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Chris Dillow: Stumbling and Mumbling

Stumbling and Mumbling is a personal blog of Chris Dillow, an economist who spent eight years with one of Japan’s largest banks. He blogs about British politics and provides thoughtful analyses on the British economy and sports.

Resilience and selection

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...

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Shoring up capitalism

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...

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The right’s mega-rich problem

“I don't think anyone in this country should be a billionaire” said Labour’s Lloyd Russell-Moyle yesterday, at which the BBC’s Emma Barnett took umbrage. The exchange is curious, because from one perspective it should be conservative supporters of a free market who don’t want there to be billionaires. I say so because in a healthy market economy there should be almost no extremely wealthy people simply because profits should be bid away by competition. In the textbook case of perfect...

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Trust cycles in politics

Opinion polls, for what they are worth, show that support for the Lib Dems has risen. This seems part of a cycle. Support for the party rose from the 70s to mid-80s, then declined to the late 90s, then rose again until 2010 before slumping in 2015 but has risen since. Coincidentally, something else is also cyclical – trust. You all know somebody who has been repeatedly let down by their partner. You might even be that person. The cycle is familiar. After a betrayal you say you’ll never...

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Mechanisms, not numbers

The NIESR claims that Johnson’s Brexit deal “would ultimately lead the UK economy to be about 3.5% smaller than it would have been had the UK remained in the EU.” Reaction to this, I fear, highlights an important way in which the media and public misunderstand economics. They pay too much attention to numbers (and seek a spurious precision in them) and too little to mechanisms. To see what I mean, consider the NIESR’s reasoning. This starts from the fact that leaving the EU’s single...

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On constraints in politics

When I tell people that I work from home, they ask me how I have the discipline to do so. The answer is that I don’t. I just have a habit: I start work every weekday after breakfast without fail, so I can often get a few hours done before I’ve started thinking. If I were to wake up every morning and ask “what do I feel like doing today?” I’d never do any work. I use a similar rule in my investments. Mostly, I make a direct debit into a tracker fund each month and an Isa contribution every...

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Narrative Economics: a review

For years, thinking about economics has been heavily influenced by the idea of homo economicus – that people are rational and well-informed. Robert Shiller’s latest book, Narrative Economics, is an attempt to replace this conception with that of people as homo narrans (pdf) – story-telling animals. He writes: Ultimately, the mass of people whose consumption and investment decisions cause economic fluctuations are not very well informed. Most of them do not view or read the news...

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Politics as natural selection

I wrote the other day that the division over Brexit suits our rulers just fine, because it helps to distract from the class division. This sounds like a conspiracy theory. But it’s not. It reminds us that we should think of politics as being a bit like natural selection; mutations/policies emerge randomly and the environment selects among them so that only mutations/policies that are suited to the environment persist. Take, for example, Thatcher’s privatization programme which has been...

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Detoxifying Brexit

The Brexit debate has become ever-more fraught, and whatever happens next it is likely to remain so. Which poses the question: what can we as individuals do to dial down the hysteria and civilize the debate? Here are some suggestions. Draw the right inference from the media. Whenever I hear a Brexiter on the BBC, I’m inclined to believe more strongly in the case for Remain. Be it Mark Francois thinking he’s re-enacting the Battle of Britain, or the cynical bad faith or Raab and Patel’s...

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Why we are wrong

Eric Lonergan asked a good question yesterday: "why does it take so long for economic beliefs which are repeatedly falsified to change?" I can think of several reasons. A failure to appreciate that the institutional background has changed. Take, for example, big bonuses paid to bankers and CEOs. The idea that we need these to incentivize people is (mostly*) wrong. Instead, they crowd out other motives (pdf) such as professional ethics and can encourage excessive risk-taking. In truth,...

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