Monday, December 28, 2009

Well at least it wasn't embarrassing

Hull City 1 Manchester United 3

None of our immediate rivals have managed to make much progress, so this run of tough games has not gone so badly.
Need to pick up a few points now though. Bolton tomorrow.

(Update: Bolton 2 Hull City 2. Good fightback, gets the unfortunate Megson sacked. Obviously the ignominy of being held at home by Hull City was too much for the Bolton board.)

Wednesday, December 16, 2009

The Third Way: A Concise Definition

In a Matt Taibbi post we get this critique of one of the architects of Obama administration economic policy:

"Rubin is the quintessential “new Democrat,” a Wall Street oligarch who believes strongly in balanced budgets, free trade and a laissez-faire deregulatory posture toward big business but sees himself as a political liberal because he favors minimal social safety nets of the sort dreamed up in cherry-paneled offices at the Brookings Institute, i.e. expanded unemployment insurance or wage insurance. In other words, repeal Glass-Steagall by day, give eight bucks to the soup kitchen by night. The more recent Rubinite legacy has been the push for huge and unrelenting bailouts of Wall Street companies followed by ameliorative and comparatively much smaller one-off bailouts of actual human beings, spread out over the entire population".

When I'm in a bad mood, this starts to look like a pretty good description of New Labour.

Try changing a few proper names and see what happens...

Variable Geometry Premiership

The English Premier League, after the first couple of years (can you see Blackburn ever winning it again?), quickly developed into two leagues: one league with the 'big four' (now about six) fighting over the Premier League title and the Champions League, and another for everyone else, largely about Premier League survival. An early effect of this emerging hierarchy was the 'big four' teams' practice of resting key players in unimportant games such as FA Cup ties against weak opposition.

Now, the full logic of the balkanized Premiership has been rolled out, by Wolverhampton Wanderers' decision to rest their first 11 against Manchester United at Old Trafford. With just four days rest after a tough away game at Spurs, Mick McCarthy decided that since his team would doubtless lose at Old Trafford whichever team he fielded, he may as well rest his best players to protect them from injury and get them back to their best for next weekend.

In what at first reading appears a surreal statement, Sir Alex Ferguson supported McCarthy's decision, on the grounds that 'they've got a massive game coming up against Burnley'.

In some ways it's surprising it has taken this long for it to happen. The weaker Premier League teams have little incentive to risk their best players for almost certain away defeats against big clubs, and it is far more important for them to beat rivals in the relegation battle than to avoid cricket scores against title contenders. The Wolves' strategy has given birth to a new kind of football folk wisdom: 'yes, I'm disappointed not to play at Stamford Bridge, but of course I've got to be fresh for the KC Stadium next Monday'.

Maybe we should quit the pretence and just let the top clubs play each other every fortnight, like in Scotland. The rest of us can get back to watching English football as it used to be played -  not much skill and a few hangovers, but with players who were usually trying to win.

Sunday, December 6, 2009

Malthus and marriage

Wonderful little article by Catherine Bennett in today's Guardian/Observer. As well as pointing out the vacuousness of the Conservatives' proposal to give married couples a tax break (just what is needed with a £175 billion budget deficit), she makes the simple yet rarely made point that marriage for life has meant something different for nearly all of its history:

"For much of its history the length of the average union, before it was ended by the death of a partner, was the same as it is now, before being terminated by divorce: 11 years. If Cameron wants to make marriages last for ever, he is expecting them to last three times longer than they would have done before the institution was threatened by the democratisation of divorce, women's rights, sexual liberation, secularisation and – some think most damaging of all – the concept of enduring marital love."

The Conservatives may claim to have modernized, but they are still living in a fantasy world where 'old maids cycle to holy communion through the morning mist'. Their tax proposal is not only pointless, but perverse. A monogamous non-married union is penalized in favour of a marriage of (potentially pluri-) divorcees. Where is the moral incentive in that?

If this is the kind of thinking behind the future government, God (or the flying spaghetti monster ) help us.

Business as usual

Aston Villa 3 Hull City 0

Never in the game, even before Bullard got injured.
Brown has got the harrowed look again.

Friday, December 4, 2009

The crisis of the left, Part 13,267: Where's the patient?

The funniest thing dropped into my inbox today. I think it might contain the answer to a puzzle I've been pondering for a while: why the left is in decline at the very moment that right-wing ideas about the beneficial effects of liberalization have been challenged, shall we say, by indisputable facts.

The email in question announces to interested parties something called The Amsterdam Process. The Amsterdam Process has the ambition of bringing about nothing less than 'The ideological renewal of European Social Democracy – A new revisionism for the 21st century'. It correctly diagnoses that 'European social democracy is in desperate need of a period of ideological renewal' and proposes 'a new and ambitious process of reflection and strategic thinking'. So, what's wrong with that?

Well, what's wrong with it is the participants. Nothing personal of course, there are plenty of clever people with sound progressive values involved. The problem is that 'ideological renewal' is to come about through an entirely elitist process. The document reports that the Amsterdam process was 'launched and conceptualised at a high-level brainstorming session (...) which brought together distinguished academics, policymakers, political leaders and thinkers from across the European centre-left'. It will proceed by 'bring(ing) together an “avant-garde group” of individuals and organisations', 'seek the direct involvement of senior experts and policymakers from countries outside Europe' and 'publish a series of research papers and edited volumes which aim to inform the debate among key stakeholders on the centre-left'.

Surely there is something missing from this project? Let me think.... Ah, yes. The people. The people - the electorate and potential electorate of the left, are simply not included, or even mentioned, in this proposal. There is a recognition that 'the root of the problem is the ideological vacuum the crisis has exposed in European social democracy, alongside the low levels of trust in centre-left parties and in their governing ideas', and the document states that 'this vacuum cannot be filled by any tactical re-positioning, questioning of leadership or any other short-term fixes'. But the network proposes to address this without any engagement with what in the previous century we might have called 'the masses'.

I think this tells us a lot about what has happened to the left in Europe. 'Stakeholders' - presumably trade union leaders, policy wonks and political professionals - are supposed to sort out the debacle created by... (you can fill in the rest). Very reminiscent of the way in which bankers are being handsomely paid to clear up the mess they made.

Socialism emerged in Europe through mass movements. Sure, there were intellectuals and there is no political movement without ideas. But now, the producers and consumers of ideas appear to be entirely removed from the everyday lives of voters, and in no mood to engage with them. Social democracy has become an elitist project. And elitist projects can't generate mass support - at least, not with progressive ideas.

Tuesday, December 1, 2009

Human Activity and Climate Change: The Definitive Proof

Yes, for those who were doubting it, we finally have the definitive evidence that human-induced climate change is happening.

The evidence is in the fact that a highly trained squad of climate sceptic propagandists trawling through 10 years of emails at the CRU in Norwich could only find a bit of low-level jiggerypockery about one graph put together for a political event. Oh, and some ungracious comment on the death of another scientist. Most people familiar with academic life will have seen a lot worse than that in their inboxes. The CRU is starting to look like a rather saintly place after this.

I'm pretty sure that 10 years of emails of a representative sample of anyone involved in the climate change-sceptic campaign would yield rather more sordid discoveries. So why is Phil Jones resigning as director of the CRU? This can only help the hackers and pseudoscientists, who will immediately ask - why would someone resign if they've done nothing wrong?

Instead of conceding points to criminal hackers, it should be explained to people that despite the reserved nature of what goes in many emails, you can't get anywhere in science - even political science - these days without being more or less open about your data, even if you don't want to send it out to any loony blogger that asks for it. The idea that Phil Jones and colleagues can have got away with systematically withholding data and misleading the scientific community for over a decade of the biggest debate of our time is ludricrous, although not quite as ludricrous as the people expressing it. To fail to make this point gives way too much ground to the sceptics.

Climate change researchers need a few lessons from Richard Dawkins!

Lots of money 1 Lots of Fish and Chips 1

Manchester City 1 Hull City 1

Correction: Paul MacShane now does play like that for Hull City. After the victory over Everton in mid-week, that makes it four games without defeat. Adam Pearson has introduced a whole new meaning to the words 'The board has full confidence in the manager'.
Can it last?

