Chris Dillow's Blog, page 2

Why we need a strong left

Anyone hoping that the marginalization of the Labour left would lead to rational, liberal policy has been badly disappointed by Starmer's recent remarks (pdf) on immigration echoing Enoch Powell and speaking of "incalculable" damage. "Disgraceful and damaging" says Simon Wren-Lewis; "untethered from reality" says Jonathan Portes; and "a moral, political and economic embarrassment" says Ian Dunt.

I want to suggest that there's a causal link here. The absence of leftist voices in mainstream political discourse is a cause of dishonesty, lies and stupidity in policy-making. I'm not going to try to persuade centrists of the merits of leftist policies, but to do something else. In politics we must ask not only "what is the right policy?" but also "what type of political culture or ecosystem is conducive to good policy-making?" My argument is that the demise of the left has created an ecosystem hostile to good policy.

Old stockbrokers had a saying: "it takes differences of opinion to make a market". And the loss of some opinions has led to a worsening political market.

Here, I'm using "left" in a particular (idiosyncratic!) way, to mean a left that pushes for economic policies for workers and customers against the interests of the rich. The absence of such a left is in small part its own fault. Pretty much the only idea many leftists have now is a wealth tax. But even if this would work (which as Dan Neidle argues is doubtful) it does not address our main economic problems: how to reallocate jobs; and how to raise productivity. What has been forgotten is any interest in economic democracy. That's a big loss.

I don't much blame leftists for this: there's no point writing recipes if you don't have a kitchen. Nevertheless, it is something intelligent non-leftists should mourn.

Starmer's talk of the damage done by migration echoes Reeves' embarrassing drivel about there being "not a huge amount of money" and "maxing out the credit card". Neither seem to believe in logic or fact. Contrast that with New Labour, which based its policies upon evidence and research. Working tax credits were modelled on the US's earned income tax credits; the minimum wage upon the work of Card and Krueger; Bank of England independence upon research by economists such as Alex Cukierman; and Brown's interest in endogenous growth theory was influenced by economists such as Paul Romer and Philippe Aghion.

Of course, this evidence was incomplete. But New Labour at least looked for it. Blair used to speak a lot about "evidence-based policy-making." His epigones do not. Why the difference? It's because Blair and Brown had to appeal across the political spectrum, so they needed evidence*. New Labour faced competition from the left, and competition keeps people on their toes. Reeves and Starmer, on the other hand, feel the need to appeal only to a few newspapers so any drivel is good enough.

It's not just Labour that has been degraded by the decline of the left. So too has the Tory party. Trades unions taught generations of their opponents a valuable skill: how to negotiate. As they shrank, so too did that ability. The result was that the Tories were unable to negotiate Brexit, falling instead into a childish tantrums of "I want, I want a fairy unicorn". Had they been formed by dealing with unions rather than by appealing to their nannies, they might have done a little better.

Conservative constituency associations used to be dominated by businessmen accustomed to recalcitrant unions. That taught them that it was difficult to bend the world to their will. That lesson has been lost, and so Tories have voted for the fantasies offered by Truss or Badenoch. [image error]

For much of the 20th century strong unions had other benefits. One is that they imposed a modicum of justice and efficiency onto corporate management. They helped rein in bosses' pay (pdf) - for fear that big boardroom pay rises would provoke workers' demands for similar - and in doing so might have helped discourage rent-seeking and jockeying for the top job. And insofar as they raised workers' pay, unions compelled firms to look for ways to raise productivity growth; this was faster even during the strike-riddled 70s than it has been in recent years.

Allied to the genuine fear of communism, unions did something else. They forced governments to focus upon avoiding recessions and upon improving economic growth, because these were ways of helping to shore up the legitimacy of capitalism - and, from capital's point of view, a better alternative to redistribution.

The loss of these pressures, however, has led to the triumph of what Joel Mokyr has called the forces of conservatism, constituencies hostile to economic growth. For example, financiers and rentiers like the low interest rates and resulting high asset prices that are the consequence of stagnation; lawyers and accountants support the complicated tax system that diverts effort to compliance or avoidance; incumbent companies oppose competition; little Englanders like the trade barriers erected by Brexit; and landlords don't want taxes to be shifted from incomes to land. And so economic growth is strangled.

Politically, it's pointless to debate economic policy, because policy is determined not by ideas but by interests. Good policy doesn���t require merely technical know-how. It requires the right material conditions, the right power bases. It is these, rather than technical know-how, that are lacking. And the demise of the left is one reason for this.

I'm not saying that intelligent policies can come only from the left. What I'm saying is that a strong left creates the political space for such policies from anywhere on the spectrum. Would Starmer have spoken about immigration in that way if he'd been fearful of the left of the Labour party?

Here, though, we come to a vicious circle. The absence of a significant left contributes to economic stagnation, and stagnation in turn fosters the far-right. Since Ben Friedman's work we have lots of evidence that weak economies lead to reaction and illiberalism. Thiemo Fetzer for example has shown that austerity boosted support for Brexit; he and his colleagues have shown that shop closures encouraged support for Ukip; and Diane Bolet and colleagues have demonstrated (pdf) that pub closures have a similar effect.

A stronger left could act as a circuit-breaker here. It would offer an alternative account of our economic decline and better remedies for it than Farage's Truss-on-steroids fantasies. The absence of this, however, gives us the grotesque sight of a Labour PM pandering to the far-right.

My point broadens. Dan Ariely has shown that belief in conspiracy theories is more common among the victims of poor economic performance**:

The feeling of being hard done by is prevalent among the misbelievers I've met, and I think it goes a long way toward explaining the recurring theme of "the elites" that we find in many common conspiracy theories. If you're convinced that you're at a disadvantage, someone else must have an (unfair) advantage. If you're suffering unusual hardship, someone else is getting off easy. If you're lacking control, someone else must be controlling things. (Misbelief, p67)

Again, a healthy left would help correct this. It would provide other, better explanations for why people feel at a disadvantage, and (because any serious left must be committed to some form of economic democracy) offer people more genuine control over their lives. Without this, however, we see the rise of fruitloop conspiracy theories.

There's an analogy here. You might not like Wetherspoons or McDonalds. But they offer something even if you never go into them; competition from them forces other pubs and restaurants to up their game. Similarly, you might not like a strong left, but it too would force other parties to do better. That's competition. And who can possibly be scared of competition?

* It might be no accident that Blair's gravest error was the Iraq war, which was the result of ignoring both the evidence and the voice of the left.

** Ariely doesn't mention Andrew Tate, but I suspect his case might fit our point.

Labour's manufacturing bias

Lots of you have pointed out the contrast between the government's keenness to support British Steel and its reluctance to help universities despite the fact that the latter have been cutting even more jobs than British Steel. So, why does the government seem to value manufacturing more highly than services?

The rescuing of British Steel has been defended on grounds of "security" - although as Daniela Lai says, this alone does not tackle the problems of global overcapacity in the sector or the need to green the industry*.

But the steel industry isn't unique in winning government favour. Starmer is also cutting "red tape" to help the car and pharmaceutical industries whilst not cutting it to help universities, for example by increasing the numbers of student visas. That's a clear bias, despite the fact that universities do what the government claims to want - create and support well-paid jobs across the country.

Of course, nobody (except perhaps Patrick Minford) believes governments should deliberately wreck manufacturing. But they should recognize that services industries sometimes need support as much as manufacturing. So why doesn't the government see this?

The question isn't of course confined only to the UK: some of those who defended one iteration of Trump's many tariff policies did so on the grounds that protectionism would lead to the return to the US of manufacturing jobs.

