Chris Dillow's Blog, page 49

Trapped by history

A little bit of me feels sorry for Toby Young. I say so because of something Dan Davies tweeted:

Find a brand and stick to it. Don't try to be jack the lad when poundshop Clarksons are in fashion, then pull on the leather elbow patches as soon as you think there's more of a market for Serious.

The point here is that we can be trapped by our brands: Young���s reputation as cheap controversialist disqualifies him from a serious job even if he might be otherwise equipped to do it.

His is not an isolated case. Sam Allardyce has earned a reputation for playing effective but ugly route one football. He objects that he���s had to do this because of the limited ability of the players he���s managed and that he could get a team to play attractive football if he had the chance. But except for a brief period at Bolton, he���s never had that chance.

Similarly, my reputation means I���m unemployable elsewhere: who wants to hire someone who seems to mix dull technocracy with class hatred?

Much more seriously, ex-prisoners and the long-term unemployed find it hard to get work because employers don���t believe they can change.

Our histories, then, limit our options.

This isn���t wholly unreasonable. What we have done in the past is at least some guide to our abilities and character. Mr Young has forgotten that if a man acts like a cunt, a good Bayesian will increase the probability he attaches to the prior belief that he really is a cunt. Many of us are one-trick ponies: for example, I really am unemployable elsewhere. Just as societies are created by their past, and companies cannot easily change their core competences, so too do individuals struggle to change. This is why the decline of old industries is so traumatic: unemployed steel-workers or miners don���t become coders.

But, but but. It���s also possible that employers overstate the extent to which abilities and aptitudes are fixed, and exaggerate the correlation between what somebody has done and what they can do. People are often terrible at judging correlations: why shouldn���t they be so in this case?

I can���t prove this, simply because we don���t see what doesn���t happen: if you don���t hire a guy, you never find out how good he is. One factoid, however, lends it credence ��� that Timpsons, which does try to employ ex-cons, does OK by doing so.

What seems clearer, though, is the obverse of this. As Marko Tervio has shown, hirers place a premium upon revealed talent ��� those with the right CV. This is one reason why I advise youngsters to work in finance: an investment bank looks good on your CV.

Revealed talent, however, is scarcer than actual talent. It���s for this reason that Premier League teams tend to hire the same old faces as bosses; why some folk hoover up lots of non-executive directorships; why talking heads current affairs shows have a limited roster of guests; and why there���s a management merry-go-round with a few people jumping from job to job.

And because revealed talent is so scarce, those who have it earn fortunes even if they are only just above a threshold of basic competence.

Which raises a nice paradox. Those people who think that Young���s past disqualifies him from a serious job are doing the same thing that companies do when they refuse to hire the ex-con or when they pay gazillions to mediocre bosses. They are using the same mindset that gives us gross inequalities.

On anti-meritocracy

There���s a link between Toby Young���s appointment to the Office for Students and the revelation that his staff regard Donald Trump as a child.

What we have in both cases are examples of anti-meritocracy. Both men have achieved office not despite their flaws but because of them. To their supporters, obnoxious sexism is a positive qualification, as it���s fighting against the ���PC brigade.���

We can see this more clearly by contrasting both to Lord Adonis. The judgments of a man who rose from a humble background through hard work and intellect should are devalued, we are told, because he���s one of the elite. Just as boorishness is a virtue, so intellect is a vice.

I���m not making a partisan point here. I for one would have no objection to a rightist being appointed to the OfS if s/he were someone of ability and character. And of course, we see a similar thing on the left: you can all think of second-raters who are lionized simply because they rant about neoliberal economics.

In this context, Janice Turner���s claim that Mr Young���s obnoxiousness is an act misses the point. Why does someone wanting to achieve prominence do so by acting the charmless buffoon rather than sophisticated intellectual?

There have always been many mechanisms which select against ability. The culture wars have exacerbated these: ability and character don���t matter, as long as someone is on the right side.

Insofar as neoliberalism is a real thing rather than a boo-word, one of its features is the celebration of wealth, power and fame ��� howsoever achieved ��� and devaluation of what MacIntyre called the goods of excellence. In this sense, the rise to prominence of Trump and Young are characteristics of the neoliberal era.

