Chris Dillow's Blog, page 66

How lies work

Nick Cohen makes a good point: it is not congenital liars that should worry us, but congenital believers ��� those who fall for the lies of charlatans. We know that many do so: almost half of voters believed the lie that leaving the EU would allow us to spend an extra ��350m a week on the NHS.

This poses the question: why do people fall for lies? Here, we can learn from behavioural economics and research (pdf) into criminal fraud. I reckon there are several factors that liars exploit in politics.

One is wishful thinking. People want to believe there���s a simple solution to NHS underfunding (leave the EU!) or to low wages (cut immigration!) just as they want to believe they can get rich quick or make money by taking no risk: Ponzi schemers like Bernie Madoff play upon that last one. The wish is often the father to the belief.

Relatedly, perhaps, there are lottery-type preferences. People like long-odds bets and pay too much for them: this is why they back longshots (pdf) too much and pay over the odds for speculative shares. To such people, the fact that an offer seems too good to be true is therefore, paradoxically, tempting. A study of fraud by the OFT found:

Some people viewed responding to a scam as taking a long-odds gamble: they recognised that there was something wrong with the offer, but the size of the possible prize or reward (relative to the initial outlay) induced them to give it a try on the off-chance that it might be genuine.

There���s a particular type that is especially likely to take a long-odds bet: the desperate. Lonely people are vulnerable to the romance scam; gamblers who have lost take big bets to get even; losing teams try ���hail Mary��� tactics. In like fashion, people who feel like they have lost out in the era of globalization were tempted to vote for Trump and Brexit.

There���s another mechanism here: people are likely to turn to con-men if the alternatives have failed. Werner Troesken shows (pdf) how snake-oil sellers exploited this. They invested a lot in advertising and in product differentiation and so when other products failed they could claim that theirs would work when the others hadn���t. I suspect that fund managers use a similar trick: the failure of many to beat the market leads investors simply to trust others rather than tracker funds. The fact that previous policies had failed working people thus encouraged them to try something different ��� be it Brexit or Trump.

Yet another trick here is the affinity fraud. We tend to trust people like ourselves, or who at least who look like ourselves. Farage���s endless posturing as a ���man of the people��� ��� fag and pint in hand, not caring about ���political correctness��� ��� laid the basis for people to trust him, just as Bernie Madoff joined all the right clubs to encourage wealthy (often Jewish) folk to trust him. By contrast, the claims from the Treasury and various think-tanks that Brexit would make us poorer came from metropolitan elites who were so different from poorer working class people that they weren���t trusted. And in fact the very talk of "liberal elites" carried the subtext: "don't trust them: they're not like you".

All of these tendencies have been reinforced by another ��� the fact that, as David Leiser and Zeev Kril have shown, people are bad at making connections in economics. The idea that Brexit would hurt us rested upon tricky connections: between the terms of Brexit and trade rules; from trade rules to actual trade; and from trade to productivity. By contrast, the idea that leaving the EU would save us money was simple and easy to believe.

Now, I don���t say all this merely to be a Remoaner; complaining about liars is like a fish complaining that the water is wet. Instead, I want to point out that it is not sufficient to blame the BBC for not calling out Brexiters��� lies. Yes, the BBC disgraced itself during the plebiscite campaign. But we must also understand how voters fall for such mendacity. As Akerlof and Shiller write:

Voters are phishable in two major ways. First, they are not fully informed; they are information phools. Second, voters are also psychological phools; for example, because they respond to appeals such as lawnmower ads [a candidate seen mowing his own lawn is regarded as a man of the people] (Phishing for Phools, p 75)

All this raises a challenge for liberals. Many used to believe the truth would win out over lies in the marketplace for ideas. This is no longer true, if it ever were. Instead, the questions now are: what can we do about this? And what should we do? The two questions might well have different answers. But we can make a start by understanding how lies are sometimes believed.

Let's not debate immigration

Yvette Cooper wants a debate about immigration. I think she���s wrong.

As Stephen Bush points out, Labour has been calling for such a debate for the past 20 years ��� and we���ve been having one, insofar as the mindless drivel that passes for political discourse can be called a debate.

And it���s done Labour no good at all.

One reason for this is that the debate is largely dishonest. Rather than admit the brute fact that many people just don���t like foreigners, anti-immigrationists hide behind claims that immigrants are bad for wages or public services. Except in a few pinch points, or to a small extent, such claims are false.

