Tuesday, September 28, 2010

Ed's first speech

Well, I've no idea what's in it, because it hasn't happened yet. Couple of thoughts about what he needs to say though.

A lot of the comments about Ed's election, especially from the mainstream and right-wing press, have implied that the choice for Labour is to be either left-wing, and focused on redistribution and poverty, or electable, and therefore more pro-market and friendly to the middle-class. This is certainly the view of the world that informed 'New Labour' (which amusingly, now sounds 'old'). But does this dilemma really exist?

The interesting thing about Ed that gives me some hope is that he has clearly read and digested The Spirit Level. The whole point about Wilkinson and Pickett's argument is that there is not an exclusive choice between helping the poor and helping the middle class. Many of the things that trouble the middle-class (especially if we interpret 'middle' to mean people around the median income, rather than London-based people on six-figure salaries who know journalists personally) are precisely the result of poverty and inequality - crime and disorder, problems with schools, high house prices, unpleasant public transport and traffic queues. The trick is make it clear to people in the middle of the income distribution that they are better off too if the poor are less downtrodden.

Of course, this is not an easy trick to pull off. It is so easy to present things as binary choice - protect the interest of the poor, or protect the interests of everyone else. Particularly because the initial measures taken will appear to penalize the middle to no obvious gain for anyone except the poor (redistribution through tax and benefits, making schools more inclusive, restrictions on private traffic). So convincing people in the middle that we are all in this together requires a herculean political leadership, capable of developing a political rhetoric that 'mobilizes bias' (to use Schattschneider's term) around the kind of policies that the vast majority of people below the top 10-15% will benefit from.

Achieving this would be close to miraculous. But failure to attempt it would condemn us to alternation of Cameronite conservatism and Blairite-style government, and ever greater levels of popular frustration and apathy.

Sunday, September 26, 2010

Paying off the deficit

Interesting suggestion from Julia Finch in the Observer. She points out that high earners in Britain receive enormous tax relief on their private pensions, estimated by Richard Murphy to be worth £38 billion per year, about a quarter of the deficit. She suggests that 'we should maintain the subsidy, but only if the recipients divert at least a proportion of their funds into infrastructure investments and local authority bonds'.

Sounds good to me. In fact, why stop at that? The subsidy could be tied to the purchase of Treasury bonds at rates close to the rate of inflation. After all, the deficit is at least in part the consequence of saving the value of private investments through state intervention. Financing government borrowing at a reasonable rate seems a fair contribution from those who have benefited so much. This would remove fears of a spike in bond prices, allowing us to plan for an orderly reduction of the deficit over a longer period of time.

This is such a good idea that it can be guaranteed not to happen. The state is there to protect the wealth of high earners, not to ask them for a contribution to national recovery. No, the contribution instead must come from the real threats to our livelihood: public servants and benefit recipients.

Saturday, September 25, 2010

Tuesday, September 21, 2010

Fallacy of composition, Clegg-style

Nick Clegg's conference speech yesterday signed the Liberal Democrats up to that oxymoronic project, growth-friendly fiscal consolidation. Amongst the nonsense Clegg advocates is the economic model for the hard-of-thinking: the economy as a household:

"The problems are there. They are real. And we have to solve them. It’s the same as a family with earnings of £26,000 a year who are spending £32,000 a year. Even though they’re already £40,000 in debt. Imagine if that was you. You’d be crippled by the interest payments. You’d set yourself a budget. And you’d try to spend less. That is what this government is doing."

Where do we start? First, the numbers are wrong: if the British deficit is give or take 12.5%, then the metaphorical family on £26,000 a year would be borrowing £3250, making their annual expenditure 29,250, not £32,000. British national debt is currently around 60% of GDP, making the metaphorical family indebtedness actually £15,600, not £40,000 - and anyway most families under the age of 50 or so owe several times their annual income as mortgages, and are very sensible to do so. If the imaginary family could borrow at well below the rate of inflation, like the government can at the moment, they would be crazy not to take advantage of the opportunity to smooth their consumption through hard times. But that is the least serious problem.

It is not revolutionary new thinking to suggest the analogy of the economy as a household is stupid. But, anyway, here's why (for the umpteenth time) the analogy doesn't work. If we cut our family spending, then we will quickly reduce our family debts - assuming that no-one buying services off us does the same thing. But of course, that assumption doesn't hold: the reason we are in a recession is precisely because others are doing this. So if the family cuts its spending and finds that others do the same, then family income will go down as well as expenditure, leaving the family as indebted as before, or potentially more so. And that is precisely the effect you would expect cuts in government spending to have. This morning's Education Guardian had a paltry 4 pages of jobs in it - cutting family spending will be a breeze, provided a member of the family isn't looking for an academic job. We're in a deep recession because of the collapse of private sector spending; the coalition's answer to this is to add the collapse of public sector spending.