How costly is this? Anyone who values social mobility will deplore it. It���s hard to imagine anybody from a working class background succeeding by following the Young-Trump-Johnson route; you���ve got to be posh to be anti-elitist.

Personally, though, I���m not much troubled by this. Like Young���s dad, I���ve never found the prospect of a meritocracy attractive.

In fact, there might even be something to be said for anti-meritocracy. It���s possible that Trump���s character flaws will prevent him using his presidency to do great irreversible damage, and they might even eventually discredit his policies: imagine if somebody of ability had his agenda.

And it���s possible that the knowledge that success in politics and the media requires obnoxiousness, self-promotion and a wealthy background and the right backers will deter good people from entering them.  Whilst this would degrade public life, it would improve the talent pool available to other occupations and save good people from being disappointed; the embittered old hack is a fate to be avoided. Those of us who are comfortably off can safely tend our gardens and ignore the imbecilities of elite politics.

Whether we want an anti-meritocracy or not, it���s what we���ve got. The question is how to make the best of it.

How inequality persists

Increased inequality does not necessarily bring demands for redistribution.

I say this because of a recent paper by Elvire Guillaud and Michael Zemmour. They studied the political attitudes of the well-off but not super-rich in 19 developed countries between the 80s and 00s ��� those in the 80th to 99th percentile of the income distribution. Such people���s preferences matter because they might well have disproportionate political influence.

They found that increased inequality has ambiguous effects upon their demands for redistribution.

One the one hand, a growing gap between the top quintile and those immediately below them increases demands for equality. This is because a bigger gap tells the well-off that the cost of falling down the income scale is large, and people want insurance against this, such as a higher social wage - better health and education.

On the other hand, though, a bigger gap between the super-rich and the well-off actually reduces demand for equality. One reason for this might lie in something suggested (pdf) by Albert Hirschman in 1973: people tolerate rising inequality, at least initially, because they expect to join the super-rich ��� an expectation exacerbated by over-confidence. Alternatively, say Guillaud and Zemmour, it might be that the well-off know that the super-rich won���t pay their fair share of taxes and so fear it will be they who ���ll bear the burden of higher redistributive taxation.

The point here is that what matters is not something as simple as the Gini coefficient, but rather a more precise structure of inequality.

Does this help explain the UK���s odd political divide? I���m not sure. On the one hand, it does. Maybe Labour���s popularity among apparently ���middle class��� workers owes something to the fact that job polarization has destroyed middling jobs which has increased insecurity and so created an insurance demand for equality. Also, because many pensioners have securish incomes, they don���t fear a loss and so don���t have such insurance demand. Hence their Tory preferences.

On the other, though, pensioners have even less hope of joining the super-rich than do well-paid workers. This should dispose them towards more leftist preferences ��� which is not what we see.

Guillaud and Zemmour���s work is, however, consistent with laboratory evidence which shows that increased inequality does not call forth demands for redistribution. One reason for this, says Kris-Stella Trump, is a form of anchoring effect: our belief in what���s fair is shaped by the existing income distribution:

Public ideas of what constitutes fair income inequality are influenced by actual inequality: when inequality changes, opinions regarding what is acceptable change in the same direction.

Jimmy Charite, Raymond Fisman, and Ilyana Kuziemko have suggested (pdf) another mechanism ��� that inequality changes people���s expectations, their reference points:

If voters tend to respect others��� reference points, then if a country experiences a shock that increases income inequality, voters may be reluctant to tax away those gains.

Klaus Abbink, David Masclet and Daniel Mirza demonstrate a different mechanism ��� resignation. As inequality becomes extreme, they show, people simply give up fighting it*.

US politics is, I fear, consistent with all this; high inequality has given us a kleptocratic billionaire.

It���s also consistent with world history as described by Walter Scheidel. He shows that significant falls in inequality have generally been brought about not by gentle redistributive policies but by wars, revolution, disease and state collapse.

Perhaps there is no stabilizing negative feedback loop from increased inequality towards demands for redistribution. If so, a sustained** increase in equality is far harder to achieve than social democrats would like to believe.

* Plus, of course, there's the fact that the richer the rich are, the more they can spend on entrenching their position by buying the media and lobbying.

** How much could a one-term Corbyn government do to permanently increase equality?

Conservatives & austerity

Frances��� post linking the rise of Nazism to fiscal austerity poses a question: why are Conservatives so supportive of such austerity?