Yes, we can point this out in debate. But doing so does no good. When confronted with evidence against their prior views, people don���t change their minds but instead double-down and become more entrenched in their error (pdf).

I suppose there is a reasonable debate to be had about whether discomfort about foreigners should be a basis for policy, or whether a loss of income and liberty is a price to pay to indulge such taste. But in a political-media system that selects for shrill hysteria over cool rationality, this is not the debate we���ll get.

In fact, there���s a positive reason not to want a debate about immigration. Ms Cooper is an economist and so should know that everything carries an opportunity cost. And the opportunity cost of debating immigration is high. Our time and cognitive bandwidth is limited, so time spent debating migration is time spent being silent about other questions.

From this perspective, debating immigration serves a reactionary function, as it silences debate about another question: is capitalism today best serving people���s interests? Debating immigration encourages the idea that immigrants are to blame for stagnant real wages and poor public services, and deflects attention from the possibility that the causes of these lie instead in secular stagnation.

What Labour should be doing therefore is demanding ��� and instigating ��� a debate about how best to increase growth, wages and living standards. We should be asking not what to do about immigration but what to do about capitalist stagnation?

Such a debate would require us to call into question the viability of conventional top-down managerialist capitalism (pdf). Given limited cognitive bandwidth, this would deflect blame for economic failure from immigrants and help focus it elsewhere.

If you think I���m being pettily economistic in wanting a focus on pocket-book issues, you���re massively wrong. We���re re-learning today what we should have learned in the 30s and again in the 70s ��� that economic stagnation breeds reaction and intolerance. If you want a liberal society, you need economic growth; technocratic talk about the benefit of immigration is true, but not enough to change minds.

In fact, such a debate would serve another useful purpose. A debate about immigration brings out not just the worst in people, but the worst of people: it legitimates the reactionary drivel of Farage and Hopkins, and encourages the media to give them publicity. Shifting the debate to growth would filter out such noxious fumes: the likes of Farage have nothing worth saying about economic stagnation. Yes, it would mean hearing more from the IEA and the We���ve selectively read Wealth of Nations and ignored the Theory of Moral Sentiments Institute. But if these displace racist drivel, it���s a big improvement.

The point I���m making here is one made by Steven Lukes. Power consists, in part, in shaping the agenda ��� in deciding what gets debated and what doesn���t. Insofar as debating immigration means not debating the health of capitalism, it plays into the hands of the powerful.

Class & confidence

On Radio 4���s Media Show yesterday Andrea Catherwood told Sarah Sands, the incoming editor of the Today programme:

The job specification did say that there was a requirement of extensive experience of broadcast journalism and a sound appreciation of studio broadcast techniques. You obviously got over that hurdle (16���23��� in).

Many of us, though, wouldn���t even have tried the hurdle. If I���d had Ms Sands otherwise decent CV, I���d have looked at that job spec and ruled myself out as unqualified. Ms Sands, obviously, did not.

In this, she���s following many others. Tristram Hunt has become head of the V&A despite no experience of curating or of running large organizations. David Cameron wanted to become PM because he thought he���d be ���rather good��� at it ��� a judgment which now looks dubious. And the last Labour government asked David Freud to review welfare policy even though, by his own admission, he ���didn't know anything about welfare at all.���

These people have something in common: they come from families sufficiently rich to afford private schooling*. And they are not isolated instances. The Sutton Trust has repeatedly shown that people from posh backgrounds are over-represented in top professions. This is unlikely to be due solely to superior ability; people from working class backgrounds earn less than those from professional backgrounds, even controlling for qualifications and experience.

One thing that���s going on here is a difference in confidence. Coming from a posh family emboldens many people to think they can do jobs even if they lack requisite qualifications. By contrast, others get the confidence knocked out of them (16���20 in)**. As Toby Morris has brilliantly shown, apparently small differences in upbringing can over the years translate into differences not only in achievement but also in senses of entitlement.

The point is not (just) that people from working-class backgrounds suffer outright discrimination. It���s that they put themselves forward less than others, and so save hirers the bother of discriminating against them.

But why do posh people get the jobs for which they���re unqualified? One reason lies in experiments by Cameron Anderson and Sebastien Brion. They���ve shown than people mistake confidence for actual ability, and so tend to hire the irrationally overconfident ��� even to the point of hiring dangerous narcissists (pdf).

