2019

Dan Davies has said that financial regulators should have been active spread-betttors, because only this gives them hard knowledge of how nasty margin calls can be. The same should apply to everybody who expresses a political opinion.
The thing you learn from financial markets is that even your best ideas, your most diligently-research trades, often go wrong – and expensively so. Equity fund managers typically have only a few good stock ideas and most of what they do is either risk management or value-subtraction. And private equity managers expect many of their holdings to lose.
What you learn from spread-betting or (in my case) having to stand on a trading floor after one of your calls has gone wrong is that the only thing that matters is the facts. However much smoke your friends

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Class and optimism

July 3, 2019

One thing that attracts people to Boris Johnson is his cheerfulness about Britain’s prospects. Liam Halligan and Owen Patterson both praise his “sunny optimism”, whilst Matthew Leeming writes – I kid ye not – that “we need a cheerleader to remind us we are an erect and manly people.” But I wonder: is there a class aspect here?
I ask because of recent paper by Erin McGuire. She shows that:

Individuals who begin their lives by observing an economic downturn remain pessimistic and risk averse with respect to investments over the course of their lifetimes.

This corroborates work (pdf) by Ulrike Malmendier and Stefan Nagel and by (pdf) Miguel Ampudia and Michael Ehrmann. And it’s consistent with research by Henrik Cronqvist and colleagues. They show that people who grew up in poorer

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The Tories’ imaginary world

June 28, 2019

Sometimes, the Tories offer us a glimpse into their psychology. So it was yesterday when Sarah Vine tweeted:

Watching the #RestaurantMakesMistakes and astonished to learn that people with dementia struggle to get benefits. Is this true? And if so, how is this not a national scandal?

What she’s expressing here is the cognitive dissonance that her own party’s policies actually have nasty effects upon real people. Her consternation arises from the fact that, for many Tories, this is not supposed to happen. Many of them, I suspect, are not actually evil but rather guilty of a recklessness that comes from a particular conception of politics – a conception which sees it as a game of positioning, and of pandering to the imagined world of the Daily Mail. Politics is a post-modern activity

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The human factor

June 26, 2019

Could AI replace managers and even politicians? In their now-famous paper (pdf) describing how half of American jobs could be replaced by computers, Carl Frey and Michael Osborne say no: they estimate that chief executives, line managers and HR managers are among the 10% of occupations least likely to be computerized.
From the perspective of neoclassical economics, this is weird. It pretends that the job of bosses is to maximize profits, given a production function and prices of inputs. This is a constrained optimization problem which can easily be done by a computer.
Similarly, if you believe, Sunstein-stylee, that policy-making is a technocratic function of choosing optimal fiscal or monetary policy or the right choice architecture, the job can be delegated to computers, which have

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The recrudescence of zero-sum thinking

June 21, 2019

President Trump believes we live in a zero-sum world in which one country’s gain is another’s loss. This is evident in his reaction to Mario Draghi’s comment this week that additional monetary stimulus will be needed if euro zone inflation doesn’t rise. Trump tweeted:

Mario Draghi just announced more stimulus could come, which immediately dropped the Euro against the Dollar, making it unfairly easier for them to compete against the USA. They have been getting away with this for years, along with China and others.

Adding that this is “very unfair to the United States!”
This, of course, is bollocks. The US would actually gain from monetary stimulus to the extent that it strengthens the euro zone economy, thus allowing US firms to sell more to it: exports are more sensitive to demand

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New Labour: success and failure

June 16, 2019

Did New Labour really ignore inequality? Responding to Corbyn’s claims that successive governments have neglected it for decades, Blair replies that New Labour “made the UK more equal, more fair and more socially mobile.”
Both men, I think, are partially right.
Blair is correct to say that New Labour massively increased spending on public services and reduced child and pensioner poverty.
However, overall inequality did not change much under New Labour despite that fall in poverty. One reason for this is that as Robert Joyce and Luke Sibieta at the IFS have pointed out (pdf), their tax and benefit reforms “had relatively little net impact on the top half of the income distribution”. Another is that pre-tax inequality rose in one important respect at least: the share of pre-tax incomes

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The Johnson puzzle

May 28, 2019

One of the puzzles of our time is why Boris Johnson is considered – not just by Tory members but by much of the media – to be a credible contender for Prime Minister when many of us regard him as a oafish buffoon, serial liar and associate of criminals. One answer to this paradox, I suspect, lies in the concept of ambiguity aversion.
This is the notion that people much prefer the familiar to the unknown, and known risks to unknown ones: they strongly prefer (pdf) 50-50 bets to ones on unknown proportions. Such ambiguity aversion explains a lot of behaviour in financial markets, ranging from the home bias in equity portfolios to the US’s “exorbitant privilege.”
It also, though, explains political attitudes.
The thing is, the Tory party is for many people the familiar option; it is after

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The Tories’ structural weakness

May 23, 2019

As a lefty, the disarray in the Tory party provides a lovely schadenfreudic coincidence – that the same intellectual failing that causes the party’s bad government also causes it to elect unsuitable leaders.
This failing is an inability to see failures of collective action – to see that what is rational for each individual is often bad for everybody.
An obvious example of this came in 2012 when Cameron advised people to top up their petrol tanks in advance of a strike by lorry drivers. He failed to see that whilst this might have been sensible for any individual, its aggregate result was to trigger panic buying and fuel shortages.
There are, though, other examples. Collective action problems mean that public goods such as infrastructure are under-supplied and public bads such as

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How inequality makes us poorer

May 17, 2019

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,

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Debating the far right

May 14, 2019

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

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On media influence

May 9, 2019

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

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Yes, ownership matters

May 3, 2019

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

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Against solipsistic politics

April 30, 2019

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

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