The analogy Clegg should have used is the following: the metaphorical family on £26,000 a year with its debt problems can easily resolve them by cutting off the supply of food and accommodation to the least productive family members. Children and non-working adults could be booted out of the family home, allowing those left to quickly pay down their debts with the money saved.

That's what the coalition has planned. I give it 18 months to change its mind, or the Lib Dems are toast.

Sunday, September 19, 2010

The Death of Swedish Social Democracy?

Most polls suggest that the centre-right coalition will win today's election in Sweden. If this happens, it will confirm that successful policy doesn't help win elections: the SAP managed to pay down the colossal deficit left by the right in the early 1990s, reform the welfare state and push unemployment down, all whilst remaining one of the most egalitarian countries in the world (although there was a significant rise in inequality, from a very low level). Then the right comes along and pushes the same line of policy a little further, and manages to convince everyone they have dragged Sweden out of the abyss.

This suggests a number of pessimistic conclusions for those on the left. First, successful policy may be either disregarded by an ungrateful electorate, or simply misunderstood. After all, if political scientists and economists have such trouble pinning down the exact effects of policy changes, why should we expect the electorate to assign blame and credit correctly at election time?

Second, saving the welfare state is no guarantee of electoral success. First, because the right is clever at talking about reform whilst steering clear of unpopular measures that median voters would object to (Sarkozy seems to be an exception here, though he seems to be playing the distraction card to get his pension reform through). Also because voters are not always very aware of the indirect costs of welfare reforms that may not affect the middle classes directly, but indirectly get them in the end (see Wilkinson and Pickett's The Spirit Level for further details).

The left is trapped in a dilemma between stubbornly defending social rights, even when this is economically inefficient, and embracing the market at the expense of higher inequality. Is this really the only choice we have?

Tuesday, September 14, 2010

Resist!

After this summer's entertaining resignation of a flight assistant who, tired of abuse from passengers, exited from his plane via the evacuation slide with a can of beer, the latest example of worker resistence also comes from the aviation industry.

Ryanair's Captain Morgan Fischer has written to the Financial Times suggesting Michael O'Leary should be replaced by a junior flight assistant, instead of dropping co-pilots. This in response to O'Leary's idea of training flight assistants to help pilots in emergencies.

It's not 1917 yet, but it's a start.

Wednesday, September 8, 2010

Ryanair's latest wheeze

Ryanair has announced it would like to dispense with co-pilots on its short-haul flights. This is a curious idea, which O'Leary characteristically justifies with an inappropriate analogy - that train drivers don't have co-pilots but if one had a heart attack that would be dangerous too. “In 25 years with over about 10m flights, we’ve had one pilot who suffered a heart attack in flight and he landed the plane” he adds, and anyway “the computer does most of the flying now”.

It's true that modern planes have a range of computerized aids to pilots, and that most of the time the second pilot is redundant. In fact, air safety is based precisely on the concept of multiple redundancy, to ensure that if something goes wrong, there is a mechanism to prevent this leading to a crash. So, for instance, if pilots fail to open the flaps before take-off, a warning should sound telling them the aircraft isn't configured for take-off (the failure of this warning to sound after pilots missed the flaps caused the Spanair crash in Madrid two years ago). Having two pilots is supposed to ensure that checklists are rigorously used to avoid such errors, but it is true to say that most of the time the plane won't crash even if the pilots don't run the checklists properly - the  computerized warnings provide redundancy.

So O'Leary thinks that we can do without redundancy. This would inevitably lead to more accidents, since humans make mistakes. And mistakes when you are flying a lump of metal at hundreds of miles an hour through crowded skies are probably worth avoiding. Of course, air travel is safe precisely because people insist - not entirely rationally - on higher standards of safety when flying than they do when driving a car or crossing the road. Maybe he's right that we could cope with higher levels of risk when flying, to save some money. After all, the logical extension of the low-cost strategy, when you dispense with free drinks and named seats, is to push on towards paying for toilets, standing passengers, and various other reductions in quality. So why not lower safety standards? (Maybe the passengers sitting in the centre of the plane could be asked to check whether the flaps are open to the correct setting?) After all, you're still highly likely to get out of the plane alive.

This could be the new frontier of low-cost air travel.