I ask because from one perspective it is they that should oppose it more than the rest of us. This is because, in depressing incomes, austerity calls both free markets and capitalism into question as some people blame the weak economy not upon bad policy but upon more fundamental features of capitalism. We Marxists are happy for capitalism to come into doubt. But conservatives shouldn���t be.

What���s more, austerity also generates political instability as people look to both left and right for ways out of the crisis. German austerity in the 1930s contributed to a rise of Communism as well as Nazism, and austerity in the UK has contributed to both Brexit and the rise of Corbyn.

Conservatives who want political stability and free(ish) market capitalism should therefore be in the forefront of opposition to austerity. Austerity, they should complain, jeopardizes things they prize highly.

Why, then, do they support it? Why will they do anything to oppose Corbyn except remove the economic conditions that create his popularity?

I suspect an answer lies in something Corey Robin has written. Forget all that Oakeshottian stuff about Conservatives being cool-headed sceptics about change, he says. What Conservatives really want is private sector hierarchy:

No conservative opposes change as such or defends order as such. The conservative defends particular orders ��� hierarchical, often private regimes of rule ��� on the assumption, in part, that hierarchy is order. (The Reactionary Mind, p24)

Expansionary fiscal policy, however, undermines ���natural��� hierarchies.

One way in which it does so was pointed out by Michal Kalecki:

Under a laissez-faire system the level of employment depends to a great extent on the so-called state of confidence. If this deteriorates, private investment declines, which results in a fall of output and employment (both directly and through the secondary effect of the fall in incomes upon consumption and investment). This gives the capitalists a powerful indirect control over government policy: everything which may shake the state of confidence must be carefully avoided because it would cause an economic crisis. But once the government learns the trick of increasing employment by its own purchases, this powerful controlling device loses its effectiveness. Hence budget deficits necessary to carry out government intervention must be regarded as perilous. The social function of the doctrine of ���sound finance��� is to make the level of employment dependent on the state of confidence.

There���s a second way. Once we acknowledge that people���s incomes depend upon fiscal policy it follows that poverty is a failure of government rather than of individuals. Conservatives can then no longer regard it as a moral failing.   

Fiscal austerity, therefore, is needed in order to maintain the ���natural��� hierarchy in which the rich are entitled to power because they are virtuous heroes whilst the poor must be stigmatized as lazy and feckless.

That���s the hypothesis. There are two separate pieces of evidence for it. One is a tweet from Andrew ���Tory boy��� Pierce:

Rail engineers being paid ��775-a-day for working over Christmas and bill will be picked up by long-suffering commuters

What Pierce is expressing here is a desire for workers to stay in their place ��� which is well down the income ladder. Tories aren���t so keen on free markets when they raise workers��� wages. This is consistent with the fact that right-wingers in the US have been relaxed about a rise in monopoly power that has squeezed wages.

Secondly, American rightists have no problem with the prospect of rising government debt if it means tax cuts for the rich. They value inequality and hierarchy over fiscal prudence.

Yes, support for austerity is an intellectual error. But it might be one founded in a peculiarity of the Conservative psyche. Keynesians, I fear, under-rate this point.

Five books that made me

Because this is my last post before Christmas, I thought I���d write about my favourite subject ��� me. Or, which might be of slightly broader interest, the five books which have perhaps most shaped me. As with all my ideas, this is not original: I���m following Miles Kimball. These aren���t necessarily my favourite books, or ones I���d most recommend. But they have been influential for me. And because we are most malleable when we are young, they come disproportionately from my teenage years.

Middlemarch, by George Eliot.

There was a time when I thought about studying English at university. It was this that put me off. I found it long-winded, dreary and tediously earnest, like Polly Toynbee at her worst.

Some books, though, speak to us at different ages. Maybe Eliot is one of those: older readers appreciate her whilst teenagers are underwhelmed ��� a sort of reverse Ayn Rand. I tested this recently by reading Daniel Deronda. And I���m sorry, but I still agree with the teenage me.

I appreciate that many wise readers will be appalled by this. They might well be right. For me, though, Eliot is like religion or Star Wars ��� something other people get but I don���t.

In fairness to her, though, she saved me a bullet. I���m not sure I could have spent years reading Spenser and Saussure.