Tuesday, November 24, 2009

Fog over the channel

Here is a paper I've just written with my LSE colleague Christa van Wijnbergen. We've called it 'Europeanization and Welfare State Change in the UK: Another Case of Fog Over the Channel?' after the famous (and fictitious, I think) newspaper headline 'Fog over the channel: continent isolated'. As part of a collective project on the impact of Europe on welfare state reforms, we've looked at the extent to which Labour's 'welfare to work' strategy might have been influenced by European-level initiatives (the European Employment Strategy and Lisbon agenda). We conclude that Labour followed policies consistent with the European agenda, but that European influences were not the reason why these policies were adopted.

Read more here.

Saturday, November 21, 2009

Main de Dieu

Well, surprise surprise, who would have thought Henry capable of such a thing? The more important question though is, why doesn't Paul MacShane play like that for Hull City?

Tuesday, November 17, 2009

Labour market rigidities...

... can be good for you.

Krugman has a piece on the advantages of less flexible labour markets, based on the observation that unemployment has grown less in Germany than in the United States. This is largely because of government subsidies and corporatist agreements to share the reduced amount of available work evenly across the existing workforce, rather than firing some workers and keeping the rest at normal speed.

Would be nice to see some comparative data across OECD countries, to see if there is any prima facie connection between levels of employment protection legislation (EPL) and changes in unemployment in the current crisis. Hard to get a handle on this empirically, because many countries with high EPL also have dualistic labour markets, in which the core workforce is protected but the 'outsiders' can be more or less sacked at will - this is certainly the case in Spain which has had a brutal contraction in the labour market. It was my understanding that Hartz IV had created such a situation in Germany. Maybe not.

Another disconfirming piece of evidence: unemployment in the UK has not spiked as much as one would expect given the big decline in GDP (we're way short of 10%, so much better than in the US). Difficult to know what to make of this - perhaps recent immigrants going home instead of signing on?

Anyway, Krugman may have a point (he usually does), and I might have to revise my enthusiasm for 'flexicurity'. It sounded too good to be true anyway...

Wednesday, November 11, 2009


Just finished Superfreakonomics. It got so much bad publicity beforehand that I started it expecting it to be awful.

I was not disappointed.

Freakonomics was fun, largely because some of Levitt's early research was fun. But there isn't any serious research in this book - just a bunch of over-egged contrarian or counter-intuitive stories, purporting to show how economics can come up with surprising and irreverent insights.

So prostitution can be studied using the tools of microeconomics. Well, well, well. Hardly surprising, since prostitutes have one thing in common - they're doing it for money. If economics had nothing to say about the dynamics of prostitution, that would be shocking. Far more shocking than a chapter in this kind of book dedicated to paid sex.

The story of Dr Semmelweis is a nice one - although rather boring if you'd already read Celine's rather better written account of it - but doesn't have much to do with economics. Oh, it does have a rather dramatic story about the use of the scientific method - Semmelweis performs an informal ANOVA with two hospital wards - but perhaps Levitt and Dubner shouldn't claim a patent on that for the moment.

The big question for me is: what is the point of Freakonomics, assuming it means anything? Well, for L & D, their approach is based on three ideas: 1) people respond to incentives, 2) behaviour change is difficult, and 3) cheap and easy solutions are often around but ignored because of people's reluctance to believe they're possible.

1) is not that worrisome, until  - you start to wonder what kind of incentives we are talking about. Writing a sequel to Freakonomics is easy to explain - the incentive is the big pile of money to be made building on a successful franchise. People sometimes respond to other kinds of incentives, which may be inconsistent with material gain - the desire to impress others, or even oneself. This is accepted by the authors, but in the end their critique of experimental economics suggests that they do not believe that altruistic behaviour is that common. The proof? People don't give up their kidneys to save complete strangers.

2) Sure, behaviour change is difficult. We know this, because we tend to get entrenched in behaviour we know we should change - in my case, never returning library books on time, thus enriching my local libraries with completely unnecessary fines (maybe that's an altruistic incentive?). But if people respond to incentives, why don't they change their behaviour when the incentives change? Mmmm.

3) People respond to incentives, but they ignore cheap and easy solutions in favour of difficult and expensive ones. Why would they do that? Maybe because we know there is no such thing as a free lunch? Or because we don't have enough faith in incredibly smart people like L & D's friends at Intellectual Ventures? Maybe responding to incentives doesn't explain everything we would like it to.

Don't take my word for it, there are plenty of critical reviews out there: the best so far is this one.

Tuesday, November 10, 2009

The Brown bounce (no, not that Brown)

Hull City 2 Stoke City 1

0-1 down at half-time, nearly 0-2 after a certain Gardner own goal miraculously averted by Matt Duke. Then, the fightback: equaliser from Stoke old boy Olofinjana, and the last minute winner from Vennegoor of Hesselink. Brown breathes again.
He has been saved by the return of Jimmy Bullard after 10 months out. Bullard bossed the park for substantial chunks of the game and made the winning goal. Another couple of weeks without him and Brown's P45 would probably have been nestling in the pocket of his Armani overcoat.

Saturday, October 31, 2009

Brown and out, pt.2

Here's a short piece on the financial meltdown in the UK, for Il Mulino:

From Blair to Brown, From Boom to Bust: Britain’s Economic Crisis and its Political Consequences

One of the first signs of something dangerous brewing in the world financial system came in the United Kingdom, in the late summer of 2007. A small regional bank, Northern Rock, requested liquidity support from the Bank of England, a clear sign of financial difficulty. The immediate response was panic: the bank’s shares collapsed and depositors rushed to withdraw their savings, leading to scenes reminiscent of Mary Poppins as desperate account-holders queued in the street outside Northern Rock branches. This was the first run on a bank in the UK since the 19th century, and a huge embarrassment for a country whose economy has revolved around the financial sector in recent decades. By the second quarter of 2008 Britain had entered what is proving to be the longest recession since the 1930s.

Wednesday, October 28, 2009

Sunday, October 25, 2009

A stimulus for bankers

Gillian Tett has an interesting and depressing piece in the FT - the idea is that the cheap money, intended to raise lending and therefore productive activity, is simply being exploited by banks to engage in hyper-leveraged trading. In other words, back to what they were doing before the crisis, minus the kind of 'main street' lending which an economic recovery relies on.
Added to the persistence of the bonus culture, it points towards a huge flaw in the recovery strategy - by focusing on throwing cheap money at the banks, it makes the whole economy entirely dependent on the banks playing ball. And why on earth would they do that if they can avoid it? Any chance of moral pressure on them to use their public subsidies to create public goods is undermined by the weakness of the government. They also have the excuse of rebuilding their capital base to duck their obligations to the wider economy.
So, maybe old-fashioned socialism is not such a bad idea after all - we could have nationalized the banks and forced them to use their public subsidies to help the real economy. And into the bargain, the stimulus spending should have been left to the government, not the market - we need public works, not a VAT cut (as anyone who uses public transport can see).
Yet another nail (intellectually, if not politically) in the coffin of neoliberalism.

Football-free zone

Hull City 0 Portsmouth 0
Only saw the highlights, and the BBC put on around 30 seconds of the first half, which must have been awful. Portsmouth should have won really, but missed a couple of gilt-edged chances. City created nothing at all. At least they kept a clean sheet, thanks to the now-injured Boaz Myhill. Gardner came back but looked very shaky. Bullard injured again - any hope of survival seems to rest on him.

Thursday, October 22, 2009

Nobody likes a smartipants 2

The new 'Freakonomics' book is barely out, and already suffering what my colleague and fellow blogger Bob Hancke calls 'second album syndrome'. The blogosphere has already shredded Levitt and Dubner's contrarian chapter on 'global cooling' (not quite what it sounds) and the book was only published a day or two ago.
I'm more inclined to be skeptical this time around, especially after having read John DiNardo's critique of Levitt's econometrics in the first book. Abortion cutting crime with a 16 year lag and so on are such great stories you want to believe them, but in the end social science is nearly always a precarious form of knowledge, and it's worth remembering that as we chuckle our way through volume two.
Of course, this time around Freakonomics is also up against something else - the widespread perception over the past year that the economics profession has failed us (expressed most cogently by HM the Queen at LSE). This point was also made more rudely and amusingly by a blogging economist:

When future generations ask the economics profession 'What were you doing while the great bubble built up ahead of the Second Great Depression?', and we have to reply 'Lots and lots of quirky little working papers about sumo wrestling and speed-dating', it is going to be really, really, ****ing embarrassing"
(courtesy of D-squared Digest)

Back to adversity again

Fulham 2 Hull City 0

Although Fulham only really had 2 chances (and the first goal was offside), you had the feeling they could have found another goal had they needed one.
Back to the drawing board - in particularly, we need two new full backs. Both Dawson and MacShane are very shaky at this level.