A further reason is that like hires like. In part, this is because a reasonable motive has a less reasonably effect. People need to trust those they hire ��� especially if they are in important jobs ��� and we naturally tend to trust people like ourselves. What���s more, the privately educated have smooth manners and social ���skills��� and so fit in.  ���In the drawing-rooms of the great��� wrote Adam Smith, ���the abilities to please are more regarded than the abilities to serve.���

Herein lies an issue. In hiring Ms Sands (and no doubt many others like her) the BBC is conforming to a pattern whereby inequality perpetuates itself. This suggests that the corporation is badly placed to address what is for many of us one of the great issues of our time - the many aspects of class inequality ��� because it is part of the problem. And it compounds this bias by focusing upon other matters instead ��� for example by the incessant airtime it gives to the (Dulwich College-educated) Farage***. Bias consists not merely in what is said and reported, but in what is not ��� in the choice of agenda. In matters of class, the BBC is not impartial.

* This habit isn���t confined to the UK. At least one American has recently taken a top job despite having neither requisite experience nor psychological qualities.

 ** I���m one of those. People have often told me I should have worked in academia or on a national newspaper, but I genuinely believe I am wholly unqualified to do so, and regard myself as borderline unemployable.  

*** It is odd, is it not, that people from rich families think they can become the voice of the people and are presented as outsiders challenging the establishment.

Is the centre-left dead?

Branko Milanovic raises a question: is liberalism (or centre-leftism) dead?

There���s a precedent here. In the 1970s the combination of rising inflation and high unemployment killed off post-war social democracy in much of the west: Marglin and Schor���s The Golden Age of Capitalism provides a great analysis of this. The precise date of the death varied from country to country. In France it came in Mitterrand���s ���austerity turn��� in 1983. In the UK it perhaps came with Callaghan���s claim that you can���t spend your way out of recession in 1976. Whatever, the fact is that in much the of the west old-style social democracy was killed off and it took Clinton and Blair to reincarnate it in rather different form.

Does liberalism/centre-leftism today face a similar threat?

There are reasons to think not. It���s not inconceivable that the Democrats, UK Labour party and French Socialists will one day find electable candidates. And some of the centre-lefts flaws ��� imagined or real ��� can be easily fixed. The identity politics and elitism that has devalorized working class experience is remediable; class politics and identity politics are to some extent at least complements not substitutes. It is technically possible to spread the benefits of globalization more widely through better redistributive policies. And the likely failures of Brexit and Trumponomics might well cause some kind of backlash.

There is, however, a more pessimistic reading.

For one thing, we might not see the sort of backlash we want. If or when immigration controls and protectionism are seen to fail to increase jobs and wages, nativists won���t realize the errors of their ways and repent. Instead, they���ll double-down and claim that claim that their policies didn���t go far enough.

And in this they might win public support. The victories of Trump and Brexit, and rise of the National Front in France and AfD in Germany all vindicate Ben Friedman���s point that economic stagnation makes people meaner. It causes a rise in right-wing extremism, not leftism.

Also, there are at least two flaws in liberalism/centre leftism that aren���t so remediable, at least without transforming its essential character.

One is that it has been managerialist. Perhaps Blair���s greatest fault ��� shared perhaps with US Democrats - was his faith in top-down leaders. This had many baleful effects, among them stagnant productivity in public services, the legitimation of the increasing wealth and power of the 1% and the Iraq war. It also generated a backlash against the ���liberal elite��� and a demand to ���take back control.���

The other is that the centre-left took economic growth largely for granted. New Labour believed that if it could provide stable macroeconomic policy and an attractive location for investment then growth would follow. That might have been the case in the 90s. But it isn���t true in our new era of secular stagnation. We need supply-side socialism.

I think it���s possible for there to be a left which is open, liberal, non-elitist and economically efficient. We might hope that such a new left will eventually emerge from the ashes of centre-leftism and populism. My fear, though, is that by the time this happens there will be a terrible lot of ashes.

On soft commerce

Montesquieu was right. That���s my reaction to Trump���s ban on people from some Muslim countries entering the US.

The thing is that, as the Washington Post has pointed out, the ban does not apply to nations where Trump has business interests, such as Saudi Arabia, Egypt and Turkey ��� despite the fact that these countries are no strangers to terrorists.