Auto da Fe, by Elias Canetti.

This is the story of an eminent but reclusive German scholar who is tricked into marriage in the vain hope of changing his illiterate housekeeper and who in doing so loses everything, including his mind. It���s an allegory of the rise of Nazism.

For me, it raises the question of the relationship between intellectuals and the world, at both a personal and social level. It shows both that it is not possible for intellectuals to live in isolation, and yet dangerous for them to hope to change people. (Yes, it has become relevant again). The purely intellectual virtues are not sufficient. We must be, in Robert Heilbroner���s nice phrase, worldly philosophers*.

And no, I never married.

A History of Political Theory, by George Sabine.

I read this whilst doing A level politics. More than any other book, it opened my mind to the fact that there are many different ways of thinking about the world, and to the excitement of discovering new things.

I���m not sure this ever left me. I still prefer learning to teaching and would much rather be a dilettante than an expert who confines himself to one narrow field. Yes, we need the latter. But we also need binmen, and I���d rather not be one of those either. One reason why I���m looking forward to retiring is that I���ll have more time to read and learn.

Selected Essays in the Dynamics of the Capitalist Economy, by Michal Kalecki.

I did not always intend to become an economist. I did A level economics, but skived off a lot of lessons to play snooker. I found the subject too divorced from what I saw as the economic reality in Leicester in the early 80s of soaring unemployment, poverty and factory closures. I therefore sympathize with Unlearning Economics and the authors of Econocracy.

I pitched up at Oxford to do PPE intending to drop economics in my second year. What changed was that I had the good luck to be taught economics by the great Andrew Glyn. Whereas many ���economists��� seem to think the subject is a way for second-rate mathematicians to pretend they are clever, he showed me that it is a way of understanding the world.

In this context, Michal Kalecki is a model economist. He uses maths only insofar as it clarifies his analysis and no further, shuns unempirical concepts (such as ���natural��� rates), and pays attention to the facts ��� even though macroeconomic data was primitive in his time. Selected Essays is, in these senses, far superior to Keynes��� General Theory.

And yet Keynes got all the acclaim whilst Kalecki was ignored, even though he said much the same as Keynes and said it better and clearer. One reason for this, I suspect, is that Keynes effaced some of the ideas that are  embarrassing for capitalism and its apologists - class, power and profits - whereas Kalecki did not. Another reason is that Keynes was part of the elite whilst Kalecki was an outsider, an immigrant. Kalecki���s genius reminds me that we must always look outside of the canon and the Establishment. (One of my all-time favourite songs is Jolie Holland���s Periphery Waltz).

When I worked in investment banking I found Kalecki far more useful than any other dead economist simply because he had ideas about short-run fluctuations in aggregate profits that Keynes and the neoclassicals did not.    

Making Sense of Marx, by Jon Elster.

The virtue of this book, and of the analytical Marxism project generally, is that it saved Marxism from the obscurantism and sectarianism to which Marxists are prone.

In retrospect, I���m not sure I now fully subscribe to all his views: I think there���s more to be said for the labour theory of value than analytical Marxists claimed, and I suspect Elster���s stress upon methodological individualism underplays the importance of complexity. Nevertheless, he showed that it is possible to be both a Marxist and an orthodox social scientist. Subsequent developments have vindicated this. Today���s world fits the Marxian perspective well.

It was through Elster that I first learnt of the work of Daniel Kahneman. He is an example of what I mean. His work on cognitive biases has massively influenced me in the day job as it was the basis for the field of behavioural finance. But we can easily treat his cognitive biases research as being evidence for ��� and a foundation of ��� Marx���s theory of ideology. In this sense, there is a unity between my day job and my Marxism. You can���t have one without the other ��� or at least, you won���t.

* A good economist should be like a good novelist, in that both should successfully put themselves in another���s shoes. Both should give good answers to the question: what are this character���s beliefs, preferences and constraints, and what are the consequence of him acting upon them? Some Brexiters might have forgotten this.

Big Facts in economics

Unlearning Economics has a nice piece on the limits of sophisticated empirical techniques and the virtues of eyeball econometrics, reminiscent of Dave Giles��� advice ���Always, but always, plot your data.��� One extension I���d make to this is the importance of Big Facts. Sometimes, it���s more important that a theory explain a single important fact ��� or at least be consistent with it ��� than a range of small facts.

