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Attention, fashion and false consensus

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Summary:
One of the pitfalls of growing old is that one is often befuddled by the modern world. So it is with the reaction to the Intelligence Select Committee's report on Russian influence on UK politics. This has highlighted the fact that Russian oligarchs are using London to launder their dirty reputations and dirty money. But, I splutter, we've all known this for ages, even decades: I've been referring to Chelsea "Football" Club as the money launders for years. In fact, I have a similar reaction to many things. For example, several tenets of MMT - that sectoral balances matter, that its is banks that create money out of nothing, and that there's no financial constraint on government borrowing - strike me as old hat*. Equally, talk of heterodox economics such as the work of Kalecki,

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One of the pitfalls of growing old is that one is often befuddled by the modern world.

So it is with the reaction to the Intelligence Select Committee's report on Russian influence on UK politics. This has highlighted the fact that Russian oligarchs are using London to launder their dirty reputations and dirty money.

But, I splutter, we've all known this for ages, even decades: I've been referring to Chelsea "Football" Club as the money launders for years.

In fact, I have a similar reaction to many things. For example, several tenets of MMT - that sectoral balances matter, that its is banks that create money out of nothing, and that there's no financial constraint on government borrowing - strike me as old hat*. A-31961-1329562079.jpeg

Equally, talk of heterodox economics such as the work of Kalecki, Robinson and Sraffa is for me like hearing Mel & Kim: both provoke happy memories of things I'd half-forgotten from the 80s.

The same's true of behavioural economics. I first came across this back in 1986 when I read Loomes and Sugden's paper on regret theory, published in 1982 (too early to be webbed!). And I read Kahneman and Tversky's collection of papers, Judgment Under Uncertainty in the early 90s - and even then I was late to the party, as it was published in 1982. And yet I'm still surprised when people sometimes treat behavioural economics as something new and radical.

In all these ways, I'm often baffled by folks telling me what I thought I've known for years.

What's going on here?

One possibility is that it corroborates Max Planck's saying: science advances one funeral at a time. Heterodox and behavioural economics might be old but they've been resisted by the neoclassical economic establishment for years - an establishment which (re)gained dominance from the 1980s onwards. It's only as its influence has waned that alternative ideas have begun to blossom (again). Economic ideas are prone to fashions, which come and go.

Another possibility, is that attention, like most other things, is a scarce resource. We therefore conserve it by not paying attention to some things.

In the case of Russian money-laundering, this lack of attention was of course incentivized - by sticks as well as carrots.

But our attention ebbs and flows without external incentives. From the early 90s until 2010 we didn't need to think much about fiscal policy because it wasn't egregiously terrible, at least in the UK. It's only when the disaster of austerity began that we needed to think again about fiscal policy, which led some to discover and rehash the ideas of Keynes, Kalecki, Lerner and Beveridge.

Similarly, neoclassical DSGE models were tolerable during the "Great Moderation" but came into question after the 2008 crisis - especially as that crisis came just five years after Robert Lucas (the father of the new neoclassicism) declared (pdf) that "the central problem of depression prevention has been solved, for all practical purposes."

Maybe, though, there's something else. I've been stupid. I have systematically committed an error of judgement. This is the false consensus effect, a tendency to over-estimate the extent to which other people think like ourselves. My surprise at people discovering Russian money-laundering, MMT, or behavioural economics is like Remainers being surprised by the Brexit vote because nobody they knew supported Leave**.
Which. I suspect, contains two messages.

One is that there is a danger that the behavioural economics and cognitive biases project makes the same error as Homer Simpson: "everyone is stupid except me". (In the case of the nudge agenda, this isn't a danger but a reality.) In truth, though, the projects should warn us that we are all prone to errors of judgement.

Mere knowledge of cognitive biases, however, is not sufficient guard against them: I've known about the false consensus effect for years, but that hasn't stopped me falling into the trap. Bill Shankly had a brilliant insight when he told a young player: "the trouble with you son is that your brains are all in your head." Mere head-knowledge is sometimes not enough. Rational thinking requires habits and, failing that, institutions that promote good thinking and select against bad - institutions we don't possess.

* I've no big issue with most of MMT's ideas. Many of its advocates, however, remind me of Sellars and Yeatman's view of the roundheads - right but repulsive: longwinded fanatical sectarians.

* It's also for this reason that people feel an urge to confess their crimes: they suspect that others know they've done it and want to unburden themselves. The Catholic Church hasn't survived 2000 years without a keen grasp of psychology.

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