Monday, October 12, 2009

The crisis of the left, Part 267

An enjoyable interview for Politics Daily with Delia Lloyd, in which I offer my take on the current weakness of the left in the middle of the worst capitalist crisis since 1929:

Friday, October 9, 2009

David Cameron: Or how to give a major political speech in 2009 Britain without mentioning banks

I just read the full text of the speech given by the likely future Prime Minister, which you can find here.

There are two ways to interpret this speech.

1. We've got no real plans about anything, so we're just going to talk about all the things wrong with the country, and offer some irrelevant gimmicks as solutions, hoping that people will either not notice or will not care, in their relief at seeing the back of Gordon Brown.

2. There is a plan, but we don't want to tell you what it is, because you won't like it. But for those who can read between the lines, the plan is: cut government back. A lot.

The evidence for 2. is the following passage, which rather surreally blames excessive government spending for the current recession:

"we won't help anyone unless we face up to some big problems. The highest budget deficit since the war. The deepest recession since the war. Social breakdown; political disillusionment. Big problems for the next government to address.
And here is the big argument in British politics today, put plainly and simply. Labour say that to solve the country's problems, we need more government.
Don't they see? It is more government that got us into this mess.
Why is our economy broken? Not just because Labour wrongly thought they'd abolished boom and bust. But because government got too big, spent too much and doubled the national debt.
Why is our society broken? Because government got too big, did too much and undermined responsibility."

So, the collapse of the banking system has nothing to do with the recession, except to the extent that it is Gordon Brown's fault for creating the Financial Services Authority. And the doubling of national debt is not the result of bailing out the banks, but because of too much government spending on Regional Development Agencies and NHS computers.

This is a gigantic intellectual fraud, but it could well work. After all, the banks' detritus is now on the government's books, so the financial blackhole the banks created can now become government's fault.  And what better way to deal with the debt which is now on the government's books then cutting the kind of government spending Conservatives don't like?

Tuesday, October 6, 2009

The Left and (the futility of) electoral reform

My Compass thinkpiece, which uses Iversen and Soskice's theory of class coalitions under different electoral systems to advocate PR in the UK, is now published here (I'm down as Jonathon Hopkins).

Just in time for Iversen and Soskice to publish a piece arguing that PR and redistribution are in fact spuriously correlated (click here for link). In this latest article, the root cause of both are economic institutions in the 19th century which entrenched business-labour cooperation (guilds etc). If they're right, my advocacy of PR comes over a century too late.

Saturday, October 3, 2009

Brown: triumph in the face of adversity

No, not that Brown.

Yes, it's Hull City 2, Wigan Athletic 1.
The turning point of the Tigers' lousy 2009 was clearly this:

Majorities and inequality

Back to the electoral reform and the left debate....
Ever since the Persson/Tabellini and Iversen/Soskice contributions, the link between PR and redistribution and public sector size has been established as a strong one. The data is quite strong, with a consistent effect being empirically observed. The theory is not bad either - Iversen and Soskice provide a quite plausible theoretical account about voter and party behaviour which fits the data quite well. But still I'm not comfortable with this argument, probably because instead of looking at the formal models and econometric results, I stubbornly try to run the theory past individual country cases I know quite well. The PR=redistribution result works fine until you look at the history of government spending, redistribution and electoral politics in any real case.

My first problem with it is that it implies the following counterfactual: the United States would probably have generous public spending and a large welfare state if it had adopted PR (or, alternatively, Sweden would have a small state and low taxes if it had adopted majoritarian rules). Do we really buy this? Is the effect of the electoral rules so strong as to reverse (probabilistically of course) the positions of these two polar cases on the redistribution spectrum? It seems a little implausible - surely things are going on that are strong enough to counteract the effect of electoral rules. And probably, these things are also likely causes of electoral rules, a familiar objection to their arguments.

My second issue with it is that we do have cases of electoral regime change, and it doesn't seem obvious that these changes change the nature of the politics of redistribution, eg in 1960s France or 1990s Italy. Of which more in later posts. Presumably if the effect of electoral rules is so strong, then changing them is bound to change something, unless the effect is circumscribed to key historical periods in which the long-term patterns of redistribution are up for grabs.

My third issue is with the theory. Iversen and Soskice show how under majoritarianism, there is a credible commitments problem undermining the centre-left coalition which will need to form pre-electorally to promote redistribution. This is all well and good if the effect of majoritarianism takes place at the party system level. But, of course, we know it doesn't. Duverger's law is only logically valid at the constituency level, as Gary Cox and Chibber and Kollman have shown. And majoritarian polities have large numbers of constituencies, with diverse class structures. Where does that leave the coalition formation logic? I'm not sure, but it has to change something.

A clue as to what might be missing from this debate comes from Rogowski's interesting papers on the effect of majoritarianism on market liberalization (the basic logic being that majoritarian parties need to produce public goods to win majority support, and therefore sectional interests have less ability to hijack policy-making). But patterns of market liberalization appear very path-dependent, and tied also to legal and religious traditions. So what causes liberal markets - electoral rules, or common law legal systems and the Protestant religion? Should be possible to test this, since electoral rules come after the latter two. 

So the upshot of all this is, although I've been arguing recently that Labour should go for PR as a well of saving its skin and promoting redistribution, all the above considerations make me doubt my own reasoning. More soon.

Monday, September 21, 2009

Cartels, democracy, equality

... are the key words in my new project, a book with Mark Blyth and Riccardo Pelizzo about party democracy in advanced countries (New is about the least appropriate way of describing it, since the project was dreamt up 8 years ago).
It aspires to piece together three recognized trends over the past half century and understand the links between them.

The three trends are:

The rise and retrenchment (or at least freezing) of the egalitarian capitalism (aka the welfare state)

The rise and decline in popular political participation through formal electoral politics, the recent growth in dissatisfaction with elected politicians, and a recent shift towards less partisan modes of decision-making (decentralization, non-majoritarian agencies, depoliticization of key economic decisions)

The shift from ideological, mass parties to pragmatic, strategic and state-absorbed 'cartel' parties

The neat thing about this project is that these three things undoubtedly happened roughly in the temporal order indicated above, and we can document that reasonably well.
The tricky thing about the project is making the purported causal relationships between them stick, and, trickier still, establishing the direction of causality (I think we might go easy on that one).

But since egalitarian capitalism was all about representative mass parties mobilizing the less wealthy to establish redistributive institutions, it wouldn't be that surprising if change in the nature of political parties had had some effect on these institutions. And no-one denies party politics has changed. So, I'm pretty sure we're onto something, but it's a difficult task making sense of two-three big literatures and bringing them together in this way.

The key to our argument is that parties are not simply reflections of social interests, filtered through electoral systems. Parties can be very successful and rather hopeless at mobilizing social interests, thus complicating the relationship between voter preferences and policy outcomes. Our project tries to get inside the blackbox of party activity, and understand how and why parties have become more distant from voters. Unlike most of the relevant literature, we tie these developments to the decline of welfare capitalism and the growth of inequality.
More soon....

Sunday, September 13, 2009

Electoral reform and the left

I'm in the process of writing a short article on electoral reform and left politics, as a contribution to the debate on PR kicking off in the British Labour party at the moment. Here it is:

The 2005 election was a turning point in contemporary British politics. It represented a historic moment for the centre-left, as Labour won a third consecutive election for the first time in its history, ensuring more than a decade of majority government for the party. But it also marked a point of no return for the British electoral system. Although Tony Blair’s Labour party won a comfortable majority of 66 seats, it won little more than a third of the popular vote on a very low turnout. Indeed the Conservatives were only a couple of percentage points behind, and won more votes than Labour in England. With the support of less than a quarter of the British total electorate, the current Labour government lacks legitimacy to govern as a majority administration. The ‘First Past the Post’ electoral model (FPTP) – which forces citizens into tactical voting and marginalizes the supporters of minor parties – is an increasingly inappropriate way of electing the representatives of a diverse and demanding civil society.

The argument for electoral reform – and specifically for adopting a form of proportional representation (PR) for Westminster elections – has long enjoyed support on the left. This support waned during New Labour’s triumphant early period, in which Tony Blair enjoyed such a colossal majority in the House of Commons that the Jenkins Commission was ignored and a manifesto commitment for a referendum on electoral reform conveniently forgotten. Now, with Labour facing defeat next year, many of us are rediscovering our interest in fair voting. But above and beyond the obvious short-term attractiveness of PR, which would limit the scale of a likely Tory victory, there are powerful longer-term considerations which the left should take seriously. To put it succinctly, there is abundant evidence from around the democratic world that PR gives the policies of the left a head-start, whilst First Past the Post benefits the right.