For me, two things deepen the puzzle. One lies in Wuthering Heights. Everyone in it seems to catch a chill and die. Which seems implausible - until you look at the buildings around Haworth where Emily Bronte was writing. They are still caked in soot. And if manufacturing did that to stone, it would have wrecked people's lungs - hence so many early deaths from what today are mild infections. Today, however, many of those satanic mills have been converted to flats or (in the case of the gigantic Salt's Mill**) to popular art galleries, shops and cafes. What once shortened lives now enhances them. Post-industrialism is fantastic progress. [image error]

The other thing that deepens the puzzle is that there's nothing new about the loss of manufacturing jobs. In the UK we've been losing them since the early 60s. Many of the problems this caused are now decades old: Bruce Springsteen's Born in the USA adressed themes of loss of community and masculine identity 40 years ago. If successive governments haven't much fretted about manufacturing since the 80s, why start now?

A lot of the answers just aren't good enough. Let's consider them.

"We need to produce goods to pay our way in the world."

But we don't need to make things. Just as individuals sell services to pay for goods, so too can countries: France, Spain and Portugal - to name but three - all have net exports of services to pay for net imports of goods. In principle, the UK could too. That we do not do so is because we consume too much: a current account deficit, by definition, is equal to the excess of domestic investment over savings.

"Manufacturing jobs are better paid."

True. On average, weekly earnings are 11% higher in manufacturing than in services. But manufacturing is not a magic sauce that raises pay. Insofar as wages are higher there, it is because the jobs are more skilled or give workers more bargaining power. If you want to raise wages, the answer is not to create more manufacturing jobs - and certainly not in low-skilled assembly work - but to ensure a tight labour market; encourage strong trades unions; or increase skills. The latter, of course, requires (among other things) a thriving university sector, something the government is doing little to encourage.

"Manufacturing provides more satisfying jobs."

It's true that making and repairing things is both personally satisfying and worthy of admiration in others - hence the popularity of TV shows such as The Great British Sewing Bee, Repair Shop or The Great Pottery Throwdown. And it's also true that the service sector contains a lot of bullshit jobs. But you don't need to be Harry Braverman (pdf) to know that mass manufacturing and individual craftsmanship are entirely different things - a point made by the Sewing Bee's Patrick Grant in his book, Less. The reality of manufacturing work was better captured by Arthur Seaton in Saturday Night, Sunday Morning; back-breaking monotony in which the bastards grind you down. There's a reason why Marx's theory of alienation originated in the manufacturing era.

If we want better, more fulfilling jobs, the answer isn't to restore manufacturing but to reassert the values of professionalism or craftsmanship against the corrosive effects of capitalist managerialism. Which, of course, is so far off the agenda it might as well be a passenger on Voyager 1.

Instead, I suspect there are two other reasons why Labour is so much keener to protect some industries than others.

One is simply the power of lobbying. This is why Reeves is keen to cut banking regulation, despite obvious evidence that insufficiently lightly regulated banks can do enormous damage to the whole economy. Perhaps if university VCs did what bosses should do and spent more time managing upwards, universities would be in better shape.

Except that there's another reason for the government neglecting them. It's the same reason that will keep the pubs open a little longer on VE Day. The government's vision of the UK is an atavistic, backward-looking one, be it of Britain standing alone against Nazism or of us being the workshop of the world. Of course, we no longer live in such a world. Our comparative advantage now lies less in manufacturing than in higher education and creative industries: we have (or have had) far more world-class universities than manufacturing businesses. It is what Hardt and Negri have called immaterial labour that dominates the economy, not overalls-clad industrial workers.

But as the Economist's Bagehot says, politicians are more concerned with dead voters than with living ones:

Manufacturing, a small part of the economy, plays a big role in politics everywhere. Britain is no exception. A speech at a jlr plant has become a rite of passage for any leading politician in recent years. Dead Man���s old job comes first for Britain���s politicos. The lives of workers in Britain���s services economy come second. True, manufacturing���s weak performance after the financial crisis is one reason for Britain���s woeful productivity growth. Yet politicians cling on to a primitive vision of it.

This is why the government's love of manufacturing doesn't go so far as wanting to remove trade barriers with the EU by rejoining the single market***. It's about pandering to a dead voter's image of a (partly mythic) past, not about actual real material conditions.

Alongside this primitive vision of the economy is a primitive one of the working class. For the political elite, this consists of uneducated bigots who, if not dead, are retired. The reality is that the working class comprises anyone struggling to pay the rent - very often, young, educated socially liberal people working in services.

But these don't count politically. Whereas Blair and Thatcher used to speak of modernity, politicians today rarely do so. Their mindset is one of dragging us back to the past. And the fetishization of an outmoded vision of manufacturing is part of this.

* It's also curious that "security" concerns didn't stop Thatcher from destroying the steel industry in the 80s during the cold war, perhaps because a world in which we cannot import steel could also be one in which we can't import iron ore either.

** I strongly recommend you visit it - and don't miss the fantastic early music shop there. 

*** Nor will it cut energy prices for industry despite them being high by international standards, given its kowtowing to rent-seeking monopolists. 

Governments vs capitalists

It's a nice irony that one of the most capitalistic nations on earth should be one of the few which has a government which is acting against the interests of capital.

This isn't, however, merely embarrassing for those bankers and tech billionaires who supported Trump. It's also awkward for a Marxian conception of politics.

"The executive of the modern state" wrote Marx "is nothing but a committee for managing the common affairs of the whole bourgeoisie." But Trump is managing these affairs appallingly. His tariff rises have wiped trillions off stock prices and threaten to cause a recession that will hit the interests of the whole bourgeoisie - not just of mainstream corporate America but also of the tech billionaires who have lost hundreds of billions.

Marx's theory isn't a fringe view. All those investment bankers who stayed in equities (until a few days ago!) in the belief that Trump wouldn't be as good as his word also seem to have believed it. They thought Trump wouldn't act against their interests because the prospect of a stock market crash would prevent him imposing such stupid tariffs: such a prospect is one of many levers that capital has over governments, which it often uses to maintain its power and influence. [image error]

So, where do recent events leave Marx's theory?

One possible defence of it is that Marx was speaking of the state, not of particular governments. And the state is still managing the common affairs of the bourgeoisie. Courts, for example, still defend property rights, and the Fed is trying to maintain some degree of financial stability.

Another defence is that Marx wasn't so daft as to think that the state always maximally pursued capitalists' interests. Governments do sometimes harm capitalism, but when the damage is big enough, they are compelled to either change course or be deposed. Allende, Mitterrand and Truss among many others discovered this. Maybe, somehow, Trump will too.

We don't, however, need to look far to find a government behaving more consonantly with Marx's theory: just look at Starmer's Labour.

Capitalism has always demanded two things from the state (though these can sometimes conflict): profitability and legitimacy. Labour is providing both.

For example, not nationalizing utilities helps to keep profits in private hands; Reeves' desire to relax merger rules will help big companies earn monopoly profits; her refusal to tax the rich ensures that profits remain in private hands; increased military spending is good for contractors; reduced planning restrictions boost the profits of developers and land owners; more infrastructure spending is good for construction companies; and "deregulation" can help firms make profits by cutting corners on safety.

Labour is also helping to legitimate capitalism. One way it is doing so is by raising the minimum wage and giving some extra rights for workers, thereby trimming the most egregious forms of exploitation.

