Chris Dillow's Blog, page 170

Predistribution - good, bad & unoriginal

Ed Miliband's big idea of "predistribution" reminds me of a line attributed to Samuel Johnson: "Your manuscript is both good and original. But the part that is good is not original, and the part that is original is not good."

The idea, says George Eaton, is that:

The state, rather than merely ameliorating inequalities through the tax and benefits system, should act to ensure that they do not arise in the first place...To this end, it should legislate for policies such as a living wage and introduce curbs on predatory energy and rail companies.

Let's take the original(ish) and bad part of this first - the idea of capping rail and utility prices. This runs into several problems:

- It redistributes most to heavy users, who are not necessarily the poor. Commuters and people living in big houses gain more than poor people in small flats.

- Lower prices encourage the use of scarce resources. High prices, remember, are signals to use the product sparingly.

- Price caps tend to reduce profits. To offset this, companies will try to cut costs - for example by reducing maintenance spending. The upshot will be a worse service and job cuts.

For reasons such as these, economists have traditionally hated the idea of using the price mechanism to redistribute incomes - a dislike embodied in the second theorem of welfare economics. As Kenneth Arrow put it:

Problems of equity can be separated from those of efficiency; if the existing distribution of welfare is judged inequitable, rectification should proceed by redistributing endowments ("lump-sum transfers") and then allowing the market to work unimpeded rather than by direct interference with the market in the form of, say, price controls ("Pareto Efficiency with Costly Transfers", p290 in Collected Papers of Kenneth J. Arrow vol 2).

By all means cap prices as part of a remedy against monopoly or other market failure. But don't think of it as clever redistribution.

The second part of predistribution is good, but not original. Miliband says predistribution is about "making work pay" and creating "a higher skill, higher wage economy." Laudable aims - if tricky to achieve. But they were exactly New Labour's ones. A high wage, high skills economy was exactly Gordon Brown's objective. Hence such policies as the NMW, tax credits, Sure Start, EMAs and higher education spending.There's nothing new here: a "living wage" - which Miliband does not seem to endorse - is just a higher minimum wage.

There is, however, a third category of predistributionist policies - those which increase workers' power.These could include: increasing unions' (pdf) strength; encouraging the growth of worker coops; and a citizens basic income sufficiently high to allow people to reject low wages and poor working conditions.

Predistributionists, however, seem to be ignoring these options. But then, social democracy has always been about accommodating capitalists' power more than challenging it.

Post-growth politics

In an important new paper (pdf) Robert Gordon suggests that US economic growth could be very slow over coming decades, even ignoring the consequences of the financial crisis. I'll leave the critique of this to others. I want to ask: if his pessimism also applies to the UK, what would be the political implications?

It's bad news for the Tory right. If there are few new innovations - or if the funding for them is unavailable - then deregulation and tax cuts just won't unleash the wave of entrepreneurship and growth they hope it will.

But it also requires Labour to think again. Rob Marchant says:

A simple fact seems to lie unaddressed by politicians: people still want to get on in life, just as they always have done. And they want politicians who understand that. It’s called aspiration, and in Labour we used to understand it.

But in a stagnating economy, aspirations are dangerous.When there's no aggregate growth, one person can "get on" only at the expense of another. Aspiration thus becomes a (near) zero-sum game, which is a recipe for conflict and social tension.

Which brings me to other worries. Traditionally, growth has helped resolve two conflicts. One is resistance to taxation versus the demand for public services; economic growth funds increases in the latter without excessively onerous taxation. The other is between rich and poor; people might tolerate the rich getting better off if they too are getting better off, if only at a slower rate. But what if the rich get richer as the poor get absolutely poorer? On both counts, stagnation would increase political conflict, perhaps undermining the perceived legimitacy of democratic government. Remember, the (mild) stagnation of the 70s triggered serious talk (pdf) of a crisis of democracy.

This could be exacerbated by a tendency identified by Ben Friedman. Slower growth, he said, makes people meaner and less tolerant; its no accident that the slowdowns in the 1930s and 1970s led to increased class conflict, racism and worse.