Thursday, September 10, 2009

Economists' angst

Great piece by Krugman in the New York Times Sunday magazine: How did Economists get it so wrong?

Krugman gives an account of the development of the economics discipline familiar to anyone following his popular writings, and links the search for mathematical perfection in economic modelling to the failure of the economics profession to pick up the signs of impending meltdown. The problem is that beautiful harmonious models can't cope with the incoherence and irrationality of much human behaviour, and worse, often miss the real action.

Fundamental to the error is the belief that markets will tend to find the right prices for things - something that clearly didn't happen in the long 2000s bubble. Particularly amusing, the citation of 'ketchup economics' (attributed to Larry Summers of all people) - the belief that just because one price may make sense in comparison with another, then prices in general must make sense. Someone buying a house in summer 2007 may well have found the best deal in the market at that time, but the whole market was way out, so the price could not be right.

These are pretty fundamental issues, and show a future for a political economy which takes social and cultural institutions more seriously. After all, how could the housing boom have taken over without the cultural hegemony exercised by pro-bubble thinking ('Location, location, location' being my favourite example). Of course there is politics and material advantage in there too, but the really interesting question is how a whole society can embrace a self-destructive economic model without realizing what it's doing.

Monday, August 17, 2009

Economists and the Queen, again

Another missive from the economics profession to the Queen - I bet she's regretting ever having raised the issue.

In my view this version - put together by Geoffrey Hodgson, editor of the Journal of Institutional Economics - gets it right. The letter complains that 'economists has become largely transformed into a branch of applied mathematics, with little contact with the real world' and that economists missed the credit crunch because of 'the preference for mathematical technique over real-world substance (which) diverted many economists from looking at the whole picture'.

The letter pinpoints the questionable assumptions upon which economic models are mostly based - the rationality of most human behaviour, and the tendency of markets to operate efficiently - as the reason for mathematical modelling mostly missing the point. These are not, of course, new criticisms, but the fact remains that there are powerful ones, and that the mainstream economics taught in prestigious institutions tends pretty much to ignore them.

Unfortunately, a chunk of political science has been heading the same way in recent years, even though if anything the rationality assumption is even less likely to explain things in the political world. Of course, we don't have much to brag about either. Just like the economists missed an $8 trillion housing bubble, political scientists have failed to anticipate a host of big events, such as the collapse of Soviet communism or the ability of Islamist militants to launch a successful attack on the United States. But the lesson of economics is that most of the time mathematization is unlikely to improve our understanding of the world, especially if it is based on the crude assumptions of rational choice theory, whose empirical failings were beautifully documented 15 years ago by Green and Shapiro's Pathologies of Rational Choice Theory.

Pathologies was ignored by rat choice political scientists, who have continued down the economists' path of ever more elaborate formal models and ever more advanced statistical techniques. But the poverty of the basic formal reasoning (over-simplification and weak conceptualization) and the lack of good data on political phenomena (small samples, biased or unreliable data sources) leaves us pretty much where we were in 1994. Until I get a coherent rat choice story about why most people vote in Western democracies - ie a solution to the "voter's paradox" - I'm going to stick to inductive theorizing, the source of just about everything useful that poli sci has to offer.

Tuesday, August 4, 2009

Nobody likes a smartipants

To avoid getting bored while running (yes, running is boring), I listen to MP3s of public lectures held at LSE. Sad, I know. So I was on the road, listening to Tim Harford's lecture 'The Undercover Economist' from a few months back. And I was struck by something.

While, a few things actually. A story about Gary Becker, for a start. Gary Becker, Harford recounts, is the kind of man who puts his theories into practice. His rational theory of crime, for example, informs his choosing to park his car in a 30 minutes space when lunching with Harford, on the basis that it was unlikely he would get caught for going over time. If a wealthy man like Gary Becker sits and thinks about how to save a few dollars by parking illegally, I think we must be relieved that most people don't behave like Becker. Of course, in societies where the rule of law roughly holds, most people don't. And that means that Becker is basically wrong in invoking rational choice calculus as the reason for variation in criminal and other kinds of misbehaviour. A neat paper by Fisman and Miguel (click here) proves the point empirically - diplomatic staff in New York have varying propensities to incur parking fines (which, enjoying immunity, they don't have to pay) depending on their nationality. Russians get more fines than Danes, for instance. Same incentives, different cultures, different behaviour.

Anyway, on a less scholarly note, I was struck by how often Harford used words like 'smart' and 'clever', mostly to describe fellow economists and the things they do. This immediately set me thinking of the letter recently sent to the Queen by some of the UK's best known economists which cited 'a failure of the collective imagination of many bright people' (see here) as a cause of the financial meltdown of 2007-8. Now, no-one is doubting that these people are bright. But none of them really understood what was happening in the economy, and were therefore unable to advise politicians on how to avert disaster.

Are economists more worried about being smart than about understanding the way the world works? As a non-mathematical political scientist, I would have every incentive to believe this - maybe I'm not that 'smart', but I might still understand things better, despite my mathematical limitations. But even very smart economists - the smartest ones perhaps - seem to believe this too. Nobel laureate Paul Krugman, for instance, once described the rational expectations movement in economics as something that offered smart young economics graduates the opportunity to show quite how smart they were. He's reading a lot of poli sci these days.

My own humble view is that a very simple model, in which the main explanatory variable is the number of peak-time property shows on TV, works pretty well in explaining recent crises. Or to be less frivolous, 10-15% growth in real prices of residential property with no significant underlying change in its use is obviously unsustainable after the first couple of years. Don't need to be very clever to understand that.

Tuesday, July 28, 2009

The politics of austerity

It is now well entrenched in the public debate that the state needs to cut its spending as soon as the economy recovers. Well, that gives us a bit of time to think about how to do it... No sign of recovery yet. But what is interesting is the notion that it is now beyond question that the solution to the failures of finance is to slim down the state. Heads I win, tails you lose.

The alternative - accepting a stably higher level of tax revenue for the state - is clearly an idea so ridiculous as to be ignored completely. But why? After all, we are told that excessive consumption is at the root of our economy's imbalances, and we need to save more. How does cutting state spending (much of which, especially if channeled through state pensions, is effectively saving) in order to keep taxes low achieve that?

Here's another way of looking at it. The British have decided they want better health and education, and have decided to provide it collectively. But it's turned out more expensive than we anticipated. So, either we decide to go with cheaper and poorer quality provision, or we stump up the extra cash. Both options are completely feasible, but only the first is being talked about at present. I think we know which the future Conservative government is likely to go for.

Thursday, July 23, 2009

Mobility without equality?

Back again after a long Summer School-induced blogging break.

Just in time for the publication of the parliamentary report on 'Fair Access to the Professions' (click here). Lots of interesting stuff in there, especially the contortions the report goes through to avoid addressing the obvious connection between social mobility and equality. The document is therefore a great starting point for examining the contradictions of the 'Third Way' followed by New Labour, and indeed the confusion in British politics as a whole on the issue. As a liberal society, we demand equality of basic rights, and discrimination on the grounds of race, gender, and disability is roundly condemned. Everyone, even the Conservatives, espouses social mobility as a policy objective. But we also reject collectivist responses to class inequality, since they undermine individual freedom (or maybe for less noble reasons...). The problem with this is that empirically social mobility seems to be a function of inequality. So, how do you address one without addressing the other?

This tension comes out clearly in the cross-party report on fair access. The panel seems somehow surprised that young people from wealthy backgrounds are no more likely to access the top professions or the best universities than they were decades ago. But why would we expect such progress when income inequality in Britain has increased so much over the past thirty years (from a Gini coefficient of .27, equivalent to West Germany, to a Gini of .35, almost as high as the United States)? Does the panel seriously expect vast and increasing disparities of income and wealth to coexist with increasing mobility between social classes?

For a start, it is simply arithmetically more difficult to move between income groups if the gaps between those groups are wider. Moreover, the report wrongly concludes that there is declining mobility because professionals born in 1970 typically grew up in a family with an income 27% above the national average, while for those born in 1958 the figure was 17%. But of course, in a context of increasing income inequality you need to control for the relative positions in the income hierarchy implied by those income levels.