But it is also trying to maintain capitalist legitimacy simply by keeping many questions off the agenda. Everybody knows that our economic performance has been terrible recently: real GDP per head has grown only 0.6% a year in the last 20 years compared to 2.5% a year in the previous 20 and 2% a year in the 20 before that. Why? Plausible explanations might include, among other things, the poor quality of management; the dominance of financiers and rentiers; high inequality; or an overly-complicated tax system with its many loopholes. Discussing any of these, however, would call our actually-existing capitalism into question and so antagonize powerful interests. It's easier to blame the powerless.

We should read this from Starmer alongside the attack on the disabled:

There is little that strikes working people as more unfair than watching illegal migration drive down their wages, their terms and their conditions through illegal work in their community.

He has to blame immigrants and the disabled, because to blame anything or anyone else would be to question capitalism. Which cannot be done.

It seems, then, that from a Marxian point of view we have a sharp, and paradoxical contrast: a (nominally) leftist UK government is slavishly promoting capitalists' interests whilst the (rightist) US government is attacking them.

But, but, but. It is often wrong to speak of capitalists' interests as if they were homogenous. Often, they are not. For example, financiers are content with weak aggregate demand if it delivers low real interest rates, but companies wanting to sell into a mass market are not: one reason why we have full employment for almost 30 years after WWII is that mass market capitalists then had more influence than financiers. Similarly, utilities companies want high energy prices but manufacturers want low ones; landlords want high rents, retailers low ones; banks want high interest margins, companies lower ones. And so on. When Ed Miliband spoke of a distinction between producers and predators he was driving at these sort of distinctions.

This is why Marxists have often spoken of the relative autonomy of the state: these conflicts of interest mean that governments can sometimes choose, at least to some extent, which segment of capital to side with.

And the Starmer government is making such choices. There aren't many employers saying "I really want to hire drug addicts, wheelchair users and people with chronic anxiety but I just can't find them". It is newspapers that are pressing the goverment to cut disability benefits, not the entirety of capital. Welfare benefits, remember, are not so much a payment to recipients as a payment through them and thus a way of supporting some capitalists. In cutting benefits to increase military spending the government is shifting profits from Tesco (share price down 15% since early February) to BAe Systems (share price up 22% since ditto).

By the same token, in allowing water companies to pour shit into seas and rivers Labour is siding with these monopolists against tourist businesses; in allowing energy companies to charge high prices it is siding with them against energy users; and in not adopting a land value tax it is favouring landlords over businesses that must pay rates and corporation tax to make up for that lack of revenue.

In all these respects, Labour is choosing some parts of capital over others. The problem is not so much that it is obeying the diktats of capital, but that it is obeying the diktats of the most reactionary segments of capital.

Which brings us to a commonality between the UK and US. In both countries the right has stopped thinking about economics, and relies for its support on: incels, racists, xenophobes, Brexiters, and those who are not only uneducated but actively hostile to knowledge and learning. In the US, these client bases have tempted the government to act (for now?) against capitalist interests. In the UK, they've led Starmer to side with backward and sclerotic segments of capital. Which is itself an artefact of capitalist stagnation: as Ben Friedman showed, slower growth promotes reactionary politics.  

People on Bluesky have been laughing at the banker quoted a few days ago in the FT as saying that Trump's election "liberated" him to say "pussy" and "retard" "without the fear of getting cancelled". But those words revealed a trend on the right. Much of it has been taken over by narcissistic obsessions with language (often pronouns), to the detriment of thinking about how to repair or defend capitalism.

Yes, some people do have intelligent ideas to try to make capitalism work better. But these voices of relatively enlightened capitalists have nugatory political influence. Which should worry anyone who wants capitalism to survive.

Constraints

Econ101 says that individuals maximize utility subject to constraints. There are many problems with this - like, have you ever actually met a human being? - but there's one that is under-appreciated. It's simply that we often just don't know what the constraints actually are.

This is true of the most basic problems in personal finance. I don't know how long I'm going to live and so I don't know how much I can spend from month to month. If I shuffle off this mortal coil next week, I can live lavishly. If I'm going to see my 90s, however, not so much. I half-solve this problem by following a rule of thumb, to keep my spending within a particular limit on average. Yes, some economists advocate annuitizing (pdf) my wealth, but I fear this merely replaces a rule of thumb with a harder constraint.

Every man d'un certain age knows that constraints are not givens but instead need to be disovered - often the hard way. Every time you back gives you agony after gardening, or your shoulder after a session in the gym or your knee after a run, you've learned that the constraint upon your physical activity is more binding than you thought.

The fact that constraints are not known but rather must be discovered is especially important in entrepreneurship. Entrepreneurs do not maximize profits subject to constraints as Econ101 claims. Instead, as Hayek (pdf) and Kirzner (pdf) emphasized, their role is to discover what these constraints are.

This is true of the most quotidian of businesses: is the fact that a town has seven coffee shops a constraint on a ninth being profitable or not? It's also the case on a grander scale. ICI's chemicals business had been struggling for years, a fact which several potential buyers saw as evidence of constraints upon it ever making money. Jim Ratcliffe, however, did not see it as such. And he was right, with the result that Ineos expanded into the giant it is today. As Laura Huang writes, "constraints don���t have to be constraining." [image error]

Except that they often are. More than 10% of companies close every year, and around half of new firms shut within three years. That's a lot of people learning that constraints upon profitability are more binding than they thought. A good argument for liberal bankruptcy laws is that, in giving a chance for failed entrepreneurs to try again, they can learn from their earlier errors. But of course, the learning works both ways. Jim Ratcliffe has not (yet?) replicated his Ineos success at Man United, which reminds us of what Boris Groysberg pointed out - that successful management is often not portable, because an ability to overcome constraints in one business doesn't guarantee an ability to do so in others.

All of which brings me to a curious division in politics today: centrists and some leftists seem to believe that constraints are tightly binding, whereas the right do not.

So, for example, Rachel Reeves treats her "iron-clad" fiscal rules as if they were a tight constraint rather than what they are: arbitrary self-imposed commitments intended to appeal to low-information voters and (to repeat myself) political reporters. Similarly, Labour feels so tightly constrained by the press that it makes self-evidently absurd decisions such as to raise employers' NICs (a tax on jobs) whilst at the same time complaining about ���discouraging people from working.��� We Marxists have long thought that capitalism tightly constrains what a left-leaning government can do for the working class: the Starmer government seems to agree with us.

US Democrats have a similar attitude. Danielle Webber complains that they regard "the distribution of voter preferences as a fixed point rather than recognizing that those preferences can be informed by the actions and words of politicians and media elites." That is, they see public opinion as a constraint rather than as something it can change.

This perception of tight constraints isn't a new thing for centre-left governments. We saw it too in Clinton and Brown's fear that "bond market vigilantes" would prevent even modest fiscal easing. It was, however, under the first majority Labour government of 1929-31 that it manifested itself most pathetically. It collapsed when ministers refused to make big spending cuts in an effort to keep sterling on the gold standard. When its successor, the National government, abondoned the standard however there was no disaster: far from it; the economy grew nicely. And former Labour minister Sidney Webb bewailed: ���nobody told us we could do that." He and his colleagues thought there was a constraint forcing them into austerity - but there wasn't.

It's not just the centre-left that sees constraints as tightly binding, however. So too, sometimes, do those further left. When they claim that Israel is breaking international law they are implicitly regarding this as a constraint upon Netanyahu. As a brute empirical matter, however, this seems to not be the case.

All of which contrasts sharply with Trump. He's learned that being a semi-literate convicted felon isn't a constraint upon being elected, and he is acting as if there are no other constraints upon him - perhaps not even Supreme Court rulings. As Timothy Garton Ash writes:

I still find it hard to believe how weak the checks and balances, both constitutional and habitual, of what was once the world���s greatest democracy are so far proving to be.