Post-growth politics thus presents some nasty challenges for all politicians.

In this context, perhaps (only perhaps) there's something to be said for David Cameron. You can interpret his big society and broken Britain thinking as an intuitive recognition of all this - as a belief that social capital must be shored up against the threat of its degradation by economic stagnation.

Whether he can succeed in this is, of course, another question. But my point is that Rob's likening him to Harold Macmillan might be more correct than he realizes. Macmillan thought his role was to manage Britain's relative decline. And this might be exactly the job of Cameron and his successors.

Reshuffles: the Brendan Rodgers problem

At risk of sounding like Danny Finkelstein - not that there's anything wrong with that - the key to understanding the Cabinet reshuffle lies in what's happened to Brendan Rodgers at Liverpool. The club hoped that the new manager would improve their fortunes, and yet the team's prospects seem as poor as a few months ago.This corroborates evidence from Italy, Belgium and the Netherlands, which shows that changing managers does not generally improve teams' performance.

It's not just football managers where turnover doesn't improve things.Boris Groysberg has shown that equity analysts' performance tends to deteriorate after they change firm.

If cabinet ministers are anything like football managers or equity analysts, therefore, reshuffles don't lead to better government.

There's a reason for this. Organizational capital often matters more than individual talent. Some nice evidence for this comes from a study of heart surgeons by Robert Huckman and Gary Pisano. They found (pdf) that the quality of a surgeon's work improves with experience at the same hospital, but does not improve with his experience at other hospitals. This suggests that a surgeon's skills are not portable across hospitals but are instead embedded in his relationships with colleagues and specific hospitals.

Herein lies Mr Rodgers' problem. His efforts to turn Liverpool around are constrained by the club's organization and (recent) history.

This almost certainly applies to cabinet ministers. For example, new Justice Secretary Chris Grayling might want to bang up more offenders, but he'll be constrained by the lack of prison space, sentencing guidelines and the pesky rule of law.

What's more, the very facts that ministers lack management experience and are so often reshuffled (pdf) makes it likely that they'll "go native" and conform to the wishes of Sir Humphreys. So again, organizational capital dominates individual agency.Whether this is a good or bad thing is a separate issue.

This raises the question: if there are powerful counterweights to the ability of reshuffles to improve the quality of government, why do them? The answer, I suspect, has more to do with party discipline than ministerial effectiveness. Reshuffles give backbenchers and junior ministers the hope of advancement, which encourages them to toe the party line.

Beyond this function, however, it's not clear that reshuffles generally much matter. Obsessing over which particular minister is up or down is like watching a soap opera in which everyone is Ken Barlow and nobody is Michelle Connor - which is pretty pointless.  

Bad metaphors in politics

Here's Fergie's colleague Will.i.am:

People say Romney ran businesses and that means he should be president...But America isn’t a business. America needs to be like a parent – what’s good for our kids, where are they going to school, how can you guide them?

He's right to reject the metaphor of president as CEO. Countries are not businesses. Businesses have a single common purpose, but countries comprise millions of people with separate aims. And - of course - the government's finances should not be run as a CEO would run a business's finances.

However, he's wrong to invoke the metaphor of government as parent.In doing this, he's not being at all eccentric; George Lakoff devoted a whole book to the metaphor of nation as family. But this is another bad metaphor. Citizens are not children who need nuturing or discipline from a parent - or at least, if they are, the point needs arguing for and Mr i.am is committing the petitio principii fallacy.

Both metaphors are wrong because they fail to see that politics is, in Oakeshott's words (pdf), a "specific and limited activity" aimed at "enabling people to pursue the activities of their own choice with the minimum frustration." This entails setting general rules and solving problems of collective action, which requires a different mindset from either CEO or parent.

Both these metaphors, though, are more than misleading. They can be pernicious, in two ways.
First, both are illiberal. CEOs and parents, albeit for different reasons, both restrict freedom. If we naturally think of governments as parents or as CEOs we will thus be more willing to accept statist infringements of freedom than we should be.

Secondly, CEOs and parents are both part of hierarchical relationships.Using such metaphors thus encourages us to take for granted what should be questioned - the existence of hierarchy.