Second, in an unequal society, the advantaged will tend to use their greater resources for the things that are most important to them, and any parent knows that your child's future is as important as it gets. Hence the vast middle class investment in higher education (albeit heavily subsidized), both financial and emotional.

Finally, there is an assumption that middle class children achieve more because they are privileged, and that measures need to be adopted to allowed 'talented' children from less privileged backgrounds to compete. This is fair enough, but the main problem is not that talented children from working class backgrounds are obstructed, although they may well be. The big deal is that children of mediocre ability from working class backgrounds stand no chance in a competition with the middle class mediocre, simply because the social, cultural and educational context the latter grow up in prepare them for professional jobs much more effectively.

There is very little to be gained from measures to bully the professions into opening their door to a wider pool of 'talent' (how many genuinely talented people are there, anyway), or spying on middle class parents who try to muscle their way in the 'best schools' (which will be the schools those kids go to almost by definition, whatever else happens). What needs to be done is to even out the life chances of all children, full stop. And without addressing the disadvantage which stems from growing up poor, such measures will be largely pointless.

So, instead of giving parents with children in failing schools a voucher to allow them to move to another state school (how many good state schools with free places are there in neighbourhoods with 'failing' schools?), I propose a rather crude solution.

Tax the rich, invest in the poor. Halve class sizes in poor areas, and tax the rich and their private schools to pay for it. And if there is anything left over, give it to the poor in cash so they can get closer to average living standards and start to perceive that they are citizens of equal rank to everyone else.

I think they call this kind of thing 'the politics of envy'. I prefer to call it redistribution, or social justice if I'm feeling light-headed. Of course, unlike the Third Way, it isn't just a positive sum game. The wealthy need to contribute more, and their kids should have to compete with everyone for the best jobs, not just with each other.

Monday, June 29, 2009


Extraordinary claims by David Cameron today. The Labour government has a 'thread of dishonesty running through it'. Why? Because Gordon Brown has postponed the next government spending review in order to 'cover up the truth about Labour's cuts', and is suggesting that a Conservative government would savagely cut public spending. This amounts to saying that 'black is white' and shows that the government has 'lost touch with morality'.

First of all, the government's claims that the Tories would cut public spending whilst Labour would maintain spending on key public services is fundamentally dishonest. Of course Labour will have to rein back spending, if we're facing high unemployment and a double digit deficit into the near future. But, what is so surprising about a government not wanting to promise spending cuts in an election year? If Cameron is shocked by this then I think he's in the wrong job. Maybe he should have stayed in PR, where it is well known that only the whole truth is ever spoken.

OK, that's a cheap shot. But politics is a dishonest game, of course. Governments will talk about their strengths and hide their weaknesses. It's for the opposition to smoke them out. But there is a kind of taboo in British politics about accusations of lying. You only make such accusations if a political leader has, for instance, claimed to believe Saddam Hussein had WMD when he knew that wasn't true. Not when a government has tried to make the rather obvious point that Labour is more attached to high levels of public spending than the Conservatives are likely to be.

So why the hysteria? Well, because Dave knows that he will inherit a poisoned chalice if and when he wins the election. Tories don't like raising taxes, but they will have to if swingeing cuts in frontline services are to be avoided. Winning an election and then having to cut real living standards is a recipe for a one-term government. Yet Cameron's new compassionate middle-road Conservatism is also about meeting the electorate's expectations of high quality public services, especially health and education. Something will have to give, and Cameron will come under pressure during the next year to say exactly what. Hence the nerves.

This suggests that despite the government's miserable poll ratings and inevitable defeat, New Labour has rather shifted the terrain of British politics. In the early 1980s, after the previous period of Labour government, tax cuts and spending cuts were electorally popular. Now, Cameron appears to think, they are not, despite the Daily Mail insisting over the last decade that Labour was wasting huge amounts of taxpayers' money. Maybe Labour's largesse did reach middle England after all - pity the party can't figure out a way of communicating this point.

Tuesday, June 23, 2009

The Return of Depression Politics

Paul Krugman may be a permabear, but you've got to hand it to him for prescience. When I read the first edition of The Return of Depression Economics, I didn't really get it. Now, of course, his suggestion that liquidity traps could be the future looks a lot smarter, and he's fully justified in rewriting the book as The Return of Depression Economics and the Crisis of 2008. Despite appearances it is not the original book with an epilogue, but is in fact well worth the read even for those bought the first edition. Free-wheeling global finance destabilizes the world economy and opens up the prospect of depressions, rather than recessions, when things go wrong.

Economists like Krugman are having a great time pummeling those who believed in sillinesses like the 'Goldilocks economy', the 'Maradona rule' of monetary policy, the sustainability of the housing boom, and so on. But what are the politics of it?

Here, I have to admit I'm worried. For a while it looked like politics had shifted radically, with power ebbing away from neoliberals, plutocrats and speculators, whose stories about how to prosper had been simply ripped apart by events. Obama's victory pointed in that direction - and indeed, that is a very real gain for sensible progressive politics. But in Europe, things don't look so good. The left is in retreat everywhere, the radical racist right is making hay, and even the more successful parties of the moderate centre-right are drawing on superficial populism (Sarkozy), beggar-thy-neighbour fiscal conservatism (Merkel) or simple self-delusion (Berlusconi). If this is depression politics, then there really isn't much left to be optimistic about.

Why do people rush into the arms of the right precisely at the moment right-wing policies have proved their uselessness? Well, the collapse of neoliberalism (for want of a better word) may make people worried and upset, but it doesn't make them socialists. Why should it? Indeed, the solidaristic and cooperative instincts which underpin leftist thinking are in some ways harder to achieve in a crisis than in normal times. If the pie is shrinking, why would we expect people to find it easier to share the pie equitably amongst themselves? Instead in times of fear, self-preservation takes hold. In desperate times, we may long for a helping hand or a sense of shared suffering and a collective search for solutions, but if the institutions and movements needed to create them are not there, then scrabbling for survival is the only other option.

The success of the neoliberal project has been to undermine precisely those institutions which facilitated collectivist and solidaristic political action in response to social threats and problems. Take away the trade unions, left-wing political parties, and cooperative regulations that underpin collective action, and free-riding starts to look like an attractive option for fearful individuals. Then along comes a man telling you he know who is to blame, and he will sort them out for you (Jews, Muslims, Roma).

OK, maybe I'm over-anxious. But Polanyi shows in The Great Transformation that removing protective social institutions (as the neoliberal project set out to do) provokes a reaction, and that reaction can be benign (the Factory Acts in 19th century Britain, for example), and it can be Germany in the 1930s. I don't think it can happen again, but the best way to make sure is to fight to protect and improve the workings of welfare capitalism, and that requires left parties with coherent discourses and a real connection with voters.

Thursday, June 18, 2009

No expenses spared (3): Cast the first stone

The latest one to tumble is Kitty Ussher, junior Treasury minister, guilty of tax avoidance on the advice of her accountant. That's right, tax avoidance, not tax evasion. Should she have resigned?

This is getting a bit silly. It may be dishonest to flip homes to avoid tax, but if Kitty Ussher could do that and not fall foul of the Inland Revenue, then my feeling is that anyone with a half-decent accountant could - and probably does - do the same. How many UK citizens could face this kind of scrutiny and come away without a single blot on their record? Between tax avoidance, welfare 'cheating', buying smuggled cigarettes, paying builders in cash and so on, we are probably left with a handful of hair-shirts and little else. I myself, in the interests of transparency, can reveal that I've just received a 100 pound fine for late filing of my tax return (I don't owe any overdue tax, but just didn't get around to filling in the form). Doubtless if I went into politics that could be dragged out by the Daily Telegraph too. Who is going to cast the first stone? David Cameron, who paid down his first home's mortgage (which he paid) and then took out a new one on his second home (which we pay)?

The problem here is nothing to do with expenses, and everything to do with public dissatisfaction with politics more broadly. Britain is a particularly striking case of the decline of public connection with the political class: in the last election, little over 20% of the electorate actually voted Labour, yet Labour limps on with a comfortable majority in parliament. Much that it pains me, there is no alternative to the alternative. There has to be a change in government to refresh people's feelings of engagement with politics. However, David Cameron is unlikely to bring this. He is opposed to proportional representation for the same reason Labour has been - because it would deny him a pliant majority in parliament. The Conservatives won only 27% of the vote in the European elections - hardly a sign of enthusiasm for the government-in-waiting.