Now, we don't know who's right here: you only know what is a constraint when you hit it. What is notable, though, is that this perception of a lack of constraints is alien to what used to be conventional mainstream conservatism. This - expressed by men such as Burke, Chesterton and Oakeshott - thought that reforms should be undertaken cautiously because we all have limited knowledge of complex, emergent systems. As Burke said, "men little think how immorally they act in rashly meddling with what they do not understand." For him, politicians should be constrained by respect for the wisdom of ages and for the existing social order. And the function of voters was not so much to exercise power via MPs doing what they were told, but rather to constrain that power, so that the MP "sacrifice[s] his repose, his pleasures, his satisfactions, to theirs; and above all, ever, and in all cases, to prefer their interest to his own."

Exactly what changed to make the right completely reverse its attitude is a story that needs telling, and not by me. The point is that we all need to think more about what are and (a different question) what should be the constraints upon political action.

On intensive vs extensive growth

There might be more to be said for the government's approach to raising economic growth than we think.

To see what I mean, let's first see the criticism of its approach. This rests upon the distinction between extensive and intensive growth. Extensive growth comes from simply adding more inputs: capital and labour. Intensive growth, by contrast, comes from using inputs more efficiently. To express this in terms of the most general production function, Q = f(K, L, A) where K is capital, L is labour and A is technology, the government's focus is mainly on K and L rather than A. In her recent speech on kickstarting growth the Chancellor spoke much more about investment than productivity; planning laws are being reformed to speed up infrastructure projects; and there's talk of getting the disabled into work*. By contrast - aside from talk about reforming the NHS - the government says little about improving productivity, especially in the private sector.

All this betokens a concern for extensive growth more than for intensive growth; more K and L rather than more A, in the production function framework.

And there are obvious problems with this. One is the environmental cost, most obviously in Reeves' desire to expand Heathrow.

Another is that there are diminishing returns to extra inputs. Maybe the government could get more of the unwell into work. But a lot of these can only do part-time or low-productivity work: people with long Covid aren't going to work on building sites or in the armed forces. And there's plenty of research which shows that additional investment has only a moderate impact in raising output. Of course, it has a bigger impact when we're in a depression thanks to multiplier effects. When we are close to full employment, however, it crowds out other investments: if people are building houses they cannot build runways or railways.

Intensive growth by contrast - if we could achieve it - doesn't have these drawbacks. If we are more productive we can have more of everything - including more leisure and a greener economy. And if you are worried by an ageing population and increasing dependency ratio, intensive growth is a solution; the more that workers produce, the easier it is to support non-workers.

It seems, then, that the government is looking in the wrong direction: we need intensive growth - more A, not (just) more K and L.

But, but, but. There might be more to be said for Labour's approach. In our dumbed-down political culture, they aren't saying what it is. So I'll try.

Our story starts in the early Industrial Revolution. Many of its founders - such as George Stephenson, James Hargreaves, Richard Arkwright and others - were not greatly educated. As Joel Mokyr put it:

With some exceptions, Britain's early inventors tended to be "tinkerers" without much formal schooling, whose genius lay primarily in their mechanical ingenuity. (The Lever of Riches, p244)

But they had to have something to tinker with - that is, with primitive versions of equipment which they improved upon. Investment, therefore, caused innovation. A lot of innovation isn't the creation of something from nothing, but rather a novel combination (pdf) of existing technologies. This was the point of Jacob Schmookler's 1966 book, Invention and Economic Growth. [image error]

It's not just in the early days of the industrial revolution that this was the case. It's still true today. Igal Hendel and Yossi Spiegel have shown that in a small steel mill output doubled (pdf) in the space of 12 years without great new investment or generic technical discoveries outside the firm because managers kept tweaking machinery to eke out more output from the same inputs. The same thing happens every day: whenever you discover an Excel shortcut, you are making a productivity improvement on the back of a pre-existing investment. It also happens in more high-tech industries: it was investment in broadband and 4G that permitted the emergence of streaming services and phone apps, and investment in better semiconductors that facilitated the growth of AI.

All this means that we cannot distinguish clearly between A (technical improvement) and K (the capital stock) as conventional production functions do. Not only does investment embody new technology, but it also is a pre-condition for discovering more productivity improvements - not just big new innovations, but small tweaks and marginal gains. What's more, an environment in which there's a lot of capital spending will generally be one in which there is plenty of demand and therefore opportunities and incentives to discover (pdf) ways to produce more from the same inputs. And competition from new investments can spur the owners of older technologies to up their game: sailing ships, for example, continued to improve for decades after the introduction of steamships. 

In an unjustly neglected book in 1989 Maurice Fitzgerald Scott urged economists to ditch standard production functions and think instead of investment as driving innovation:

Scientific discovery and invention are best regarded as forms of investment, and...at least to begin with, a theory of growth can be constructed without distinguishing between them...Fresh [investment opportunities] are created by undertaking existing opportunities, since one learns from the changes made thereby. Consequently, instead of scientific discovery and invention being the creators of investment opportunities, investment itself creates them. To understand economic growth, therefore, we need, in the first place, to examine the rate, quality and determinants of investment. (A New View of Economic Growth, p 131)

If this is right, conventional economists are wrong to criticise the government for focusing on K rather than A, because K will beget A.

Now, there's an obvious objection here. Jon Elster famously warned that there are no general laws in the social sciences but only a collection of mechanisms which work in some times and places but not in others. And there is one place in which Scott's mechanism seems not to work - infrastructure investment. If this begat discovery and learning, we'd expect to see the cost of such projects decline over time as builders discovered new techniques. But this hasn't happened. Instead, as Sam Dumitriu has shown, the UK's projects cost vastly more than those in comparable countries. There's no evidence of learning there.

Or is there. We have learned something from such investments - that a lot of the extra cost is because of a hideous planning system, which the government is simplifying. The question is: is this learning - and the technical progress that will follow - sufficient to ensure that Scott's theory will apply here? Personally, I doubt it, simply because even with the most perfect planning system, infrastructure investment will be constrained by a lack of labour and machinery; we need techical progress to relax these constraints too.

This would not be so much of an issue if the government also had policies to boost private sector business investment generally. It did have one good idea - that this would be stimulated by reducing policy uncertainty. But this has been undermined by Trump; the prospect of a tariff war and higher taxes and labour reallocation to boost Europe's military have created new uncertainties, giving firms good reason to delay capital spending.

So, yes, perhaps the conventional criticism of the government's growth policies is correct: it does need to focus not just upon investment but also upon raising productivity.

Nevertheless, there are still two defences it has - not that it will say them in public!

One is simply that even the crudest forms of extensive growth generates tax revenue. Given that fixing the public services is a high priority, this is a benefit to weigh against such growth being only short-lived or having environmental costs.

Another thing to be said for extensive growth is that the alternative, raising productivity, creates enemies.

This is partly because, as Schumpeter said, intensive growth is a process of creative destruction; a lot of productivity growth occurs because new entrants displace older less efficient firms. That creates insecurity as people fear for their jobs. This is exacerbated by the fact that the government needs to destroy jobs simply to reallocate labour towards the housebuilding, social care and military sectors.

Also, even the most conventional policies to raise productivity create losers. Tougher competition policy would weaken incumbent firms; shifting taxes from income to land would hurt landlords; tax simplification would put lawyers and accountants out of work; and a return to the single market would anger Brexiters. All of which matters because, as Mancur Olson famously pointed out, losers make noise whilst winners keep quiet which means that even good policies cost political capital.