Both left and right should regret this. The left should do so because the ubiquity of such metaphors squeezes out of discourse alternative ways of seeing political activity - as a collaborative, egalitarian, fully democratic, activity. The right should do so because hierarchical metaphors, associated as they are with winners and losers, discourage us from seeing that social interactions in the marketplace can benefit both parties.

My point here is, or should be, a trivial one. Language shapes thought and therefore activity, and bad metaphors have bad effects.

Adverse selection in political discourse

Yet again, the BBC gave airtime this morning to the scaremongering Andrew Green. This raises the point that there is adverse selection in political debate: fanatics are given attention whilst sober, rational voices are overlooked.There are four channels through which this happens:

- Fanatics think their beliefs are so important and true that they set up lobbying groups and "thinktanks" to promote them, whilst rational people devote less time and organization to pushing their opinions. Sir Andrew set up MigrationWatch (and Richard Murphy the Tax Justice Network if you want a leftist example - I'm not making a partisan point here) but people with more reasonable, liberal, views confine themselves to occasional articles (though Philippe Legrain wrote a good book in praise of immmigration).

- Producers want "good" TV/radio, and this means having a violent debate between people with well-defined positions who can talk in soundbites. Why else does the silly Peter Hitchens get on air? This tends to squeeze out those who take evidence-based positions, as evidence is often messy and nuanced.

- People mistake confidence for knowledge, and so give too much credence to the irrationally overconfident.

- A tendency has emerged for people to respect strongly-held opinions; this is what gave us the law against religious hatred. This, of course, in the opposite of what should be the case. The fact that someone believes strongly in something is a reason for us to disrespect their belief and to discount it as the product of a fevered, fanatical and irrational mind.

What I'm suggesting here is an adjunct to something Mancur Olson said in the 1960s.He pointed out that small numbers of people with large interests would organize themselves better than large numbers with smaller interests. The upshot, he said, was that politics would give too much weight to small vested interests to the detriment of aggregate well-being. I'm saying that what Olson thought true of material interests is also true for beliefs. Small groups with strongly-held beliefs are given more credence and deference than they should have.

And this, in turn, implies that the mass media can sometimes undermine rational political discourse rather than promote it.  

Celebrating diversity

Watching the paralympic opening ceremony's tribute to Isaac Newton last night prompted the thought: "They're honouring a mad poof from a single parent family. It's leftie multicultural crap again."

But then, celebrating pretty much any British achievement would mean celebrating outsiders. Churchill was the mentally ill son of an immigrant; Shackleton and Wellington were Irishmen who left school without qualifications; Faraday was an uneducated poor boy; Milton was blind; Byron had a club foot; Malthus had a cleft palate; Nelson had one arm; Darwin and Elgar had dubious religious opinions; Ricardo and Brunel were the sons of immigrants. Even Shakespeare probably had an accent that would exclude him from many jobs.

If America was settled by bastards, drunks and thieves, Britain was built by nutters, chavs, paddies, spags and yids.And that's just the straight white men.

This raises the question. Why, then, should "celebrating diversity" be so widely seen by left and right as a political gesture? Diversity is the human condition. Celebrating diversity makes as much sense as rejoicing in our opposable thumbs.

There is, I think, an answer to this.For years, the dominant image of "man" has consisted in denying that most of us will become disabled or that - as Terry Allen put it, "We all got missing parts right from the start we got to live with." As Alasdair MacIntyre wrote:

From Plato to Moore and since, there are usually...only passing references [in moral philosophy] to human vulnerability and affliction and to the connections between them and our dependence on others...We are invited, when we do think of disability, to think of the disabled as "them", as other from "us", not as ourselves as we have been, sometimes now are and may well be in the future.(Dependent Rational Animals p1-2)

This attitude to disability is only part of the construction of an ideal-type of man by our rulers, of a straight, white, right-thinking, able-bodied, individual (the mot juste). Such a type serves the function of propagating the myth that people are self-reliant and capable of unaided success, and therefore that poverty is the result of either individual failure, or of a lack of God's grace: God made man in his own image, and God was of course a healthy white man.