This citizen disengagement with politics appears to be a general trend in Europe (the US is enjoying a mini-renaissance for the moment). Here are some numbers that tell the story (the data are for Western European democracies):

Party members and party identifiers (those who feel 'close to' a political party) as a share of the electorate have declined consistently. The number of voters changing their vote between successive elections (volatility) has increased (suggesting declining satisfaction with incumbents). The number of people choosing not to vote (or who simply can't be bothered) has increased consistently across Europe (and in the UK rather dramatically).

So this is not just a British problem, although the British problem is starting to look pretty acute. This is the subject of my current research (Blyth, Hopkin, Pelizzo forthcoming). You heard it here first.

Monday, June 15, 2009

Wasting a good crisis

Rahm Emanuel, Obama's Machiavellian chief of staff, famously let slip the new administration's intention to make the most of the financial meltdown: "You never want a serious crisis to go to waste. And this crisis provides the opportunity for us to do things that you could not do before."
Indeed Obama has introduced radical healthcare reform and a more redistributive tax system, progressive measures which would have been hard to get away with in normal times.

But in Europe, the crisis is going to waste, and progressive politics is on the backfoot. The European elections at best confirmed the dominance of moderate conservatives like Sarkozy and Merkel, and at worst given new momentum to nasty right-wing populists in Holland, Italy and even in the UK. The centre-left - what in the old days we called socialists and social democrats - is in retreat just about everywhere. And yet the collapse of the liberalized financial system should - should - have undermined the right, not the left. A paradox.

I'm trying to work out why, and this is what I've come up with so far.

First, the collapse of deregulated finance brought discredit on the Republican right in the US, because it was so closely associated with Bushism - although perhaps unfairly, given the Clinton administration's enthusiasm for free-wheeling finance (look at the subsequent career of Robert Rubin). But in Europe it's not so clear - continental European banking remains more regulated than the Anglo model, so it is harder to pin the blame for the crisis on the parties of the right. In the UK the situation is even worse, given that the worst excesses of finance occurred under Labour's watch.

Second, if the European right cannot be blamed for financial liberalization, the European left has trouble presenting itself as an opponent of financial excess. The reason for this is that European social democrats have, for the most part, bought into large chunks of the neoliberal orthodoxy over the past two decades. Social democratic governments in Britain, Germany, and Italy have adopted liberalizing measures in labour markets and sometimes financial and product markets too. Although these measures are not necessarily incompatible with progressive goals (see my paper with Mark Blyth here), it does make it hard to sell social democracy as being an alternative to neoliberalism.

Third, why do people vote for the right when markets fail? Karl Polanyi has the classic economic history take on this: people crave protection, markets destroy protective institutions, and the main political forces offering strong discourses about protection are the extreme left and the extreme right. This is how he interprets the 1930s, at any rate. Given that the recent events have been constantly paralleled with the 1930s, this analysis is worth taking seriously. Clearly, some things have changed: the extreme left is completely discredited by the failure of the Soviet model, and not surprisingly has not gained much from the crisis. The moderate left - social democracy - has been so successful that no-one challenges the fundamentals of the welfare state anymore, so socialist parties have trouble monopolizing the welfare capitalism option.

That leaves the extreme right, which blames everything on immigrants. The extreme right is basically exploiting the instinctive human tendency towards xenophobia, but it is also challenging one of the key concepts of the neoliberal age: globalization, and the free movement of goods, services, and ultimately people, across borders. One of the consequences (perhaps largely unintended) of the push for globalization since the 1980s is that flows of labour have vastly increased too, allowing the perception to develop that workers' interests are threatened by immigration. In part of course they are, since an increase in the supply of unskilled labour will exert downward pressure on wages, although up to now it is not clear how strong this effect has been in a Europe of strong welfare states. But aggressive campaigns against immigration also pick up discontent at the increased competition facing lower skilled labour in the world economy more generally. Socialist parties, which quite rightly prefer to defend the rights of immigrants and oppose xenophobia, find themselves exposed and outflanked by right-wing populism.

So the left is perceived as promoting globalization and liberalization, ignoring social problems relating to immigration, and offering little more than the continuation of welfare capitalist policies which are broadly accepted by all the other parties anyway. More on this in a day or two.

Monday, June 8, 2009

Hell, handbasket, European Parliament...

This blog is of course a place for sober, objective analysis of political events, drawing on decades of rigorous thought by political scientists, sociologists and economists.

But part of me today simply wants to ask: has everyone gone nuts?

The British electorate, in its fury at our MPs' light touch expenses regime, has rewarded the UK Independence party, led by Nigel Farage, with the second highest vote share of the British parties. Farage cheerfully claimed to have ripped off the European taxpayer to the tune of 2 million euros in expenses during his mandate in the European Parliament. Italians, in their consternation at the sordid scenes at Silvio Berlusconi's Sardinian villa, responded by giving the old letch 2.7 million personal preference votes. Hungarians decided to blame their troubles on Roma (the minority not the Italian football team), while the Dutch (or at least the 15% of them who voted for Geert Wilders) think it's all the Muslims' fault.

The kind of collective hysteria has been given a name by political scientists: second order voting. This is the well documented phenomenon whereby voters use elections they regard as less important - local, regional and European polls usually - to cast a vote of protest against the incumbent government, and perhaps mainstream politics in general. These results are therefore an example of the electorate letting off steam, but we can expect them to return to the fold in the 'real' elections.

I'm not so sure.

There's evidence a plenty - I've just been writing about it, in a chapter for a book in Palgrave's Developments in European Politics series - that European electorates are more and more likely to vote in the same rebellious way in national elections. Voters are less likely to join or identify with political parties, more likely to change their vote between elections, and - ominously - more likely to support fringe, extremist parties, than at any time since the 1950s. Right-wing populist parties hostile to immigrants and (for those in the EU) the European Union are winning sizeable shares of the vote in the Netherlands, Denmark, Austria, Italy, France, Belgium, Norway, and Switzerland.

Oh, and now, in the UK too. It's no joke if the BNP can win two seats in the European Parliament with an electoral system that tends to work against small, marginal parties. The mainstream elites probably think that the BNP and UKIP leadership are oddballs and fanatics incapable of holding political office. They are right. But this doesn't mean that we can ignore these results. If people are angry enough to vote for these people, it means politicians have to start taking people's problems a bit more seriously.

It's probably no coincidence that the two BNP MEPs have been elected in industrial areas of the north of England. These areas were abandoned by the Conservatives 30 years ago, and abandoned by Labour 15 years ago. New Labour deliberately cultivated middle England, assuming 'old Labour' had no option but to vote for Blair anyway. Now middle England has deserted Labour, and the heartlands are edgy too.

Labour cannot really recover in time for the next election, but the work of rebuilding has got to start if progressive politics is going to survive in Britain. And that means two things: identifying a social coalition the party can represent, and identifying ideas and policies to deal with the problems that social coalition perceives it has. In other words, Labour needs to become a political party again.

Deja vu all over again

A financial meltdown following by deflation and rocketing unemployment, scapegoating of minorities, and political success for far-right extremists.
Haven't we been here before?

Thursday, May 28, 2009

El triomf del Barça: el futbol com a obra d'art

They may have been lucky to get to the final, but I don't think I've ever since a more perfect performance than Barcelona's last night. Manchester United have flattened all before them for the whole season, yet they were left bedraggled and humiliated. Amazing stuff.

Tuesday, May 26, 2009

Publishable thought

Maybe the last post wasn't so unpublishable after all - I sent it as a letter to the Guardian and it came out today, in abridged form, here.

Monday, May 25, 2009

Memo to Gordon: How to reform parliament and save the Labour Party

What a mess. Parliament's reputation in tatters, British democracy under siege from extremist marginal parties and public resentment of the political class, the Labour party heading towards its worst ever electoral defeat.

What is to be done?

Well, there is one thing which can be done. It would revive British democracy and the Labour party in one go, as well as preventing the Conservatives from winning the next election. It would also be cheap and popular in the short run, and support social democracy in the long run. Most democracies have done it already, and Britain has too, but not for the derided Westminster parliament.

Let's end the suspense: I'm talking about Electoral Reform. To be precise, proportional representation (PR) - an electoral system which would allocate seats in parliament roughly proportionally to the votes each party wins.

This idea has come to me for two different reasons. The cynical reason is that Labour is almost certain to win less votes than the Conservatives in the next election, but still has a majority in parliament. This means that it could easily change the electoral system (the Liberal Democrats would certainly support it, since they would be the biggest beneficiaries), and the adoption of proportional representation would make it almost certain that the Conservatives would not have a majority after the next election.