And this matters. Politics is not a seminar in which the best ideas win, but is instead about the clash of interests. For now, it is the interests of what Joel Mokyr called the forces of conservatism that are prevailing. Perhaps the government will eventually find the strength (or necessity) to challenge these. And there is a precedent for it doing so: Thatcher avoided a lot of such conflicts early in her government, only taking on the miners and doing large-scale privatizations in her second parliament. Until then, however, extensive growth might be the only option.

* Albeit belied by the government raising the cost of employing them.

Using & misusing markets

The marriage between free market thinking and the right has ended in divorce, on the grounds of adultery by the latter with a mercantilist buffoon. It was only ever a marriage of convenience; the right liked markets when they forced wages down, but aren't so keen when tight labour markets force them up. They were always fonder of wage "flexibility" than rent flexibility.

This clears the path for a more intelligent approach to thinking about the use and misuse of markets.

Textbooks tell us that the virtue of competitive markets is that they achieve allocate resources efficiently. If a company is making big profits others will move into its market, bidding prices down and so giving customers a better deal. Conversely, if companies are losing money they'll exit the market, and their capital and labour will be hired by companies who can use them better.

Sadly, however, this isn't as true as we'd like it to be. Abhijit Banerjee and Esther Duflo show in Good Economics for Hard Times that resources are slower to move than market fundamentalists believe. In the 1980s the latter wanted to close coal mines because they thought unemployed miners would find jobs producing goods and services in higher demand. But this didn't happen to the extent they expected; miners stayed on the dole and pit villages turned into ghettoes. This doesn't mean economies must be preserved in aspic. But it does mean that markets need state intervention to work well - for example by maintaining full employment so that jobs are easier to find, and by offering genuine help with finding jobs, retraining and relocation.

Allocative efficiency, however, is by no means the only case for free competitive markets. [image error]

Another case lies in the experience of J.K. Rowling. She, like Agatha Christie, C.S.Lewis and many others, had her work rejected by numerous publishers until it was finally taken up. Similarly, George Lucas's initial proposal for Star Wars was rejected by both Universal Studios and United Artists. And record companies turned down the chance to sign Elvis and the Beatles. All of which vindicates William Goldman: nobody knows anything. Had there been only one or two publishers, film studios or record companies, we'd probably not have heard of these. But in a healthy market economy there are many, and so readers, viewers and listeners get what they want. Markets, as Hayek noted, help to overcome the fact that any individual has only very limited knowledge.

One of their great benefits is that they give us product variety. The USSR put a man into space but struggled to give people nice shoes. That's the merit and demerit of central planning.

Competitive markets do something else. They increase productivity (pdf) not just by forcing incumbents to up their game but also by driving inefficient firms out and having more efficient ones enter. Jonathan Haskell and colleagues have found that around half (pdf) of manufacturing productivity growth comes from the latter. As the CMA put it (pdf) in 2015:

There is a strong body of empirical evidence showing that competition can drive greater productivity. Within-country studies demonstrate a positive relationship between strength of competition and productivity growth across sectors. Similarly, cross-country studies suggest that countries with lower levels of product market regulation, enabling stronger competition, tend to have higher levels of productivity growth.

Markets, however, also have their downsides, and not just in the textbook cases of them sometimes leading to monopoly and often producing negative externalities such as environmental degradation and not enough positive externalities such as research and development.

Many of these downsides are in financial markets. Markets are selection devices, and sometimes they select wrongly, in part because of an inability to distinguish luck from skill. As Armen Alchian wrote in 1950 (pdf):

The greater the uncertainties of the world, the greater is the possibility that profits would go to venturesome and lucky rather than to logical, careful, fact-gathering individuals.

In this spirit Bjorn-Christopher Witte has shown that fund managers who take risks and get lucky win market share at the expense of more skillful but cautious ones. That's consistent with a finding by Nick Motson and Andrew Clare, that retail investors buy into good performing funds, only to see them subsequently under-perform. And Pascal Seppecher and colleagues at the University of Paris show that markets select in favour of highly-geared companies in good times but in favour of cautious ones in bad times, with the result that booms and slumps are more violent than they otherwise would be.

Markets also have costs because, as Ronald Coase pointed out (pdf), it is sometimes difficult to write contracts or to check whether they have been fulfilled. This true of private pensions, and workplace pensions. We can't know in advance what returns a provider will offer, and their management charges compound horribly over time. It's cheaper and less risky for the state to provide pensions than the market.

Yet another example is government subcontracting. Sam Freedman's Failed State is especially brilliant on this. He shows how contracting out probation services led to subcontractors not caring about re-offending, and how privatized childrens' homes move children miles away from friends and family, making them vulnerable to grooming gangs and other criminals. He says:

Much government business with private providers no longer conforms to anything resembling a functional market with properly aligned incentives. (Failed State, p96).

This problem is exacerbated by another: motivation crowding out. Who is likely to be the better probation officer: the one drawn to the profession by a desire to rehabilitate offenders; or one who will earn a little more for hitting a contractual target? Who is likely to better look after vulnerable children: someone attracted to work in childrens' homes by a love of children; or one working for a profit-maximizing private equity firm? If the cash nexus comes to dominate, other motives such as professional pride recede not just because people change but because those with strong professional ethics simply leave the job.

Which brings us to a problem. Markets are not merely a value-free technology, to be used or not depending upon the precise job in hand. They also have an ethical dimension. In Spheres of Justice Michael Walzer argues that there are some things which money should not be able to buy, because to do so would violate the very meaning of them: criminal justice; divine grace; political rights such as to vote and free speech; and so on. The Beatles were right: "money can't buy me love", even if it can get you some of its correlates. In this spirit, the buying of political influence via lobbyists and party donors is simply wrong; it denies what democracy is. Allocative efficiency is not the only value.

Another argument for limiting markets comes from those with environmental or aesthetic motives, or those wanting to restrict the domain in which capitalism operates. Patrick Grant urges us to buy less disposable clothing from companies like Shein and fewer but better items. Jason Hickel proposes measures to reduce advertising and planned obsolescence. And in everyday activities such as allotments, repair cafes or early retirement people are reducing the realm of market activity. Colin Leys, echoing Marx, has shown how capitalism tries to expand markets in order to raise profits - but there is a backlash to this.

Saying all this raises a problem. The government's attitude to markets seems at odds with what I've said. Genuinely useful pro-market policies would impose fierce competition, not just through strong anti-monopoly measures but through looser intellectual property protections and ensuring start-up companies have access to credit. If anything, however, the government is doing the opposite to this. Its demand that the CMA take "pro-business decisions" betokens a bias to incumbent companies. And in her recent speech on "kickstarting" growth Reeves praised businesses without noting that market forces cause growth through creative destruction, which is (or should be) a threat to such businesses.

On the other hand, though, the government seems keen on markets where it shouldn't be. It's showing little enthusiasm for ending the subcontracting of public services, or for stopping the sale of political influence. It is permitting a sham market in water, which is merely a front for theft. It is sympathetic to financial deregulation and cryptocurrencies, whilst doing nothing to promote useful financial innovations such as in GDP-linked securities. And in permitting lobbyists and rich donors to buy political influence it is enabling a market which undermines the value and meaning of democracy.

What's more, it is doing nothing to promote decommodification. It has dropped the Corbynite interest in universal basic services (pdf), for example, and its desire to expand Heathrow and cajole the unwell into work is a sign of a desire to simply expand economic activity at all costs. This, however, is one of the drawbacks of social democracy: the need for tax revenue and to retain the cooperation of capitalists conflicts with the need to reverse commodification, be it on grounds of environmentalism, efficiency or ethics.

John Stuart Mill famously said that liberty is often granted when it should be withheld and withheld when it should be granted. The same is true of market activity. We no longer need trouble ourselves with sloppy thinking about markets on the right, but we need to confront it in the government.