What we���re seeing here, then, is vindication of Montesquieu���s claim (pdf) ��� recently revived by Deirdre McCloskey ��� that commerce ���polishes and softens barbaric ways���. Trump���s barbaric ban is tempered by his commercial interests.

You might say this is just fascism mitigated by greed. But I���d prefer this to unmitigated fascism.

This poses the question: how exactly does commerce soften barbarism? Roughly speaking, there are two mechanisms.

One ��� which we see in Trump���s decision ��� is pure self-interest. If we are trading with people, it���s in our interests that they are prosperous and that they regard us favourably. We therefore try not to hurt them.

In this sense, there���s an echo of Bretton Woods II (pdf) in Trump���s actions. In this system, westerners invested in Chinese factories and China invested in western bonds. This promoted a mutual self-interest in respecting others��� property rights: the risk of westerners being expropriated by the Chinese government is tempered by the fact that such an act would be met with sanctions against China���s western investments.

Another mechanism, though, is that commerce brings people together and so humanizes them and breaks down antipathy. One big way in which racism was diminished in the 70s and 80s, for example, was through the emergence of black footballers; increased commerce between white fans and black players broke down racism.

Thinkers such as Karl Polanyi have objected that market economies break down communities, replacing strong communal ties with the weaker ties of trade. There is, though, an upside to this. Strong homogenous communities can be insular and hostile to outsiders: the League of Gentlemen were right to see that there���s something sinister in the question ���are you local?��� It���s no accident that the vote to leave the EU tended to be strongest in areas where there were fewer migrants. And it might be no accident that, in a wider historical perspective, the growth of the market economy has coincided with a decline in violence.

It���s in this context that we should worry about Trump���s protectionism. I agree with Tyler Cowen that the macroeconomic damage of border taxes might be limited. Instead, their danger is cultural.

For one thing, protectionism rests upon the idea that trade is a zero-sum game ��� that ���their��� win is our loss ��� rather than an arrangement that benefits both parties*. This validates and encourages anti-foreigner sentiment. And for another, if there are fewer trade links between nations there���ll be fewer meetings between different nationalities and hence in the longer-run less tolerance and goodwill.

In this sense, what Trump is promoting is a form of feudalism. The idea that wealth creation is zero-sum is a feudal idea. And immigration controls are feudal, in the sense that they use force to ensure that those born into poverty stay poor.

Today, it���s not enough to be anti-capitalist. We must also be anti-feudalist.   

* You might object that there���s some truth in the zero-sum conception of trade as some people have indeed lost out through globalization. I���m not so sure. Capitalism is a mixture of soft commerce and hard exploitation and it is the latter that is most responsible for workers��� losses (pdf) ��� both in the sense that factors such as the decline of trades unions and power-biased technical change have harmed workers, and in the sense that we���ve not had the policy responses that would ensure that globalization did benefit everyone.

Why Corbyn's wrong on Article 50

Jeremy Corbyn wants to impose a three-line whip on Labour MPs to compel them to vote in favour of triggering Article 50. I think this is wrong, for the following reasons.

1. Even if we grant that Brexit is the ���will of the people���, it doesn���t follow that Brexit on the terms proposed by May is. Some voted leave in the hope of staying in the single market, others for a liberalish Brexit that wasn���t focused on migration controls. There���s a case for opposing triggering Article 50 until it���s clearer that we really want May���s hard Brexit.

2. May���s Brexit means harder times for workers, simply because leaving the single market would hurt the economy by more than any free trade deals with non-EU firms would benefit it. It would also be bad for both potential immigrants and those already here, to the extent that, ahem, nativists regard migration controls as a legitimation of their own prejudices. This would be especially the case if the Tories use Brexit to turn the UK into a low-tax, low-regulation economy in the hope of attracting global capital. Labour should oppose this path, and one way to do so is to do so from the off. Or at least, if there���s a path from May���s Brexit to a healthy socialist economy, Corbyn should tell us what it is.

3. Most Labour MPs voted remain, and nothing much that���s happened since June suggests they were wrong to do so. To support Article 50 now therefore means that, as Paul says, MPs ���will be behaving like a delegate and not a representative.��� If Burke was wrong to say that an MP owes us ���not his industry only, but his judgment���, why was he?