Although this could appear as an opportunistic move, the kind of cynical manipulation which turns people off conventional politics, it has in its favour the fact that the distortions in the current system are surely part of the reason why politicians are so unpopular. After all, the current Labour government has a comfortable majority in the House of Commons, but received the votes of little more than a fifth of the British electorate (34% of the vote on a 60% turnout). So, 80% of voters did not support Labour in the last election - is there any wonder the government is unpopular? Whilst partisan gain is the obvious motivation for such a move, the crisis over MPs' expenses gives the government a public interest justification for it which would not be available in normal circumstances.

PR would mean that the government of the day - inevitably a coalition government - at least has some degree of support from half of the citizens who turn out to vote, and by giving voters the option of supporting the party they prefer, rather than the one of the two likely winners in their constituency, it may even encourage higher turnout.

The second reason for PR is more political: PR tends to promote a fairer distribution of income and wealth. Research by Torben Iversen of Harvard and David Soskice of Oxford shows that countries with PR tend to have more redistributive policies, promoting greater equality. They explain this pattern through a model of the median earner's behaviour, in which under PR she can choose a party that will redistribute from the rich to everyone else, whereas under First Past the Post she is more likely to vote for a party that will redistribute less, because she fears being 'soaked' by the poor. (LSE students can link to the article here).

So what has Gordon got to lose? He will lose the next election under current arrangements, and a majority Conservative government is likely to reverse many of the social democratic politics adopted by New Labour, from tax credits and Sure Start to higher spending on public healthcare and education. Under PR, Cameron will probably have to make a deal with the Liberal Democrats, which will moderate these policies (I hope). The downside is that Labour will never again enjoy the untrammeled power of the last decade and a bit, but neither will they ever suffer again the misery of 18 years of powerless opposition to Thatcher and Major.

What about the extremist parties? Put a threshold of 5% across the whole national territory, and use of form of PR (mixed member systems as in Scotland and Wales) to allow small parties with concentrated support to get elected. Germany has this system and has no extremist parties in parliament.

In the long run, Britain should be a fairer place under PR, and people might even start liking politics again (a long shot I admit). The time to do this is now, because if the Conservatives win the next election under First Past the Post, it's all over for a decade or two.

Saturday, May 23, 2009

Regulation, regulation, regulation

Is the current mood towards greater state interventionism, in particular in the regulation of finance, justified? Well the New York Review of Books' symposium on the crisis contains the following exchange between Niall Ferguson and Bill Bradley, which counterposes two views on this. For me it ends 3-0 to Bradley:

N.F.: Well, I tell you what, I feel depressed after what I've heard tonight. We are now contemplating a massive expansion of the state to substitute for the private sector because that's the only thing Paul (Krugman) thinks will deliver growth. We're going to reregulate the markets, we're going to go back to those good old days. Where were you in the 1970s when all these wonderful regulations were in place? I don't remember that going too smoothly. But what else are we going to do? We're going to print money. Almost limitlessly we'll print money. That's going to be fine, too. And when we're done with that, we're going to raise taxes. What a fabulous package we have in store for us. You know, back in late 2007, I was asked what my big concern was, and I said, "My concern is that we're going to get the 1970s for fear of the 1930s." It's very easy to forget, in your iron indignation at the failure of the market, where the true mainsprings of economic growth lie. The lesson of economic history is very clear. Economic growth does not come from state-led infrastructure investment. It comes from technological innovation, and gains in productivity, and these things come from the private sector, not from the state.

B.B.: As we look at the future, we also have to look at the mistakes policymakers made in the last ten years. It's not news that people are greedy. But we made conscious decisions not to put limits on that natural human impulse. What were the mistakes? In 1999, we allowed investment banks, banks, insurance companies to combine: we eliminated the Glass-Steagall Act, which prohibited commercial banks from operating as investment banks. Why was Glass-Steagall put into law? Because the last time we didn't limit greed we got into trouble, the Great Depression.

The second mistake was in 1999, the explicit decision by the Clinton administration and Congress not to regulate derivatives, in particular credit default swaps. In 2002 they were worth $1 trillion and today they're worth $33 trillion, and that decision not to regulate derivatives created the following sequence: you have mortgages; then a thousand mortgages are packaged and sold as a mortgage-backed security; a thousand mortgage-backed securities are packaged and sold as a collateral debt obligation [CDOs]; then a thousand collateral debt obligations are packaged and sold as a CDO squared; and insuring each one of those bundles are credit default swaps, which are a part of that $33 trillion. And our government deliberately decided not to regulate this chain of investments.

One result was that the 374 people in the London office of AIG who were responsible for AIG derivatives destroyed a company that had 116,000 employees in 120 countries. Why? Because there was no regulation at all.

The third decision was in 2004. The SEC allowed banks to go from 10 to 1 leverage to 30 to 1 leverage. And guess what? Once they were allowed to do it, they did it. So if we're going to look at the future, we might think of undoing those three mistakes.

Bradley doesn't end with 'I rest my case', but I'm not sure how you can answer that.

Tuesday, May 19, 2009

No expenses spared (2): Market failure and political failure

Why are people so upset about the 'scandal' of MPs' expenses?

The scale of public anger has taken everyone aback. Aside from anything else, it more or less settles the next election, since Labour has taken the brunt of the hostility (despite the more entertaining stories of moat-cleaning, mole extermination and lightbulb-changing coming from the Conservatives).
As a few more sanguine observers have pointed out, the money involved is not an issue, especially in the light of the enormous sums looted by some bankers over the past few years. So why the fuss?

Here's my interpretation:
Most voters never believed in efficient, self-regulating markets, but a disturbingly large number of politicians apparently did. The voters were right on this one, and they're out to get the politicians who got it wrong.

What do I mean by that, and what has it got to do with MPs' expenses?

The pages of the FT have been dominated over the past few months by an argument about whether the financial meltdown is a failure of free markets - 'market failure', or a failure of government regulation - 'political failure'.

The stakes are high. If the crash was the result of the inherent instability of financial markets - a thesis with a distinguished pedigree, from Keynes, through Minsky, to Buiter, Krugman, Roubini today - then the answer most be to regulate the financial sector more, curbing activities like securitization, trade in insurance swaps, and over-leveraging which can cause systemic collapse. Even Alan Greenspan has begun to accept this, famously admitting the failure of the self-regulating market: 'those of us who have looked to the self-interest of lending institutions to protect shareholders' equity are in a state of shocked disbelief'. If we accept that self-interested rationality is not enough to stabilize the financial system, then political control is the only reasonable response. Greed isn't good: it has to be curbed, even suppressed, by government action.

If, on the other hand, we see the crash as the result of governments' incompetent regulation, then the bankers are off the hook. They were simply doing their job, and politicians and regulators failed to do theirs. The financial crisis is not a 'market failure', but a 'political failure'. As Leszek Balcerowicz argued in last week's FT: 'financial institutions and markets operate within the macroeconomic, regulatory and political framework created and maintained by public bodies, and it is empirically not difficult to point to the serious deficiencies of this framework that contributed to the present crisis'. For Balcerowicz (a Polish politician and central banker), excessively loose monetary policy and inappropriate rules were the main culprit. If government can't regulate effectively, asking it to regulate more is a recipe for disaster: 'individuals’ prosperity and dignity are best ensured under limited government'.

There is a sleight of hand in the 'political failure' argument: in the end it seems to recognize implicitly that markets need regulating, but that government just doesn't do it very well. But who else is supposed to regulate? And why don't efficient markets respond to loose monetary policy by protecting themselves from its predictable consequences? The 'political failure' thesis assumes the 'market failure' thesis, but just blames different people. By discrediting government intervention, they hope to resist greater regulation. No matter if it is a completely inconsistent argument - it's an argument that is out there, and still surprisingly influential.

But most voters, I think, don't buy it for a minute. Citizens in western democracies expect politicians to prevent financial meltdowns from happening, just as we expect them to protect us from floods, earthquakes, swine flu and traffic jams. Despite the prevailing 'small government' orthodoxy, people still have very high expectations of the political class. We're too busy to develop econometric models to help with planning our household finances. The government should guide us, and protect us from disaster. Why pay half your income in taxes otherwise?