Herein lies the reason why "diversity" is a political issue rather than a trivial fact of human existence. The left celebrates diversity because doing so cocks a snook at this ruling class myth. And the right rejects this because it challenges one of their ideological constructs - a construct which is, of course, false.

What inflation target?

Britmouse is "cautiously optimistic" that our inflation target might be replaced with a money GDP target. I'm not sure how much difference this would make, because I'm not sure the Bank has ever been that rigorous an inflation targeter.

To see my point, consider the bog-standard Taylor rule which links official rates to inflation and the output gap:

R = (1.5 x P) + (0.5 x Qg) + c

But the Bank has not followed this rule. As I've pointed out, a better fit for Bank rate during the good times was:

R = (0.5 x P) + (1.3 x Qg) + 4.3

This latter equation predicts the present level of Bank rate better than does the Taylor rule: with CPI inflation at 2.6% and the output gap around 3% on OBR estimates, the Taylor rule says Bank rate should be around 3%*.

There are two important things about this equation:

- the coefficient on inflation is less than one. This means that if inflation rises, the real interest rate falls and monetary policy (by that measure) loosens. This is inconsistent with inflation targeting.

- the coefficient on the output gap is larger than the Taylor rule says. This is consistent with monetary policy doing more to stabilize real GDP.

All this is more consistent with the Bank targeting NGDP than it is with it targeting inflation. In this context, we shouldn't be surprised that inflation has averaged a percentage point more than its 2% target over the last four years. It's because the Bank hasn't really been targeting inflation at all.

Of course, the Bank hasn't successfully targeted NGDP, as this actually shrank in 2009. But this owes more to the massive adverse demand shock that it does to pig-headed inflation targeting.
In saying all this I am not criticizing the Bank. Monetary policy has had to be countercyclical because fiscal policy hasn't been sufficiently so. And this was true for much of the Labour years as well as the Tory years; in his famous exposition of policy principles (pdf) in 1997, Ed Balls gave little priority to using fiscal policy for countercyclical purposes.

To some extent, therefore, a switch to NGDP targeting would not be a radical change.

You might argue that it would be a welcome change - though I suspect only slightly so.

Instead, if you want to give the economy a cyclical boost, surely looser fiscal policy would be more effective.

* Assuming the c term is one, such that 2% inflation and a zero output gap gives us a 4% Bank rate.

The party of capitalism?

Most of us instinctively think of the Tories as the party that promotes capitalists' interests. But is this true?

In the day job, I point out that fiscal austerity, along with Cameron's apparent desire to see a fall in household debt, would both be bad for profits (except under unlikely conditions). This poses the question: if Tory policies threaten to depress profits, how can we say that the Tories are the party of capitalism?

One answer might be that they'd like to be the party of capitalism, but are also the stupid party, and so are incapable of seeing that capitalists' interests require - at least temporarily - a looser fiscal policy.

Another possibility is that they are playing a longer game. They believe that fiscal austerity will weaken workers' bargaining power (pdf) and so permit higher profit margins. But this runs into the objection that if austerity weakens aggregate demand we might have high profit margins but a low output-capital ratio and so a low profit rate - which is not obviously in capitalists' interests.

Yet another answer would be Kalecki's famous one - that governments must renounce activist fiscal policy in order to maintain capitalists' power in the longer-term by ensuring that the economy remains dependent upon business "confidence."

All these answers have a common problem. They render the claim that "the Tories are the party of capitalists" untestable. Pretty much any policy that seems to jeopardize capitalists' near-term interests can be explained away either as stupidity or as being in capitalists' longer-term interests.This poses the question: what evidence would disconfirm the claim that the Tories are the party of capitalism? Unless this can be answered, the claim loses any empirical interest.

There is, though, another possibility. Maybe it's not that Tories like the capitalist class, but rather that they hate the working class.

In praise of bad faith

Tom says that I sometimes make claims in bad faith. He intends this as a compliment, and I take it as one. But this raises a paradox. Whilst bad faith is ubiquitous in some fields - pretty much every corporate statement is, I hope, insincere - there is too little of it in writing and in intellectual life.