Take, for example, the efficient markets hypothesis. Researchers have found countless small facts that seem to refute this ��� well over 100 anomalies at the last count. All these, however, run into the Big Fact ��� that fund managers do not beat the market. This is not inevitable: they could in theory out-perform at the expense of retail or overseas investors. So why don���t they?

It might well be because the anomalies are not, in fact, that strong. They might be just non-replicable patterns in noisy data (pdf). Or it might be that once traders learn of them, they get bid away ��� something that seems more true in the US than Europe. Or it might be that high dealing costs mean the anomalies can���t in fact be exploited in the real world. And perhaps those anomalies that are robust are in fact a reward for taking risk: the defensive (pdf) anomaly, for example, exposes fund managers to benchmark risk, the danger of losing their jobs because they under-perform in a bull market.

The Big Fact, then, alerts us to the possibility that the EMH is mostly true in at least one sense ��� though of course the market can be both ���micro efficient��� and ���macro inefficient���.

Here���s a second example. A Big Fact is that the unemployed are significantly less happy than those in work. This is inconsistent with ideas that unemployment is voluntary: people should be happy if they���re on holiday. It thus refutes labour market-clearing real business cycle theories.

A third Big Fact is that mainstream economic forecasters have consistently failed to predict recessions ��� something which pre-dates the 2008 crisis ��� and in fact are much worse recession predictors than the simple yield curve. This might tell us that recessions are inherently unpredictable. Or it might tell us there���s something wrong with orthodox macroeconomics (and not just DSGE models). Whatever your story, it must fit this Big Fact.

A fourth Big Fact is that a significant slowdown in productivity and GDP growth has followed an increase in inequality (in the sense of the share of income going to the 1%). This might tell us that increased inequality has caused slower growth ��� perhaps because it���s the wrong sort of inequality, Or maybe something independent of inequality caused growth to slow. Whatever it is, we have a Big Fact which defenders of inequality need to confront.

No doubt you can add other examples.

My point here should be a trivial one. Not all facts are equal. And given that no theory in the social sciences fits all facts, I���d rather they fitted the big ones than the little ones. One useful thing to do when reading any theory is to ask: what is the biggest fact that supports this claim, and what is the biggest that is inconsistent with it?

Saving capitalists from themselves

The biggest threat to capitalism is not Marxists but capitalists themselves. That���s the thought which struck me from reading Ann Pettifor���s claim that a Corbyn government could be good for business.

I���m thinking here of two analytically separate mechanisms.

The first arises from a simple identity, that the aggregate profit rate can be increased in one of two ways ��� either by increasing the share of profits in output, or by raising the output-capital ratio. Thatcherism tried the former ��� for example by weakening workers��� bargaining power. Post-war social democratic Keynesianism tried the latter: it hoped that full employment would keep the capital-output ratio high and hence maintain profit rates and therefore incentives to invest,

Ann���s point is that a Corbyn government would also try the latter; looser fiscal policy would raise the output-capital ratio and hence profit rates. ���Falling incomes and spare capacity have not been good for business��� she says.

The second mechanism lies in the fact that the success of capitalism rests upon two things: accumulation and legitimation. On the one hand, capitalists need high profits and incentives to invest such as a favourable tax regime. On the other hand, though, the system must possess a minimum of legitimacy so that people support it.

These two conditions can sometimes conflict. Take, for example, high house prices. On the one hand, these help sustain capitalism. High rents and mortgages force people to work long hours thereby giving capital a quiescent workforce. As David Harvey writes, ���barriers of private property in land���[are] needed to ensure an adequate supply of exploitable wage labour for capital.��� On the other hand, though, if people feel they have no chance of acquiring property, they���ll see no hope of getting a stake in the system and this will undermine its legitimacy. As Thatcher recognised, a property-owning democracy shores up support for capitalism.

High inequality can also undermine legitimacy. If people feel the rich are ripping them off ��� for example by not paying their ���fair share��� of tax ��� there���ll be a backlash against capitalism.