So our MPs have failed us. They encouraged us to buy houses at inflated prices with close to 100% loan to value mortgages. If we were lucky enough to catch the boom, they encouraged us to draw down equity for conservatories, new cars, and foreign holidays (even, fatally, further property speculation). None of them (except Vince Cable) told us to be careful, that house prices always go up and down. None of them told the bankers to be careful, that excessive leveraging on the basis of volatile mark to market values could bring the whole system crashing down. None of them realized that there is no point in a 'golden rule' of fiscal stability that can be blown apart if we don't keep our eye on what the financial sector is doing.

And worse, while they were failing to protect us, they were riding the property boom, with our money.

In normal times, people would be angry at politicians on the make. These are not normal times. Our financial system has collapsed, and we are having to pay to put it back together again. Fred Goodwin bankrupted RBS and claimed a fat pension, but - doh - he's a banker! Politicians, on the other hand ...

Politicians are paid precisely to stop the Fred Goodwins from destroying our livelihoods. That's supposed to be their job. And unlike Fred Goodwin, we can punish them with our votes if they mess up.

Monday, May 11, 2009

No expenses spared

How many Tory MPs does it take to change a lightbulb?

None, if you're David Willetts.
He simply hired someone to change 25 lightbulbs on his constituency home, and claimed the 100 pounds back from MPs' expenses. (I'm only the 50000th to crack this joke today).

Is this really something to get exercised about? In times of recession, politicians - who are paid out of public funds - are an easy target. There have indeed been abuses of the system for claiming expenses on second homes (allowable for MPs representing constituencies outside London, and who need a pied-a-terre in their constituency and in the capital), and that obviously annoys voters who are up against the worst recession since the 1980s, or maybe the 1930s.

But does it matter? The sheer amount of money involved is... well, nothing. If David Willetts had put up his lightbulbs himself, it would have saved the average taxpayer a microscopic fraction of a penny (provided of course he didn't topple off the ladder, requiring expensive medical care through the NHS). MPs need to be paid, because if not only rich people or part-timers would be able to represent us. What they are paid - in standard salary - is not an awful lot more than a middle-ranking academic: the princely sum of 64,000 pounds sterling a year. They get perks, sure, but a large part of that is in the line of duty, so to speak. There is probably a case for them not cashing in the capital gains on their second homes, but what if these homes lost value?

What we should really be worried about is corruption - MPs taking free lightbulb fitting or other benefits from private companies in exchange for policy favours. What if an MP got free lightbulbs for life from Lightbulbs Inc. in exchange for pushing through legislation obliging us all to change our lightbulbs for some new specification? Now, that would be a problem. It would be a problem because policy would be subordinated to the private material interest of the MP, subverting the representative process. Politics often involves decisions which may be defensible in terms of the public interest, but will also enrich someone (like massive government spending on a vaccine for a flu pandemic which may not happen). Politicians can be bribed, lobbied and persuaded to adopt some policies rather than others. If MPs are well enough paid for their job, there is probably more chance that they will choose the right policies, rather than the ones which will give them a material payoff from interested parties.

So corruption is something to worry about. But expenses, well, it's not really a story, except in that it shows how clueless MPs are in managing public perceptions of what they do. Now, multimillion pound bonuses for bankers whose trillion pound losses are being covered by us and future taxpayers... THAT is a story. Maybe a story that the Daily Telegraph - the newspaper of record for the stockbroker belt and prime mover behind the MPs' expenses 'scandal' - would rather we all quickly forgot about.

Wednesday, May 6, 2009

Gordon doesn't get it

Free market capitalism is in crisis, banks and even car manufacturers are being effectively nationalized, citizens in advanced democracies are skeptical of globalization and fearful of the future. This calls for.... the privatization of the Royal Mail.

Why, for pity's sake, privatize the Royal Mail? It is a public service which by its nature cannot make a profit in a competitive market. Its traditional role is bind the country together by delivering post at a fixed price to everyone, wherever they live. Increasingly its main role is to provide banking services to the many British citizens who are too old to deal with the complexities of modern banking, or too poor for our risk-averse banks (OK, I'm joking) to make a profit out of.

Above and beyond the merits of the case, the last thing New Labour needs at the moment is to start privatizing more public services. I think we have already got the picture that New Labour is not anxious to nationalize the whole economy, and that state control of the banks was a decision taken under duress. What Labour needs to prove right now is that it has an answer to people's fears about their economic future. Privatizing the post office is the weirdest way of doing that I can think of.

The 'public-private partnership' strategy made sense in the 1990s, when people still remembered the 1970s and Labour's famous 83% marginal tax rate on top earners. It makes no sense now, because for most people Labour ceased to be a socialist party long ago. Gordon Brown is fighting old battles. His moment of glory - the swift and intelligent reaction to last autumn's financial meltdown - has passed, and gives him his place in history. For a moment I thought that would be the making of his premiership. But it's increasingly clear he's not going to win the next election, so he should give someone else the chance to make the running right now.

For what it's worth, I think it should be someone who has been exposed to Marxism from an early age.

Sunday, May 3, 2009

The Irrelevance of Political Science

Gideon Rachman of the FT has a provocative (well, for me anyway) post on his blog:

The essence of the 'irrelevance' claim is that Obama hasn't hired any political scientists to important jobs, whilst economists - despite their embarrassing failure to predict the (economic) end of the world - still have marketable expertise.

There are any number of explanations for this lack of prestige as a profession, but one - proferred by the late lamented Brian Barry - is that politicians tend to see themselves as the real experts on politics, rather than as the raw material political scientists study. I have a feeling he was right - whilst Obama will doubtless take economic policy decisions on the basis of extensive briefings by professional economists, he probably feels confident that he knows politics better than most poli sci professors. And having just landed the biggest job in politics, who can blame him?

I'm not sure policy advice is really such a measure of relevance in the end. We have a few workable theories that are of some use in designing some policies and institutions, but for the most part we - like the economists, but with a bit of humility - are constantly chasing the curve, trying to make sense of things that have just happened.

Is this because we are useless, or because life is unpredictable? Probably both. As a neo-Talebite, I go for the latter. People may behave in predictable ways a lot of the time, but every now and again do the unexpected, like vote for Obama, for example. Or start believing en masse that a piece of brick on a piece of earth will grow in value even when nothing else does. And those unpredictable events, though perhaps exceptional, end up changing the world in such big ways that they cannot be dismissed as outliers.

So Obama can probably do without us, but when something happens that he wasn't expecting, we'll be sitting there ready to explain it afterwards.

Friday, May 1, 2009

Mayday, mayday, we're bailing out!

It's May Day, the day of the workers. Well, it will be on Monday - the workers of the UK are united today in hoping the nice weather will last until the Bank Holiday. What does May Day mean in our post-socialist, but now also post-capitalist, world?

I've no idea, of course. Almost as distressing as the collapse of the free market model of free-wheeling finance is the failure of the Left in the West to say anything very much about it. The Labour party in the UK timidly pushes up income tax - from 40% to 50% for the top 1% of earners - but is otherwise mainly concerned with piecing back together the financial system so it can carry on as before. Obama is certainly a departure in the US, but his main radical goals are not particularly revolutionary: universal healthcare, achieved everywhere else in the West half a century ago, and a tax system which will remain less redistributive than it was under Ronald Reagan. The left in continental Europe halfheartedly adopts liberalizing reforms, whilst clinging on to the 'conquests' of protected 'insider' workers and pensioners.

There is only one clear beneficiary of this confusion: the racist extreme right (and the utopic extreme left, in the case of France). The Left's pathetic response to the collapse of a model of capitalism it had ended up accepting is a serious problem. People feel cheated and exposed, and seek protection. Protection can be progressive and egalitarian - the post-war Keynesian welfare states - but it can also be reactionary, regressive and violent.

Karl Polanyi
's masterpiece 'The Great Transformation' interprets the rise of Nazism and Fascism as a response to the threats free markets posed to the livelihoods of the masses. Only after the catastrophe of war did Western governments discover a way of providing protection without foreign aggression or the scapegoating of ethnic minorities. 'Embedded liberalism' (as John Ruggie defined it) involved liberal trade between nations under stable exchange rates and capital controls, with welfare provision inside the nation state to insure workers against social risks. This model was a triumph, delivering growing living standards and social equality for the best part of half a century. But the moment it ran into trouble the assault began, and the various components of embedded liberalism have been steadily dismantled over the past couple of decades.

We need to put embedded liberalism back again, adapted to new circumstances (a bigger world market and a disintegrating environment top of the list). And who else will do it, if not the democratic Left?