I'm thinking here of a remark by C.I. Lewis which Isaiah Berlin often quoted: "There is no a priori reason for supposing that the truth, when it is discovered, will necessarily prove interesting."

This creates a space for bad faith. Most things that are incontrovertibly true are dull: 2 + 2 = 4; genocide is wrong. But many ideas that are interesting are not so obviously true; this might be because they are new and untested, or because - as is the case for almost every claim in the social sciences - there are exceptions to them.  

If I am to say something interesting therefore - and for me the sole purpose of writing is to say something interesting - then there must be a distance between what I believe to be true and what I write.

This is not to say that I write in bad faith. It's more often that I just don't know what I believe. And I don't care; things are true or not whether I believe them or not. Not only do I not give a damn about your opinion, dear reader, I don't give a damn about my own.

What I'm expressing here is the notion of liberal irony. Though most closely associated with Richard Rorty, it is a characteristic of traditional Oxbridge dons, who would often provoke their students or high table interlocuters with outrageous statements which they might or might not believe, simply in order to get people thinking.

I fear that in both blogging and MSM writing, this approach is lacking. Writing is about the revelation of character, of ego, of "judgment". I have four objections to this:

1. It's dull. If you want to show that you're a good person who believes in the right things, then you naturally stick to ideas which are familiar to your readers, and confine yourself to facts they find comfortable; I'm thinking here of Peter Hitchens as much as Polly Toynbee.

2. It's anti-intellectual. We are invited to judge ideas not upon their merits, but upon whether they are held by the right people.

3. It breeds fanaticism and tribalism. If we confuse who we are with what we believe then we fall prey to the confirmation bias - the tendency to look for things that corroborate our beliefs to protect our ego. This gives us fanaticism. It also gives us the sort of silly tribalism that leads people to defend Julian Assange - they cannot distinguish between the merit of his ideas and the content of his character.

4. It has a class bias. If writing is about the revelation of character rather than the analysis of ideas, then nice middle-class people have an advantage over awkward technocrats from the wrong side of the tracks.

Now, readers might object that I sometimes (often) fall short of the ideal of liberal irony. No doubt. But the point is that I regard it as an ideal. I aspire to insincerity.

Bad incentives in politics

Why do politicians not solve social problems? One reason, of course, is that such problems are intractable. But there's another reason - politicians sometimes lack the incentive to do so because politicians need to keep their enemies alive just as parasites need to keep their hosts alive. A new paper (pdf) by James Robinson and colleagues says:

We develop a simple political economy model of this need for enemies, showing how a politician who is good at undertaking a particular task has an incentive not to complete it fully since he needs to keep the task alive in order to maintain his strategic advantage in an election.

They point to the example of Colombian president Alvaro Uribe, who was regarded as the best man to fight Farc insurgents. His fighting against Farc diminished after Farc was weakened, with the biggest decline in anti-Farc activity in areas with more swing voters.This is consistent with Uribe keeping Farc alive in order to maintain his electoral advantage as the best man to fight Farc. Had Uribe quashed Farc, he'd have lost his political purpose - just as Churchill lost his after the UK won WWII.

This is not the only example of politicians needing enemies. Tyrants and demagogues have always fomented hatred of minorities, and have justified repressson by pointed to the (exaggerated) threat from external or internal enemies. But democratic politicians have done similar things. The Cold War gave Macartyites a reason to justify repressing the left; Argentina's invasion of the Falklands gave Thatcher the chance to fight a war that would double her poll ratings; neoconservatives define themselves against Islamism;and leftist governments need to keep people relatively poor in order to claim to be fighting poverty and inequality.

This last example comes from a paper by Gilles Saint-Paul and colleagues, who provide another model in which politicians have incentives not to do what they are ostensibly elected for.

Of course, politicians do occasionally do the right thing even if it means electoral oblivion (FW de Klerk?), and can sometimes reinvent themselves and so survive the loss of their enemy (Sinn Fein?). But the point here is that politics can sometimes give us bad incentive structures. And this, surely, increases the already-high likelihood that politicians will let us down.