Intelligent Tories ��� yes, there are some if you look hard enough ��� recognise this problem. Sebastian Payne in the FT quotes Nick Boles:

Roosevelt���s key insight was that capitalism in the 1890s in the US was becoming its own worst enemy,��� he says. ���It had been captured by robber barons and monopolistic groups. It was destroying the interests of the small businessman, the small farmer and the consumer. He worked out that if those who believed in capitalism didn���t reform it, then the populists would sweep it away.��� 

Again, Labour might be the saviour of capitalism here. Its plans to reduce house prices, raise the living wage and increase corporate taxes might increase the legitimacy of the system.

From this perspective, we can regard the function of the state in capitalist society as being to solve a collective action problem ��� the fact that what is in the short-term interests of individual capitalists might not be the longer-term interests of capitalists as a class.

For example, each individual capitalist wants wages to be as low as possible, compatible with sufficient recruitment and motivation. But if wages are low, the market for consumer goods will be weak*. Or each individual capitalist might want tax breaks and rigged markets in his favour but these undermine the legitimacy of the system.  (This might be the eventual effect of Trump���s tax plan.)

It���s possible that a Corbyn government would solve these collective action problems.

But only possible. It���s not clear that there is as much spare capacity as Ann thinks: the OBR and Bank of England think there isn���t. If there���s not, then looser fiscal policy might lead to higher interest rates rather than a higher output-capital ratio. Maybe higher corporate taxes would lead to more tax-dodging or less investment. Or perhaps a higher wage floor would, at some point, cost jobs. And wage-led growth might not work.

The difference between Marxists such as me and social democrats such as Ann is, I suspect, that we are more sceptical than she is of governments��� ability to fix capitalism.

This, though, is a comradely debate for another day. My point here is that it���s possible that Labour will save capitalists from themselves. The narcissistic over-entitlement of the stupider capitalists, however, means they cannot see this.

* This dilemma can be overcome by allowing workers greater access to credit, as Thatcher did. But this might not be a permanent fix.

Inequalities that matter, & don't

Jamie Whyte asks:

A rich man finds it easier to buy a car than a poor man does; a witty man finds it easier to seduce a woman than a dull man does. If the former is an unfair inequality of power, why isn���t the latter?

This question might (with a caveat I'll come to) have some force for the sort of egalitarian who believes that all inequalities are bad in themselves - what Derek Parfit calls (pdf) telic egalitarians. But there are other sorts of egalitarian - those who believe that inequalities are bad for other reasons, say because they arise from injustices or have undesirable effects.

This distinction, of course, isn���t confined to egalitarians. It���s also true of libertarians; you can favour libertarianism for consequentialist reasons or because you think liberty a good in itself.

Our second type of egalitarian has obvious answers to Jamie. One is that inequalities of wit have, overall, no adverse consequences. In fact, the opposite: the witty man is good company (Jamie calls him a friend). Inequalities of wealth, on the other hand, are not so benign. They undermine the democratic ideal of equality of respect and perhaps even democracy (pdf) itself. They weaken trust (pdf) and social capital. And they are quite possibly bad for the economy. (I'd add that high inequality also undermines support for free markets.)

Of course, I���d expect Jamie to disagree with these empirical claims. My point is that they provide a big difference between inequalities of wealth and of wit.

Egalitarians also object to wealth inequalities because, in some (many?) cases they arise through unjust processes such as exploitation and domination or through the capture of the state by the rich. As Joe Stiglitz said, inequality is a policy choice; evidence for this is that different countries have had different trends in it*.

This cannot be said of inequalities of wit. Justice, said Rawls, is a virtue of social institutions, not of nature. Here���s Parfit:

Consider, for example, the inequality in our natural endowments. Some of us are born more talented or healthier than others, or arc more fortunate in other ways. If we are deontic egalitarians, we shall not believe that such inequality is in itself bad. We might agree that, if we could distribute talents, it would he unjust or unfair to distribute them unequally. But, except when there are bad effects, we shall see nothing to regret in the inequalities produced by the random shuffling of our genes**.

And injustices of talents often don't have bad effects: it's a good thing that some people are beautiful, intelligent and witty. (I know; I met one once). 

Sure, if we lived in a society like Iain M. Banks��� Culture in which we could easily change people���s appearances we might consider it an injustice that some men look like Olivier Giroud whilst others look like Michael Gove because such an inequality would be remediable. But we don���t.

To many egalitarians, then, there is no equivalence between the rich man and the witty one. Jamie���s analogy fails.