4. Many Labour MPs not only oppose Brexit themselves but represent constituencies that voted remain. What sort of model of democracy is it that requires MPs to abandon both their own judgment and the will of their constituents? Are MPs to become just the slaves of national opinion polls?

5. I���m not sure that a three-line whip would be electorally successful. For one thing, the fact that some MPs would defy it will increase the perception that Corbyn is weak. For another, voters respect people who stand by their principles. And for a third, any leave supporters won over by Corbyn���s stance might be offset by remainers defecting to the Lib Dems or Greens. Yes, Tom Quinn is right to say that Labour needs to win leave voters in marginal seats in the North and the Midlands. But it can do so by arguing for policies that really would improve jobs and living standards.

Now, I accept that there���s no easy answer here. Labour does risk being divided between liberal metropolitans and older workers in poorer areas who (wrongly) see Brexit as a hope for meaningful change. Perhaps the best way of managing this potential split is to allow a MPs free vote whilst trying to unite them around economic policies that really would improve prospects for people in left-behind areas.

Tom Quinn says this would mean Labour having ���no collective position on the most important issue in British politics for a generation���. But Brexit is an important issue largely because it represents a threat to workers. Labour should be trying to diminish its importance by asserting the priority of serious economic policies.  I agree with Philip Collins that Labour���s best hope is to ���change the subject as often as possible.���

Let���s remember that Brexit is the Tories��� mess. Labour should try to rise above it.

(Not) escaping alienation

Laurie Penny wants people to crowd-fund her work. This highlights problems with the labour market, some old and some new.

By most standards, Ms Penny is in a strong position. Whatever you think of her talents ��� not that it matters because journalism isn���t a meritocracy - she has 157,000 Twitter followers. And yet she can���t parlay these into a fulfilling career in mainstream journalism.

In one sense, she faces a longstanding problem most of us have had ��� that capitalism thwarts self-actualization. Most of us have had to compromise our ideals and aspirations to some extent to earn a living. As a great man put it, ���they sentenced me to twenty years of boredom for trying to change the system from within.���

We���ve all had different solutions to this dilemma. I really admire Ms Penny���s desire to find one that doesn���t entail retreating into dull trade journalism or writing fascist lies for billionaires. I would caution her, though, that alienated work has its compensations: it doesn���t hurt so much when you fail.

It���s long been the case that radical journalism doesn���t pay. Even in the mid-20th century when top journalists were relatively well-paid, there were others who, in Orwell���s words, would hear ���the heavy boots of his creditors clumping up and down the stairs���.

This problem, though, has become more acute recently. Ms Penny���s claim that ���journalism is an industry in trouble��� echoes Nick Cohen: ���Jobs are disappearing everywhere, and every journalist views the future with alarm.��� We see this in the decline of resource-intensive journalism such as investigative reporters and foreign correspondents and the rise of clickbait, churnalism and being expected to work for nothing.

But here���s the problem. It���s not just in journalism that we���re seeing a decline in erstwhile "middle class" jobs. Academics are struggling with casualisation and oppressive managerialism, and even bankers and lawyers face soul-destroyingly long hours doing what is often tedious work. As Holmes and Mayhew have said (pdf):

Many apparently good non-routine occupations���appear closer to mid-range jobs than top jobs.

Herein, though, lies a question to which I don���t know the answer and which I fear is neglected: could it be that class differences in job satisfaction have narrowed in recent years?

What I mean is that it���s possible that ���middle class��� jobs have deteriorated relative to ���working class��� ones. Yes, call centres and warehouses can be horrible, but I���m not sure they���re worse than factory lines and mines: no miner wanted his son to go down the pit. The factory workers in Corrie seem happier in their work than, say, Arthur Seaton was. I don���t have much empirical evidence on this, but I can point to work by Alex Bryson and George MacKerron who have found that the less well-paid are actually happier at work than the better-paid ��� though they���re all quite unhappy.

You can read that finding in one of two ways. One is that it suggests you can���t escape from unsatisfactory work by finding ���better��� jobs. This might vindicate Ms Penny���s decision to partially opt out. Another is that equality, in one under-rated dimension, might have increased in recent years.

Brexit: the right's consistent error

All the speculation about whether the UK can strike good free trade deals outside the EU raises a question: is the right guilty of a long-standing and consistent error?