Capitalism vs democracy

People are falling out of love with democracy. In one recent poll, over half of 13-27 year-olds said they would prefer a "strong leader" to our curent democracy. A survey last year by Pew Research found only 31% of UK people saying that representative democracy is a very good system of government, a decline since 2017. And only 30% of voters now say it was right to leave the EU, suggesting that they believe our biggest exercise in direct democracy was a failure.

This scepticism about democracy is shared by some thinking people, embodied in Jason Brennan's Against Democracy and Bryan Caplan's The Myth of the Rational Voter.

None of this should be surprising in a historical context. Benjamin Franklin didn't actually say that democracy was "two wolves and a sheep voting on what to have for dinner" but the line was plausibly attributed to him because there was for decades antipathy towards democracy among a ruling class who feared it would lead to the tyranny of an ill-educated mob. That's why Victorians were so loath to extend the franchise.

Unquestioned enthusiasm for democracy was only a 20th century phenomenon - and one that seems to be on the wane in the 21st.

We should therefore ask: what's so good about democracy?

One standard answer is that it give power to the "will of the people". This, however, runs into obvious problems. Why, then, does the government have a massive majority despite winning less than 34% of the votes? Why does public opinion shape policy in some areas (such as migration) more than in others, such as public ownership or wealth taxes? Are people's preferences a datum or a product of social pressures and of what is on offer from the capitalist media? Are they a good guide to their interests?

This answer, then, has rarely been used as a serious defence of democracy.

Which wouldn't be a problem, were it not for the fact that other defences don't seem terribly strong in our actually-existing capitalist democracy.

One is that democracy embeds a form of equality, that of citizenship rights (pdf). As the 1789 French Declaration of the Rights of Man (sic) put it:

Men are born and remain free and equal in rights...
Law is the expression of the general will. Every citizen has a right to participate personally, or through his representative, in its foundation. It must be the same for all, whether it protects or punishes. All citizens, being equal in the eyes of the law, are equally eligible to all dignities and to all public positions and occupations, according to their abilities, and without distinction except that of their virtues and talents.

The problem is, however, that whilst we all have equal rights to vote and to participate in the making of law, we don't have equal influence, and not merely because the votes of those living in marginal constituencies matter more than those of people living in safe seats. It's also because the rich have much greater say, and not just because they've bought politicians and the media. It's because they control businesses and so governments (wrongly) believe they must win their favour if they are to achieve economic growth. It's also because, as Adam Smith said "we frequently see the respectful attentions of the world more strongly directed towards the rich and the great, than towards the wise and the virtuous" and so we defer to them - a tendency corroborated by research into the just world illusion (pdf) and related cognitive biases.

In these ways the rich have more power than those with more relevant "virtues and talents". This conflicts with the notion of democracy being valuable because it is a form of equality.

A second argument for democracy is perhaps more plausible. It's that, as Adam Swift put it in a popular textbook:

People living under laws that they have made for themselves enjoy a kind of freedom (the kind of freedom called autonomy - self-rule) not enjoyed by people whose laws were made by others. (Political Philosophy, 2nd ed, p204).

It's this that Brexiters celebrated when we left the EU. But the mere fact that many younger people don't value democracy suggests they don't feel the benefits of self-rule, perhaps because they don't feel they have much chance of influencing policy.

Another argument for democracy is more consequentialist. It was put by Tocqueville:

Democracy does not provide people with the most skilful of governments, but it does that which the most skilful government often cannot do; it spreads throughout the body social a restless activity, a superabundant force, and energy never found elsewhere, which, however little favoured by circumstance, can do wonders.

And echoed by Mill:

Wherever the sphere of action of human beings is artificially circumscribed, their sentiments are narrowed and dwarfed in the same proportion.

Whether this is actually true is doubtful; there's plenty of energy and self-improvement in China or Singapore, for example. Even if it is, though, it's not clear that recent UK governments welcome it. Harsh penalties against protesting; Labour's lack of support for counter-protests to the far right last summer; and the indifference (or worse) of both main parties to the shrinking of universities all suggest that the political class doesn't value the energy or "intellectual exercise" which Mill and Tocqueville thought were the results of democracy.

There's a further alleged benefit of democracy which is even more absurd, though. It's that democracy uses the wisdom of crowds. [image error]

The problem with this is simply that the conditions required for this wisdom to yield good results simply don't hold, because voters's beliefs aren't merely wrong but correlated and so are systemically wrong - a problem which, as Bobby Duffy has shown, is worldwide. Saying this is not the arrogance of a metropolitan elitist; voters themselves now think the result of the 2016 Brexit referendum was wrong.

This is why we have representative democracy. Voters' systematic errors about basic social facts needn't be a problem if their elected representatives can deliberate rationally on the basis of good evidence.

But they don't. The problem here isn't merely that the whipping system restricts diversity of opinion, or that some MPs have bought into the idea that they are mere delegates of the people to do their bidding. It's also that even the best MPs, like all of us, have biases by virtue of their profession. They are likely to be overconfident about what top-down policies can achieve; to be biased towards managerialism and against empowering people; and to underweight of the problems of bounded knowledge and rationality.

Nor are MPs less beholden to the rich than are voters generally. If anything, the opposite. The fact that the government isn't nationalizing utilities, imposing a wealth tax or rejoining the EU - despite these having popular support - shows they are swayed more by the opinions of a few billionaire crank newspaper owners than by the public.

None of this is an argument against democracy. Churchill was right: it is "the worst form of government, except for all the others." Instead, it's an argument for rethinking how democratic ideals should be implemented. Henry Farrell is dead right: "what we need are better collective means of thinking." We need more institutional brains, as we might acquire - for example - from forms of deliberative democracy.

Almost no mainstream politician or pundit is even asking how to do this. Why not?

Part of the answer lies in the fact that ideas are shaped in our formative years: as Napoleon said, ���to understand the man you have to know what was happening in the world when he was twenty.��� And in the formation of those of us over 50, western politicians saw democracy as a self-evidently good thing; it was contrasted to the "evil Empire" of the Soviet bloc. And so capitalism and democracy were conflated in the public mind.

But this was an unhappy alliance because, as Jean Batou says, there has always been a tension between the two. Yes, capitalism needs democracy because popular consent, even if partial and ill-informed, helps legitimate inequality. But on the other hand, the power of the rich - even when they are not drug-addled neo-nazis - undermines the virtues of democracy. And this is becoming obvious to voters: a survey by the Fairness Foundation found that 63% of Britons think that the very rich have too much influence.

For now, this opinion is latent and largely unarticulated except on the margins of political discourse. But it poses questions: can we build a better democracy without challenging actually-existing capitalism? And if we cannot, which should give way?

What the left can learn from Richard II

I've a feeling we're not in The West Wing any more. Educated technocrats have been in retreat against the likes of Trump and Meloni. And even where the anti-technocrat right are out of power, they have disproportionate influence over the agenda: culture war issues and immigration are more widely discussed than economic democracy, rentierism or the poor quality of management.

Farage's talk of "PPE bollocks" was the philistinism typical of the weirdo. But in one regard he had a point: PPE does not equip one to win and retain power today. A lot of what we learn in PPE is, to paraphrase Marx, how to write recipes before you have a kitchen.

So, we need a different education. One, I suggest, is Shakespeare and in particular Richard II, the story of how he lost his kingship to Henry Bolingbroke, as this tells us much politics today.

One thing it tells us is that morality doesn't much matter. Richard thought he ruled by divine right:

The breath of worldly men cannot depose
The deputy elected by the Lord. (Act 3 scene 2).