But even telic egalitarians have a reply to him. Here���s Larry Temkin:

Equality is not all that matters. Nor is equality the only ideal that would, if exclusively pursued, have terrible implications. The same is true of justice, freedom, utility and virtually every other ideal. (Inequality, p282).

Handicapping the witty man, as in Kurt Vonnegut���s Harrison Bergeron, or demanding that his sexual partners pay a fine as Jamie suggests, would be too invasive of liberty. And liberty is also a value. (Egalitarians contend, reasonably I think, that taxation is less a restriction upon freedom than are Vonnegut���s interventions).

I am, therefore, unconvinced by Jamie���s question. 

In this sense, I don���t know what to make of his argument. One the one hand, I���m grateful to him for posing the question of why inequality matters thereby making us think. But on the other, as a former professional philosopher he must know all these arguments and that he wouldn���t persuade egalitarians. I fear, then, that he was writing not for his opponents but merely preaching to his own side; who does he hope to persuade by saying that ���socialists have always proved willing to translate their theoretical absurdities into practical atrocities���? In doing so, he���s given us another example of how politics is becoming increasing tribal and polarized, with neither side wishing to properly engage with the other.

 Update: rewritten in light of Chris Bertram's comment. 

* A different form of this argument is that some inequalities are unjust because we would not have consented to them has we had a chance to do so behind a veil of ignorance.

** In fact, UK institutions go further than this. We give free education to all to increase their wit, and the NHS tries to ameliorate inequalities in health and even appearances.

On technological regress

The FT reports that thousands of cash point machines might close. One of the very few worthwhile financial innovations of my lifetime might therefore be about to go into reverse. This poses the question: shouldn���t we take the possibility of technical regress more seriously?

Certainly, it was common before (pdf) the industrial revolution; plumbing, for example, was better in parts of India around 2000BC than it was until quite recently in the west. The dark ages weren't wholly misnamed. But we have also seen it in our lifetimes.

For example, it takes longer now to fly across the Atlantic than it did in the 80s when we had Concorde ��� especially if you consider longer check-in times and time spent getting through airport security.  Equally, some train journeys take longer now than they did years ago. And of course, men are no longer travelling to the moon.

It���s not just in transport that we���ve seen regress. Older readers might remember that we used to get two postal deliveries a day, one of them before lunch. Paul Romer has claimed (pdf) that macroeconomic research has seen intellectual regress. The fact that companies have for years built up cash piles suggests that banks are no longer as good at financial intermediation as they were ��� not that they ever (pdf) much improved (pdf) in the first place - perhaps because the rise of intangible assets deprives firms of collateral against which they can borrow. Newspapers used to keep readers well-informed with numbers of foreign correspondents and detailed parliamentary reports. (Brendan O��� Carroll, for example, managed to track down his grandfather���s killer by using newspaper reports at the time). Today, they prefer to flatter readers��� prejudices. Most worryingly of all, antibiotics are becoming less effective which might cause a general regress in medicine.

You might object that we still know how to do most of these things, but it���s just that the costs of doing so have risen prohibitively, For my purposes, this is irrelevant. BITD we spoke of the socio-technical conditions of production: we knew that we cannot separate technology from the social circumstances that facilitate or not its use.

Regress, then, is a real possibility.

This can help explain cyclical downturns. If we combine Xavier Gabaix���s point (pdf) that recessions can start from large individual firms getting into trouble with Daron Acemoglu���s description (pdf) of how network effects can amplify such fluctuations, we have a story of how regress can cause recessions. This, I think, was true of the 2008-09 recession. Banks��� ability to produce credit declined. That technical regress caused a collapse the effects of which are still with us. What���s daft about real business cycle theory is its conception of labour markets and use of representative agents, not its identification of the cause of downturns.

This poses the question. What possible mechanisms might give us longer-term regress. Here���s a non-exhaustive list:

 - Baumol���s disease. Where productivity cannot improve, relative costs increase over time as wages rise. This might render some services unprofitable. This is probably the story of postal services.