I ask because, to me, such talk misses the point ��� that even if UK exporters do get good opportunities to trade, they won���t necessarily take them.

We know that UK firms aren���t taking the export opportunities that exist within the EU: Germany exports far more than the UK. And we know too, thanks to the work of Monique Ebell, that free trade agreements don���t stimulate trade much.

There are good reasons for this. There are countless determinants (pdf) of trade other than legal opportunities: distance; home bias; uncertainty about policy, credit, and exchange rates; firms��� ability to manage supply chains; skills; investment; path dependency and so on.

Which brings me to the right���s consistent error. It has long over-estimated the dynamism and flexibility of the economy, and has assumed that if only the right legal framework can be put in place, capitalism���s dynamism would be unleashed. Such a view under-estimates the non-policy factors that stop resources shifting as quickly as basic textbook economics predicts. As Nick says, "goods don't just export themselves."

What we see in Brexit optimism is an echo of Britannia Unchained���s call for labour market deregulation. Such calls ignored the empirical evidence that deregulated labour markets don���t necessarily increase employment or competitiveness and can be associated with high and volatile joblessness.

Just as Brexiters assume that free trade laws will greatly boost UK exports, so deregulators assume that free labour markets will greatly boost employment. It���s no accident that the same people are generally in both camps. Both, however, under-estimate the amount of sand that���s in the wheels of the market mechanism. And just as the UK economy isn't prospering greatly because of deregulation, so it might not do so because of free trade deals.

I���m old enough to remember the same assumption in the 1980s. Back then Patrick Minford ��� now a leading Brexiter ��� supported pit closures on the grounds that the redundant miners would find work elsewhere. He was, to a large extent, wrong*. He made the same mistake then he might be making now: he���s over-estimating how flexible the economy is.

In this context, I fear that the amateur Kremlinology about whether the UK will reach good free trade deals distracts us from a more fundamental question: is the economy sufficiently flexible to respond well to such deals? On this question, the right has a long history of paying too much attention to ideologized elementary economics, and not enough to empirical evidence.

* Ironists might note here that insofar as employment in the former coalfields has risen, it���s been partly thanks to support from the EU.

In praise of dullness

Simon Kuper makes a good point: we need, he says, to ���bore ourselves with important stuff.��� This point generalizes beyond the context he discusses.

It���s true in investing. ���Split your money between cash and tracker funds and then forget it��� gets you at least four-fifths of the way. But it���s boring. By contrast, great stories can be horribly misleading for investors: MoneyWeek���s "end of Britain��� report was a more interesting story than ���shares will probably rise a little because they normally do��� ��� but it was much less true. And ���exciting��� growth stocks should usually be avoided unless they are just momentum plays: corporate growth is in fact largely random (pdf) ��� a boring but important fact.

It���s also true in economics. Economics should not ��� for the most part ��� be about bigthink and new paradigms but a dull interrogation of the facts: the gravest flaw with the simple-minded pro-market theories that many people mistake for mainstream economics is simply that they often don���t fit the facts. It���s a matter of debate about how far economics actually has become more empirical, but I agree with Tim that economists should be like plumbers.

And here���s the thing. Politics should also be boring. I don���t just mean this in the clich��d sense that ���may you live in interesting times��� is a curse. I mean that political debate should be dull.

This is partly because facts should perhaps play some role in politics. For example, amidst all the pompous waffle about Trump���s inauguration speech, hardly anybody bothered to point out the dull fact that his talk about crime and lob loss was inconsistent with the facts that crime has been falling and employment rising for months ��� a juxtaposition which of course poses the big question of why so many people believe Trump.

To take another example, I saw in the gym today that one of those speak your branes TV shows was asking ���does prison work?��� It���s a good question. But it should be answered by a dull investigation of the empirical evidence, not by talking heads.

The question posed by the dull Andrew Tyrie to the ���charismatic��� Boris Johnson was a great one that must always be asked: ���This is all very interesting, Boris, except none of it is really true, is it?���

This is especially the case because so much politics is about administration. Brexit and a citizens��� income have a big thing in common ��� that their success or not hinges upon the dull grind of them being implemented well.