Those who challenged this right, he said, "break their faith to God" and "profane, steal, or usurp". He thought a criminal could not become ruler. Just like the Democrats, however, he got a nasty surprise. You don't get a clear view from the moral high ground. [image error]

Nor does truth very much. Two of the few factual claims Bolingbroke makes are quite likely wrong: that Mowbray has killed Gloucester; and that the king has separated from his wife. That didn't stop him winning power. There's nothing new about weaponizing fake news.

Something else doesn't much matter - narrative. Richard has one - that God made him king - and he has the pomp and theatricality of a divinely-appointed monarch. By contrast, Bolingbroke is down-to-earth and transactional and - on stage at least - gives no good reason why he should be king; in fact he speaks quite little, with 413 lines, many in short speeches, compared to Richard's 758.

If morality, truth and narrative are of little use, what then does matter?

Simple - power. Bolingbroke has the Machiavellian* skills - again manifested mostly off-stage - to win the support of both the common people and fellow nobles. What matters is the building of groups of supporters, and the weakening of potential rivals. And once one has a growing band of supporters, there'll be a bandwagon effect as others jump onto the winning side: Shakespeare's Duke of York joining Bolingbroke's cause prefigured American newspaper bosses aligning with Trump.

Richard's failure in this regard is described not by himself, nor even by a noble, but by a gardener:

O, what pity is it
That he had not so trimmed and dressed his land
As we this garden! We at time of year
Do wound the bark, the skin of our fruit trees,
Lest, being overproud in sap and blood,
With too much riches it confound itself.
Had he done so to great** and growing men,
They might have lived to bear and he to taste
Their fruits of duty. Superfluous branches
We lop away, that bearing boughs may live.
Had he done so, himself had borne the crown. (Act 3 scene 4)

Marx - a great reader of Shakespeare - thought that emergent trends within capitalism would, from a socialist point of view, do the gardener's job. A decline in the numbers of petit bourgeois, he thought, would "wound the bark" by weakening a class hostile to socialism, whilst a growing working class would strengthen the "bearing boughs" that support socialism.

He was too optimistic. Coalitions of interests don't just emerge. They must be created. It's in this context that policy matters. It is not merely a matter of technocratic fixes or hawking product like market traders, but a way of creating or weakening alliances.

In this, Richard was a failure. In confiscating Bolingbroke's inheritance, he not only motivated the latter to want to topple him but also alienated other barons who feared a similar fate.

Thatcher, by contrast, was - for a while - a success in this respect. She did not use sweet reason alone to persuade people of the merits of free markets: we know now that public opinion doesn't much favour these. Instead, she "wounded the bark" by weakening trades unions thus enfeebling a threat to her power. And she fostered the growth of "bearing boughs" who would support her by creating a new class of house-owners who identified with the interests of property owners.

Blair also helped bearing boughs to thrive, albeit perhaps inadvertently. In expanding higher education he created a cohort of liberal-minded people who are frustrated with working conditions and inability to afford decent housing. That's a potential source of support for the left for years to come. The right's antipathy to universities isn't founded upon clever estimates of Mincer equations, but upon the sense that graduates are, like "great and growing men", a threat to their power.

Here, we see another failure of the Democrats, pointed out by Dani Rodrik. Bidenomics, he says "paid too little attention to the changing structure of the economy and the nature of the new working class". In not doing enough to offer service sector workers good jobs, it did not sufficiently cultivate the "bearing boughs" that could be a wide working class base.

Which brings us to the question: what is Starmer doing to weaken "great and growing men" who threaten his power, and to cultivate "bearing boughs" that might keep him in office? He needs to do so because, as Russell Jones says, his "mandate is a mile wide and an inch deep."

Here, he's missed a chance. He could have used Huw Edwards' conviction as a pretext to remove the BBC's Tory-leaning senior management, and he could use newspapers' admission of criminal behaviour as a reason to launch "Leveson 2" which if nothing else would bring the press into disgrace by publicizing its crimes against some of the people's favourite celebrities. In not doing this, he's not weakening opponents.

We must also ask: what coalition of interests is he fostering that will continue to support him? So far, the strategy seems to be to cultivate business interests. Supporting Lloyds against claims for compensation for mis-selling car finance; sacking the chair of the CMA for not offering enough "pro-business decisions"; and offering big tech help with developing AI all signal that Labour is on the side of incumbent big business.

Which is not enough. As Machiavelli said:

He who obtains sovereignty by the assistance of the nobles maintains himself with more difficulty than he who comes to it by the aid of the people.

So, what sections of the people are going to be "bearing boughs" for Starmer? Unless he can offer better public services, more affordable housing and better jobs, the answer might well be: not enough. Labour needs to achieve these not merely out of intellectual considerations of morality or economic efficiency, but because of the brute power politics of needing a client base beyond the media and a few rich donors. There'll come a time when revulsion against the Tories is not enough.

Here, though Richard II contains another lesson for Westminster politicians. Not only does the gardener know better than Richard the skills needed to maintain power, but he also knows, before the Queen does, that Richard has been deposed. A "little better thing than earth" (as the Queen calls him) posesses more wisdom and knowledge than she or her husband.

Which tells us that ground truth and the wisdom of crowds matter. Shakespeare was anticipating Kenneth Boulding's words (pdf):

All organizational structures tend to produce false images in the decision-maker, and that the larger and more authoritarian the organization, the better the chance that its top decision-makers will be operating in purely imaginary worlds.

Starmer's fate, ultimately, will be determined not by the advice of his courtiers or by Westminster bubblethink or by his own self-image but by the brute facts upon the ground: what bases of interests favour him? which ones oppose him? and what are their relative powers? If he loses grip on this, he faces a similar if less grisly fate than Richard II.

* It's not clear how much Shakespeare knew of Machiavelli. The Prince was banned in England during his lifetime, but - in an early example of the Streisand effect - seems to have been popular, and Shakespeare does make passing reference to "Machiavel" in Henry VI part 3.

** "Great" here means "powerful" rather than being a term of approval; Adam Smith used the word in Shakespeare's sense.

Another thing: in saying all this I am of course making a case for education in the humanities. Literature isn't just entertainment (though what's wrong with that?); it sheds light upon some neglected truths about the world.

A defence of the triple lock

Ben Ramanauskas wants to abolish the pensions triple lock. As a longstanding advocate of it, you'd expect me to disagree. And I do, but not violently.

Ben proposes replacing the lock with simply raising the state pension in line with average earnings. This has two great merits.

One, as Ben says, is that it aligns the interests of pensioners and workers. It tells today's pensioners: "you're in the same boat as workers: if they become better off so will you; and if they don't you won't." I'm not as sure as Ben that this will encourage pensioners to support pro-growth policies. But it might weaken their support for the parties of reaction and widen the coalition of pro-worker interests, which is good.

The second merit is that Ben's proposal isn't very much different from the triple lock simply because in normal times wages should rise faster than prices or 2.5%. This preserves the key feature of the triple lock, that it sees the state pension rise in real terms.

Over time, this amounts to creeping nationalization of the pensions industry, because the higher is the state pension the less need there is for us to provide for a private one.

This is a good thing because the state is better able to provide pensions than the private sector as it can better manage risk. It can pool longevity risk better; tax receipts are less volatile than investment returns; and distribution risk (the risk of incomes shifting from profits to wages) is less of a danger for the state than for private pensions.

Here, we must guard against a particularly silly and nasty notion - that real-terms rises in the state pension are unaffordable.