 - Intangibles. We used to think that one route through which technology improved was that failing firms��� assets would be bought by better firms. This may well be true of physical assets. But is it so true of intangible ones? If a firm���s know-how consists in organizational capital, it���s demise might cause knowledge to be lost. And as Luigi Zingales has said (pdf), ���a temporary shock such as financial distress may have very long-term consequences.���

 - Path-dependence. Brian Arthur has described (pdf) how a poor technology might gain a temporary advantage over a good one because of a lucky accident. Producers then continue piecemeal improvements in the inferior technology with the result that a potentially better technology is abandoned. This might be the story of steam-powered cars, or perhaps economic research.

 - Incentives. If there are big incentives for rent-seeking rather than innovation, we���ll get less of the latter. Worse still, fighting over shares of income can reduce that income. This is the story, in different ways, of the natural resource curse and John Kay���s marvellous parable of the ox.

Perhaps a bigger danger, though, is simply the rise of anti-intellectual and anti-scientific attitudes ��� of the sort we see variously in opposition to vaccinations, the belief in a post-truth world and the attack on universities.

Progress is more fragile than we suppose. We must ask how we can shore up the  material and intellectual preconditions of it.

In defence of the labour theory of value

Lucius has been poorly recently, which has required some trips to the vet and therefore a bill of a size that only David Davis could negotiate*. This has made me wonder: is there more to be said for the labour theory of value than we like to think?

For a long time, I���ve not really cared about this theory one way or the other. This is partly because I���ve not bothered much with questions of value; partly because, as John Roemer has shown, we don���t need (pdf) a labour theory of value to suggest workers are exploited; and partly because the main Marxian charges against capitalism ��� for example that it entails relationships of domination ��� hold true (or not!) independently of the theory.

As I approach retirement, however, I���ve begun to change my mind. I think of major expenses in terms of labour-time because they mean I have to work longer. A trip to the vet is an extra fortnight of work; a good guitar an extra month, a car an extra year, and so on.

When I consider my spending, I ask: what must I give up in order to get that? And the answer is my time and freedom. My labour-time is the measure of value.

This is a reasonable basis for the claim that workers are exploited. To buy a bundle of goods and services, we must work a number of hours a week. But taking all workers together, the hours we work are greater than the hours needed to produce those bundles because we must also work to provide a profit for the capitalist. As Marx put it:

We have seen that the labourer, during one portion of the labour-process, produces only the value of his labour-power, that is, the value of his means of subsistence���During the second period of the labour-process, that in which his labour is no longer necessary labour, the workman, it is true, labours, expends labour-power; but his labour, being no longer necessary labour, he creates no value for himself. He creates surplus-value which, for the capitalist, has all the charms of a creation out of nothing. This portion of the working-day, I name surplus labour-time.

For Marx, value was socially-necessary labour time: David Harvey is good on this.

From this perspective, exploitation and alienation are linked. Workers are exploited because they must work longer than necessary to get their consumption bundle. And they are alienated because this work is unsatisfying and a source of unfreedom.

Now, I���ll concede that many people hate the labour theory of value. One reason for this is that many discussions of it quickly become obscurantist ��� as if ���value��� is some mystical entity embodied in commodities.

This, though, certainly was not Marx���s intention. Quite the opposite. He intended his theory to be a demystification. He wanted to show how what looked like relations between things ��� the exchange of money for goods or labour-time ��� were in fact relations between people. And unequal ones at that.

What���s more, the charge of obscurantism against Marx is an especially weak one when it comes from orthodox economics. Much of this invokes unobservable concepts such as the natural rate of unemployment, marginal productivity, utility, the marginal product of capital and natural rate of interest ��� ideas which, in the last two cases, might not even be theoretically coherent.

In fact, the LTV is reasonably successful by the standards of conventional economics: we have empirical evidence to suggest that it does (pdf) a decent (pdf) job of explaining (pdf) relative prices ��� not that this was how Marx intended it to be used.

You can of course, think of counter-examples to the theory. But so what? in the social sciences, no substantial theory is 100% true.

I suspect that some of the animosity to Marx���s use of LTV arises because of a resistance to the inference that Marx drew from it ��� that workers are exploited. This issue, however, is independent of the validity of not of the LTV. For example, Roemer thinks workers are exploited without believing in the LTV, and Smith believed the LTV without arguing that workers were exploited.

By the (low) standards of economic theories, perhaps the LTV isn���t so bad.

* He seems to be recovering now. The vet is also expected to make a full recovery eventually.