Of course, values also matter. But these must be investigated by philosophy seminars, not by people shouting at each other in TV studios. There should be no place in politics for gobshites like your Youngs, Morgans and Hartley-Brewers. One of the banes of our age is the belief among TV executives that politics programmes should reach a big audience. In fact, they shouldn���t appeal to any more people than those who buy books on history, philosophy and social science ��� which is at best a few tens of thousands. Yes, people should engage in politics ��� but after thinking, which is dull. I suspect the left would, in the long-run, be in better shape if people spent less time demonstrating and more time reading (say) Sam Bowles or John Roemer.

There is, therefore, much to be said for being boring.

But here���s the problem. Con-men know this. Bernie Madoff���s schtick was to look like a dull middle-aged man offering clients stable returns. And for years this boring appearance hid the fact that he was a thief.

And there are far more Madoffs than you might think. There are thousands of Very Serious People in finance, politics and business who project a boring image in the hope ��� often correct ��� that people will mistake this for competence: I suspect Theresa May pulled of this trick at the Home office. If you use etiolated technocratic language on the rare occasions you break your silence, you can get away with all sorts of daft ideas: journalists are easy to fool.

Being boring can be a sign of competence: think of Geoffrey Boycott���s batting or the great Arsenal back four. But it can also be a trick.

What we need, perhaps, is less appearance of dullness and more genuine dullness.   

Shareholder value & innovation

Shareholder value, said Jack Welch, ���is the dumbest idea in the world.��� I was reminded of this by Tim Worstall���s reply to Liam Byrne���s demand to ���reject once and for all the tired and increasingly flawed orthodoxy of shareholder value.��� Tim says:

Increasing income, and/or wealth, is driven by technological advances that lead to greater productivity. And only societies which have had some at least modicum of that shareholder capitalism have ever had that trickle-down which drives the desired result.

This, however, overlooks an important fact ��� that shareholder-owned firms (in the sense of ones listed on stock markets) are often not a source of technological advances. Bart Hobijn and Boyan Jovanovic have pointed out that most of the innovations associated with the IT revolution came from companies that didn���t exist (pdf) in the 70s. The stock market-listed firm is often not so much a generator of innovations as the exploiter of innovations that come from other institutional forms ��� not just private companies but the state (pdf) or just men tinkering in garages.

This fact seems to have become more pronounced in recent years. David Audretsch and colleagues show that innovative activity has come increasingly from new firms rather than listed ones. And Kathleen Kahle and Rene Stulz show that listed companies today are older, less profitable and more cash-rich than those of years ago. They say:

Firms��� total payouts to shareholders as a percent of net income are at record levels, suggesting that firms either lack opportunities to invest or have poor incentives to invest.

There are, of course, many possible reasons for this lack of investment. One might be that outside shareholders are so short-termist that they discourage firms from investing (though personally I doubt this). Alternatively, they might be too ill-informed to distinguish between good and bad projects and so often err on the side of caution.

A third possibility is that both investors and bosses have wised up to a fact pointed out by William Nordhaus ��� that innovation yields only scant profits because these get competed away*. It might be that Schumpeter was right: innovations tend to come from over-optimism and excessive animal spirits and that the listed firm, in replacing buccaneering entrepreneurs with rationalist bureaucrats, thus diminishes innovation.

From this perspective innovation is against the interests of the shareholder-owned firm, as it threatens their market position: the creative destruction of which Schumpeter wrote is by definition bad for incumbents. It���s no accident that the most successful stock market investor, Warren Buffett, looks not for innovative firms but ones that have ���economic moats��� ��� some kind of monopoly power that allows them to fight off potential competition.

Tim might therefore be taking too optimistic a view of shareholder capitalism: shareholder value might now be a restraint upon technological advances more than a facilitator of them**.

I don���t say this merely to criticise Tim, but to highlight a mistake made by many of capitalism���s cheerleaders ��� that they fail to see that the threat to a healthy economy comes not so much from lefties with silly ideas (or perhaps even from presidents with them) but from capitalism itself. For many reasons ��� of which the pursuit of shareholder value is only one ��� capitalism has lost some dynamism. In underplaying this, capitalism���s supporters are making the mistake of which Thomas Paine accused Edmond Burke: they are pitying the plumage but forgetting the dying bird.

* Apple is a counter-example here: Steve Jobs genius was not so much in fundamental innovations as in the ability to create products so beautiful that they had brand loyalty and hence monopoly power.

** The strongest counter-argument here might be that the prospect of floating on the stock market (often at an inflated price) incentivises innovation by unquoted firms.