The OBR estimates that if the triple lock remains in place public spending on the state pension will rise from 4.9% of GDP now to 7.9% in 2073-74 - but this is less than many European countries such as Denmark France or Germany spend today. If a decent pension is affordable for them today, it'll be affordable for us tomorrow.

What's more, we must remember that there is no magic money tree. If we as a society cannot afford to pay taxes to provide state pensions then we cannot afford to pay into private ones either, if only because administrative costs on the latter are so eye-watering. On a ��100,000 pension pot invested over 20 years a management fee of 0.5% a year compounds to over ��20,000. The cost of administering the state pension is much smaller: fund managers are richer than civil servants, which is a clue.

I therefore strongly disagree with new pensions minister Torsten Bell that the triple lock is "silly". [image error]

My argument with Ben, however, centres upon what happens on the occasions when prices do rise faster than wages, such as when oil and gas prices soared in 2022*. Younger people have insurance against this risk by virtue of having more years in front of them in which to enjoy normal times in which real wages rise or in which they might enjoy a steep drop in commodity prices. Older people, by contrast, are closer to the exit and so don't have so much of this insurance. Worse still given successive governments unforgiveable failure to sort out social care insurance, some will face the risk of a drop in real incomes coinciding with a big bill for social care.

There is therefore a case for pensioners getting insurance against prices rising faster than wages. The triple lock does just this whereas Ben's proposal does not.

It does so, however, at a cost. In this situation there's a bigger fiscal giveaway than there would be under Ben's proposal. That would mean higher inflation, relative to what it would be in his plan. That, in turn, would require either a fiscal tightening elsewhere; or higher interest rates; or tolerating of a higher path for inflation which itself is nasty. Whichever we choose, there's a cost.

For me, this cost is mitigated by the advantage of accelerating the creeping nationalization of pensions. And, remember, the triple lock is not so much a transfer from younger people to old ones as from younger people to their older selves; the power of compound growth means that it is youngsters more than oldsters who benefit most from the triple lock, a fact they are smart enough to see.

I can appreciate, though, that others might find the cost too high.

Let's be clear, though, that it is here that we see the merit or not of Ben's proposal. The issue is not one of fiscal sustainability or intergenerational justice, but simply of how or whether we insure people against a particular type of economic risk.

* You might think that the danger of long-term falls in real wages are another issue here. I'm not so sure. Insofar as these occur because of a shrinking economy (rather than shifts from wages to profits) they mean we as a society can't afford so much of anything - be it decent pensions, public services or private consumption. It's not clear that future pensioners should be immune from this collective risk.

** I'm not going to bother engaging with Kemi Badenoch's proposal to means-test the triple lock, for the same reason that I don't bother cleaning the pants of toddlers who have wet themselves.

The two agendas

Why are UK infrastructure projects so expensive, and what can be done about this?

To what extent is the rise of the far-right the result of economic stagnation?

How can we raise economic growth given that we're close to full employment and so ordinary deficit financing would be inflationary?

How do we divert labour towards construction, social care and public services without accelerating pub closures and high street decline, both of which could strengthen the far-right?

Are tax rises sufficient to do this, or do we need microeconomic interventions as well? 

What can be done to cut the UK's high energy costs?

How can we reform utilities given that regulation is ineffective?

How can we reform income tax to reduce any disincentive effects of 60% tax rates?

How can we alter the tax system to boost growth, either by simplifying it or by shifting taxes from incomes to property or wealth?

Do we have the management skill in this country to reform public services or deliver infrastructure projects on time and on budget, and if not what can be done about this?

What can be done to curb rentierism and stimulate productive entrepreneurship?

Which inequalities matter most - of income, power or wealth and if so between exactly which groups?

Is inequality itself a barrier to faster growth?

Would more economic democracy be a good idea, and if so of what particular form?

Is there a case for a sovereign wealth fund, either for purposes of economic stabilization or as a means of funding public spending?

Has the public sphere really deteriorated in recent years (or is thinking so mere nostalgia?) and if so what can be done about it?

How can we change politicians' incentives so they better favour the public good rather than the interests of plutocrats?

All these questions here - and you can no doubt add many more - bear upon the same general issue: how, if at all, might we improve the material standard of living for millions of people? Questions about the public sphere do this at one remove: a healthier democracy would perhaps lead to better policy-making.

And yet issues such as these rarely dominate mainstream discourse, being confined to a few marginalized economists on Bluesky. What has dominated the mainstream recently, however, are the ketamine-fuelled racist lies of a billionaire: nobody intelligent enough to be reading this thinks for a moment that Musk, Farage or Badenoch give a shit about working class northern girls.

What we have here are two agendas - one on how to improve the real world, and another dealing in fantasies and crank issues. Which is a contrast to what happened in my now-distant youth. Back then left and right were bitterly divided - maybe more so than now - but they agreed on what were the issues. And the right at least made some effort to engage with facts and thought; Thatcher regularly cited leading intellectuals such as Popper, Hayek and Friedman in a way that her epigones have not. Yes, we claimed that Thatcher was mistaken about economics, but we didn't think she was a liar or fantasist as we do her recent successors.

So, why are we in this mess?

Part of the blame lies with the media. There has been a rise in the number of speakyourbranes shows, Jeremy Vine's programmes being the worst of many. There aren't enough knowledgeable people to fill all this airtime: they have better things to do than wag their jaws in a London studio. The space is therefore fill by know-nothings, often from Tufton Street, happier to spout off about irrelevancies. It takes knowledge to talk about tax reform, but any fool can gibber about immigrants. [image error]

GBNews blurted out the truth here recently when it told Liam Halligan that it ���doesn���t need an economics and business editor���. It doesn't, for the same reason that Mrs Brown's Boys doesn't need one: it's mindless entertainment, not an attempt to reveal the truth.

Also, as Sam Freedman pointed out in Failed State, journalism has seen a drop in the number of specialist reporters but increase in lobby correspondents which distorts how politics is discussed. Rather than ask "will this measure actually improve the real world?" the focus is on "how will this play out"? That encourages a short-termism that crowds out serious thinking about policy, as well as the chasing of headlines and soundbites about anything that will "cut through."

Some political scientists, I fear, play into this distortion with their focus upon opinion polls. Not only are these pretty much irrelevant when we're four years away from a general election, but they also beg the questions: how is public opinion formed? Why does it influence policy in some areas (immigration?) but not others (nationalisation?) What's the connection between public opinion and effective or ethical policy?

"Politics" as it is discussed by journalists and (ugh) "commentators" - and even many politicians - has become a melange of gossip, fantasy and lies divorced from material scientific questions of how to improve living standards. One nice but unremarked indicator of this is that Patrick Grant's Less is not regarded by the mainstream as a book on politics. That's because the things it discusses are not seen as "political": decommodification, the decline of craftsmanship and nature of capitalism.

Yes, it's the C-word again. One reason why the right is frantically grabbing for any culture war issue is that they have no even half-credible answers to economic stagnation.

What they do have, though, is the power to set the agenda. As Elmer Schattschneider wrote in 1960, "some issues are organized into politics while others are organized out." The right wants to organize into politics conflicts about immigration, race, trans rights and "wokeness" whilst the serious left wants to organize in questions about capitalism. And guess who's winning?

This raises a problem for us. In challenging the right's falsehoods, we are acquiescing in its choice of agenda and thus accepting its power. Worse still, we risk treating its bad faith as a legitimate concern, or treating as sane what is in fact a psychiatric disorder. And of course, we risk a backfire effect, whereby merely discussing their concerns lends them credence.

Every good general knows that it is important to choose the right terrain on which to fight. The problem for the left - and also for those centrists who are reality-based - is that it is the right that chooses the battleground.